TMI Blog2014 (9) TMI 1147X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement proves that it is merely the licence to use the goods rather than the transfer of right to use as envisaged under the Act. This is explicitly laid down under Clause 2.2 which states that 'UBL hereby grants to BDL i.e. CBL's, the non-assignable, non-transferable and non-exclusive right during the term of the agreement. The sub-clauses 2.2.1, 2.2.2 and 2.2.3 makes it clear that it is only the licence to use the trademark in the composite contract transactions. The FAA is correct in deciding the issue that the transactions between the appellant and the CBUs does not involve the transfer of right to use the trademark or brand name and thereby the brand franchisee fee is not liable for tax - decided in affirmative. Whether, the State in cross appeals has established in facts and law that there is transfer of right to use the trademark as per the agreements and the FAA has erred in allowing the appeals in part? - Held that: - the trademark is first of all an intellectual property right and permission to use the trademark amounts to intellectual property services. The appellant-company has adduced copies of the returns in Form ST-3, the prescribed form under Section 70 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are engaged in the business of packaged mineral water as consideration received for transfer of right to use the trade-mark of the appellant. Thus, the FAA while allowing the appeals in part has modified the reassessment orders dated 3-3-2011 for the tax periods of 2005-2006, 2006-2007, 2007-2008, 2008-2009 and 2009-2010 and reassessment order dated 15th July, 2011 for the tax periods of 2010-2011 concluded under Section 39(1) of the Act by the Deputy Commissioner of Commercial Taxes (Audit-61), VAT Division-6, Bangalore (hereinafter referred to as 'Assessing Authority' or for short as 'AA'). The FAA while deleting the levy of tax, penalty and interest on sale turnover of (a) on brand franchisee fee in case of Beer Contract Bottling Units (CBUs) and; (b) on spent grains has issued directions to the AA to issue revised demand notice so far as the tax penalty and interest affirmed in case of only 'Kingfisher' Trademark, wherein the FAA has decided that there is transfer of right in case packaged mineral water only for the Licensee dealers. The State has preferred cross appeals against the impugned common appellate order and has requested to restore the levy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sees with whom agreements were entered for manufacture and sale of drinking water, towards royalty as sales liable to tax under Section 4(1) of the Act. 3. Grounds of appeal.-- (i) The appellant assails the appellate order in upholding the levy of tax on royalty which is realised from the licensees who have entered into agreements namely technical know-how agreement and licence agreement. It is submitted that such type of agreements are entered with various dealers in each of the impugned financial years. The copy of the said agreements are furnished as Annexures-A and B and in the written submissions, the details of the industries with names are also furnished. The industries with whom agreements have been entered are referred to as the licensees. The first ground is that the royalty has been received in terms of technical know-how agreement and licensee agreement which are tow separate written agreements entered with each and every licensees. There is nothing expressed or implied in these agreements that there is deemed sale of 'Kingfisher' trademark. On the contrary, the agreements are only for manufacture and marketing of 'Kingfisher' brand, drinking w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STC 213 (SC). (vi) In the sixth ground, the appellant also submits that its main and sole line of business is that of brewing/manufacturing and sale of beer and the brand name/trademark 'Kingfisher' owned and held by it is nothing but its business assets. Even if it is assumed that there is exclusive transfer of right to use the said brand name/trademark, such transfer of right to use of brand name/trademark vis-a-vis deemed sale is not in the course of business of manufacture and sale of beer nor it is incidental or ancillary to the business of manufacture and sale of beer. In this regard, the appellant relies on the decisions of our Hon'ble High Court in the cases of Kwality Biscuits (Private) Limited, Bangalore v. State of Karnataka 2011 (71) Kar.L.J. 16 (HC) (DB) : (2011) 53 VST 66 (Kar.) (DB) and Ciniplex Private Limited v. State of Karnataka 2012 (73) Kar.L.J. 463 (HC)(DB), the said deemed sale of brand name/trademark cannot be subjected to tax under the Act. (vii) In the written submission, the appellant highlights the findings of the Appellate Authority that the appellant has no role in manufacturing and marketing of drinking water and also fixing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Commissioner of Sales Tax v. Duke and Sons Private Limited (1999) 112 STC 370 (Bom.). The contention of the State is that the decisions of the Hon'ble Supreme Court cannot be followed in case of intangible goods. It is also submitted that the AA has distinguished between tangible and intangible goods which is not answered by the FAA in the impugned appeal order. (v) It has been contended that the it is not correct to follow the law laid down by the Hon'ble High Court of Karnataka in Kwality Biscuits and Ciniplex Private Limited's cases. It is submitted that the above case-laws are applicable only in the case of one-time transaction whereas, the appellant has entered into an agreements with several CBUs all over the country and such business cannot be construed as one time transaction. In this regard, the decision of Hon'ble Apex Court in State of Tamil Nadu and Another v. Board of Trustees of the Port of Madras 1999 (46) Kar.L.J. 370 (SC) : (1950-2004) 1 SCST 464 : AIR 1999 SC 1647 : (1999) 114 STC 520 (SC) : (1999) 4 SCC 630 is highlighted and also relies on Commissioner of Sales Tax, Maharashtra, Mumbai v. Sai Publication Pund 2002 (52) Kar.L.J. 242 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with the brand names Kingfisher Lager Beer, Kingfisher Super Strong Premium Beer and Kalyani Black Premium Lager Beer on the beer bottles manufactured by the CBU did not serve any use or purpose, in real terms, to M/s. BDL. In other words, such permission was not at all of beneficial use to M/s. BDL. The word 'use' as per the dictionary meaning being 'as a means of achieving a purpose'. (iv) The appellant by pointing out Clause 1.15 wherein 'Registered User Agreement' has been defined to mean 'permitted use' of the trademarks of UBL by BDL and not amounting to transfer of right to use the trademarks. (v) Relying on Clause 2.2, it has been urged that the dominant object of the agreement is to provide technical know-how by the appellant-M/s. UBL to M/s. BDL for manufacture of beer and marketing of the manufactured beer. The BDL has been permitted to affix the labels with the brand names owned by the appellant and it is only for limited purpose of identifying the goods and it does not amount to transfer of right to use goods. Similarly, Clauses 3.2, 3.3, 3.4 and 3.5 are highlighted to advance the ground that M/s. UBL has to make available t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent is for brewing and distribution of beer. The agreements are not for right to use the brand names belonging to the appellant. There is no transfer of brand names to the CBUs independently to manufacture and market the beer. (b) The dominant object of the agreement is that the CBUs have to manufacture beer in the brand names of the appellant using the technical know-how provided by the appellant and the binding advice in the procurement of inputs and raw materials. Even supervision and control is exercised over the process of manufacture of beer and effective assistance in marketing of such manufactured beer. (c) The buyback of the entire quantity of beer manufactured by the CBUs or by its nominees clearly proves that there is compulsion on the part of the CBUs to sell beer to M/s. UBL, the appellant or to its nominees. (d) The only payment received is marketing fee realised in the form of economic surplus after meeting with all the expenditure incurred by BDL and also BDL's margin. (e) It is submitted that the agreement clearly mandates that the CBUs have to manufacture the beer in the brand names of the appellant and the permission is granted to make use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the labels printed with the brand names of the appellant onto the beer bottles. In addition to this, the appellant as respondent in the cross appeals submits that the appellant has admitted the marketing fee received for the purpose of service tax payable under Finance Act, 1994. In this regard copies of the Form ST-3 are also furnished to prove that marketing fee has been offered to service tax under IPR services. The learned Counsel for the appellant heavily relies on the following judgments: (1) Judgment of the Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Limited and particularly on paragraphs 96, 97, 98 and 99 of the said judgment the same is advanced during the arguments also. (2) Judgment of our Hon'ble High Court of Karnataka in the case of Indus Towers Limited, Bangalore v. The Deputy Commissioner of Commercial Taxes, Enforcement I, South Zone, Bangalore and Others 2012 (73) Kar.L.J. 241 (HC) (DB) : (2012) 56 VST 369 (Kar.) (DB). Specially paragraph 71 of the said judgment has been reproduced and the same is advanced during the arguments also. (3) Judgment of our Hon'ble High Court in the case of Lakshmi Audio Visual Inc., Bangalor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the AA has distinguished this case in his order and has also relied on Vikas Sales Corporation and Another v. Commissioner of Commercial Taxes and Another (1950-2004) 3 SCST 3186 : AIR 1996 SC 2082 : (1996) 4 SCC 433 : (1996) 102 STC 106 (SC). It is urged that the agreements entered by the appellant namely UBL with the CBUs is for the transfer of exclusive right to use the trademark and hence exigible to tax under the Act as per Section 4(1)(a) of the Act at the rates prescribed for the trademarks under Third Schedule of the Act (4% or 5% as the case may be during the impugned tax periods of financial years). 9. Perused the lower Court records. The common question of law and facts are involved in all these appeals and hence the same are clubbed together and disposed of by this common judgment. After careful perusal of the records, the following points arise for our consideration: 1. Whether in facts and law, the FAA is correct in deciding that the transactions between the appellant-company and the CBUs is one of technical service activity and does not involve the transfer of right to use the trademark or there is no deemed sale of trademark? 2. Whether, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fee received as economic surplus is nothing but sale consideration received for the transfer of right to use the brand name/trademark. It is also urged that the trademark being intangible goods, the FAA has erred in not following the decisions in the cases of S.P.S. Jayam and Company and Duke and Sons Private Limited. In addition to this, strong reliance has been made on Vitan Departmental Stores and Industries case. 14. In order to resolve this issue, it is necessary to analyse the agreements between the appellant-company and the CBUs. In fact, the appellant-company has entered into such contract bottling agreements for the manufacture of branded beer on behalf of the appellant with various brewing units situated outside the State and throughout the country. These agreements are available on the AA's records and the AA as well as the FAA have examined these agreements. The AA is of the opinion that the agreement is for the transfer of right to use the trademark, whereas the FAA has come to the conclusion by detailed analysis by its common appeal order that the agreement is not for the transfer of right to use the trademark and has given conclusive finding that there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rket the beer produced under UBL's trademarks to be manufactured at the Brewery, either by itself or through its nominee/s as provided in this agreement. 6. UBL has executed a registered user agreement on 3rd September, 2004 with BDL for the use of UBL's trademarks by BDL. 7. BDL is desirous of entering into this agreement with UBL for the purpose of production and bottling of beer under UBL's trademarks as per the specifications and know-how provided by UBL upon the terms and conditions hereinafter contained. It is agreed as follows: 1. Definitions.--In this agreement (including the recitals) the following words and phrases shall, unless the context requires otherwise, have the following meanings: 1.1 'Agreement' means this agreement and any amendments, modifications, supplements, restatements, or notations thereto or thereof, as applicable. 1.2 'UBL'--United Breweries Limited, with its Registered Office at UB Anchorage , # 100/1, Richmond Road, Bangalore 560 025, who are the owners of the know-how mentioned in Clause 1.6 and the trademarks mentioned in Clause 1.12 herein. 1.3 'BDL'--Balaji Distilleries Limited, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under the trademarks belonging to UBL. 1.17 'Year'--Each period of 12 calendar months during the terms of this agreement. 1.18 'Beer sold' means cases of beer sold as 12 bottles of 650 ml each in a case or 24 bottles of 325 ml each in a case of beer sold in Kegs. 2. Appointment.-- 2.1 BDL and UBL confirm that there are no legal or contractual impediments to enter into contracts.-- (a) for the manufacture of UB beer by BDL; (b) for providing technical know-how and marketing assistance by UBL to BDL and BDL availing of the same; (c) permitting BDL to use the trademarks belonging to UBL and use of such trademarks by BDL; and (d) generally give effect to the terms and conditions of the agreements by UBL and BDL. 2.2 UBL hereby grants to BDL the personal, non-assignable, non-transferable and non-exclusive right during the term.-- 2.2.1 to use the know-how for manufacture of UB Beer in the Territory under the supervision and control of UBL; 2.2.2 to label, market, sell, distribute and package UB Beer in the Territory and for no other purpose upon the condition that UB Beer shall be produced according to the know-how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at BDL's expense and with the written consent of UBL visit the relevant research, development and production facilities of UBL and obtain the relevant know-how practiced, developed or available there. 3.5 UBL agrees to negotiate and finalise with the vendors the terms and quality parameters for purchase of raw, packing and such other materials as may be required for manufacture of UB Beer. BDL agrees to make arrangement for procuring such materials from the vendors selected by UBL on the terms agreed to between UBL and the vendors. In the event of stoppage of production on account of any delay in the supply of such raw, packing and other materials by the vendors, UBL and BDL will consult each other on a case to case basis to ascertain the reasons for such delay and UBL and BDL as the case may be will take appropriate action accordingly. 4. Confidentiality.-- 4.1 BDL shall procure that its directors, officers, employees and professional adviser's shall.-- 4.1.1 keep secret and confidential all information concerning the Technical know-how received from UBL ( the Confidential Information ), whether such information is oral or recorded in a more permanent f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the funding thereof shall be mutually discussed and agreed upon between UBL and BDL. 5.3 BDL shall give to such Authorised Officers or representatives of UBL, who are deputed to the Brewery, full access to the Brewery and shall furnish all relevant material and information requested. 5.4 BDL shall, in accordance with the procedure established and under the supervision of UBL, carry out quality control including laboratory analysis of UB beer manufactured and packaged by BDL. Such data shall be submitted to UBL in accordance with UBL's instructions. 5.5 BDL shall send samples of UB beer free of cost of UBL as and when required by UBL for analytical and quality tests in its Central Technical Cell. UBL shall notify BDL of its comments on the samples furnished to UBL and advise corrective measures to BDL and BDL shall take necessary steps to comply with UBL's instructions to being the UB beer upto the required standard. 5.6 BDL shall always stock UB beer under adequate conditions and shall implement such stock rotation and control procedures as to prevent deterioration of the quality of UB beer and to ensure stock rotation on first-in-first-out (FIFO) basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese norms of wastages/consumption shall be periodically and mutually revised. (b) The retention by BDL towards UB brands of Beer sold to cover the cost of personnel, operating overheads which include energy, electricity, steam, equipment, machinery and utilities costs, interest costs both on capital costs and working capital costs as well as the margin payable to BDL. 7.2 BDL will raise invoices on UBL and/or its indenters in respect of UB beer sold to UBL or its indenters, as the case may be. BDL shall open a current account with City Bank, Chennai, to which all collections from sale of UB Beer shall be deposited and the disbursements out of this account shall be signed jointly by one representative from BDL and one representative from UBL. BDL agrees to make payment of ₹ 10/- per case (12 bottles of 650 ml and 24 bottles of 325 ml) being Economic Surplus towards marketing (the said fee for all sale of drought beer into the market will be Re. 1/- per Keg) to UBL on or before 7th of every succeeding month in cash out of the said Current Account. BDL undertakes to pass the necessary Board resolutions and keep the Bank informed of the authorised signatories or any cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trademarks or, if BDL challenges the validity of any registration of the trademarks or of any equivalent industrial or intellectual property rights of UBL. (d) If there is a change in the effective control whether directly or indirectly of the ownership of BDL or UBL. (e) If more than one half of the assets of BDL relating to the production, marketing, distributing and retailing or brewery goods are transferred to a person, company or organisation otherwise than as a result of reconstruction or amalgamation. (f) If ten per cent or more of the issued voting shares of BDL are taken over or transferred whether directly or indirectly to a person, company or group with special interest in the brewing industry in the territory or elsewhere. (ii) By notice.-- (a) If BDL neglects its obligations in packaging and selling the UB beer in such a way that this negligence will damage the name and reputation of UBL. However, BDL may cure any such default not later than thirty (30) days after the notification of such default by UBL. (b) If BDL for any reason produces UB beer of quality which in the opinion of UBL is not satisfactory, and the quality of the UB bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without prejudice to the rights of the parties antecedent to such expiry/termination nor shall relieve BDL and UBL from any obligations that by their nature survive the expiration or termination of this agreement. 9.4.3 Upon or following the expiry or termination of this agreement, BDL shall cease to manufacture UB Beer under the trademarks and UBL shall forthwith purchase any unsold stocks of UB beer that BDL may have in its possession at the then transfer price for such products and UBL shall make payment for such products to BDL as per the terms of this agreement. 9.4.4 Upon or following the expiry or termination of this agreement, BDL shall, upon the request of UBL, do all things and execute all documents necessary to cancel the entries, if any, to record BDL as a registered user of the trademarks in the territory. 9.4.5 Upon or following the expiry or termination BDL shall complete the manufacturing operations or processes in respect of UB beer which are in the process of manufacture. 10. Licence of trademarks.-- 10.1 UBL has permitted BDL to use the trademarks to label and package UB Beer for sale pursuant to the terms and conditions of the registere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding such notice can produce a valid transmission slip or other proof of despatch. 13.3 Any notice sent by courier shall be deemed properly received upon production of a receipt duly signed by the receiver or their representative. 13.4 If sent by registered post A.D., the notice shall be deemed to have been served on the expiry of seven days from the date of posting. 14. Records.-- 14.1 BDL shall keep the maintain accurate records of all production and sales of UB beer, by such product categories as UBL may reasonably request, throughout the term of this agreement and any extensions or renewals hereof, and for one (1) year thereafter. 14.2 UBL shall have the right, upon five (5) days' written notice, to enter BDL's premises or other location where records are maintained to inspect, audit, and make copies of any books of account, documents, records, papers and files of BDL relating to production and sales of UB beer and BDL shall make any such material available for inspection. 14.3 Within ninety (90) days after the end of each year during the tern of this agreement and any extensions or renewals hereof, BDL shall furnish UBL with a statement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L. This fact is evident from the seven recitals and specifically recital Nos. 5 and 7. The very caption of the agreement clearly reveals that it is for Brewing and Distribution . The close reading of the recitals proves that the appellant-company possess special technical information and know-how relating to brewing and manufacturing and selling of beer. Not only this, the appellant-company is also engaged in research and development of new technical information and know-how relating to brewing of beer (Recital No. 2). The appellant-company has the expertise of undertaking projects to set up and run breweries along with marketing and distribution net work. The appellant has successfully completed the project in case of several CBUs and commissioning of the brewery to BDL is one such. This is evident from recital Nos. 3 and 4. The CBU has made request to market the beer produced under UBL's trademark and pursuant to the same, 'Registered User' agreement has taken place with the CBUs. This is evident from recital Nos. 5 and 6. The recital No. 7 makes it mandatory on the part of the CBUs as per the agreements to brew and produce the beer and bottling of the beer has to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of beer then the appellant-company M/s. UBL Limited reserves the right to alter the specifications and other matters specified above at any time. The close reading of sub-clauses of Clause 5 confirms the fact that the control of the brewing and production of beer, bottling and packaging always wrests with the appellant-company i.e. UBL. 20. Clause 6.1 clearly proves that the entire quantity of UB Beer manufactured by the CBUs are to be purchased by the appellant-company or through its nominee and Clause 6.2 clearly confirms the fact that the trademarks of the UBL shall be used in conformity with the agreement and it shall not be used confusingly similar to the trademarks of UBL. 21. The payments to be made for UBL is towards providing the specifications and know-how to the CBUs for the manufacture of beer and the entire UB Beer so manufactured in the brewery to be sold to UBL or its indenters. This is evident from Clause 7 of the agreement and it has been prescribed that the CBUs have to raise invoices on UBL or its indenters as the case may be. The bank account is being operated jointly by the CBUs and the appellant-company. The CBUs agree to pay economic surplus as marketi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CBUs or by its nominees clearly proves that there is compulsion on the part of the CBUs to sell beer to M/s. UBL, the appellant or to its nominees. (iv) The only payment received is marketing fee realised in the form of economic surplus after meeting with all the expenditures incurred by BDL and also BDL's margin. It is not solely for the permission to use the trademark but received for the bundle of services rendered by the appellant. (v) The agreement clearly mandates that the CBUs have to manufacture the beer in the brand names of the appellant and the permission is granted to make use of the brand names-labels printed with the brand names of the appellant to be affixed on the beer bottles and the agreements are not for the purpose of transfer of brand names as right to use for any agreed consideration. (vi) During the impugned years, the appellant has entered into such agreements with 12 breweries (2005-2006); 13 breweries (2006-2007); 15 breweries (2007-2008); 11 breweries (2008-2009); 08 breweries (2009-2010) and 07 breweries (2010-2011). Thus, the permissions have been granted to several breweries in each year for permitted use of brand names as registe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s verbatim same as sub-clause (d) of Article 366(29-A). In the BSNL's case, paragraph 98 is of utmost importance wherein law is declared as under: 98. To constitute a transaction for the transfer of the right to use the goods the transaction must have the following attributes: (a) There must be goods available for delivery; (b) There must be a consensus ad idem as to the identity of the goods; (c) The transferee should have a legal right to use the goods--consequently all legal consequences of such use including any permissions or licences required therefore should be available to the transferee; (d) For the period during which the transferee has such legal right, it has to be the exclusion to the transferor--this is the necessary concomitant of the plain language of the statute--viz., a transfer of the right to use and not merely a licence to use the goods; (e) Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others . There is no dispute to the fact that the trademark is goods for the purposes of the Act. This is not disputed by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of a deemed sale. Of these three, the first and third involves a kind of service and sale at the same time. Apart from these two cases where splitting of the service and supply has been constitutionally permitted in sub-clauses (b) and (f) of clause (29-A) of Article 366, there is no other service which has been permitted to be so split. For example the sub-clauses of Article 366(29-A) do not cover hospital services. Therefore, if during the treatment of a patient in a hospital, he or she is given a pill can the sales tax authorities tax the transaction as a sale? Doctors, lawyers and other professionals render service in the course of which can it be said that there is a sale of goods when a doctor writes out and hands over a prescription or a lawyer drafts a document and delivers it to his/her client? Strictly speaking with the payment of fees, consideration does pass from the patient or client to the doctor or lawyer for the documents in both cases. 46. The reason why these services do not involve a sale for the purposes of Entry 54 of List II is, as we see it, for reasons ultimately attributable to the principles enunciated in Gannon Dunkerley's case, namely, if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is present for the purposes of Section 2(29)(d) of the Act or Article 366(29-A) of the Constitution. It is not the goods which is subjected to tax but it is the transfer of right to use being taxed as per Section 2(29)(d) of the Act which is verbatim same as Article 366(29-A)(d) of the Constitution. It is only permission to use the trademark along with bundle of services rendered by the appellant as envisaged in the agreements. This is explicitly stated under Clause 10 which is captioned as 'Licence of trademarks' and the CBUs have been permitted to use the trademarks to label and package UB Beer for sale pursuant to the terms and conditions of the Registered User Agreement and upon the condition that UB Beer shall be produced according to the know-how and specifications prescribed by UBL under this agreement under the supervision of UBL. The quality of beer being brewed is always monitored by the appellant-company and this clearly implies it is only the mere licence to use the goods. 31. Thus the necessary concomitant of the plain language of the agreement proves that it is merely the licence to use the goods rather than the transfer of right to use as envisage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated in the above two decisions while making the reassessment but rather applies the judgments of the lower Courts namely the decisions of the Hon'ble Madras High Court in S.P.S. Jayam and Company's case and Hon'ble Bombay High Court decision in Duke and Sons Private Limited's case which are earlier to the BSNL's case decided by the Hon'ble Supreme Court. Therefore by following the law laid down by the Hon'ble Supreme Court in Rashtriya Ispat Nigam Limited's case as well as in Bharat Sanchar Nigam Limited's case, and by applying the principles laid down therein it has to be held that there is no transfer of right to use the trademark by the appellant to the CBUs which means that there is no deemed sale coming under the purview of Section 2(29)(d) of the Act. Therefore, the transactions are outside the purview of the Act. 35. In this regard, the decision of the Division Bench of the Hon'ble High Court of Kerala in Malabar Gold Private Limited's case is squarely applicable. In that case, the Division Bench came to the conclusion that the franchisor has not transferred the trademark to the franchisees and decided that the royalty received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d sale' in the light of the non-fulfillment of certain conditions provided in BSNL's case. 44. The issue therefore can be considered in the light of the dictum laid down in BSNL's case. Herein, the term 'franchise is included in Section 65(105)(zze) of the Finance Act. The same is a taxable service and the taxable event is the service rendered by the Company. Thus, any service provided or to be provided to a franchisee will come within the purview of the said provision. The meaning of the terms franchise and franchisor under Section 65(47) and 65(48) are also important. Going by the definition of Franchise, it is an agreement by which the Franchisee is granted representational right to sell or manufacture goods or to provide service or undertake any process identified with Franchisor, whether or not a trademark, service mark, trade name or logo or any such symbol, as the case may be, is involved. The terms of the agreement herein will show that Clause II of the Preamble has specifically given under items (i) to (v) the activities to be carried out by the Franchisee which are as follows.-- (i) Retailing of gold ornaments. (ii) Retailing of diamond and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the definition of franchise and franchisor under Section 65(47) and 65(48) of the Finance Act, and those judgments related to transactions of pre 2003 period, we are of the view that the same are distinguishable on the facts of this case. The judgment in Mechanical Assembly Systems (India) Private Limited v. State of Kerala, (2006) 144 STC 536 (Ker.) as we have already explained, is a case of exclusive transfer of know-how. 47. One of the judgments relied upon by the learned Special Government Pleader for Taxes is that of the Andhra Pradesh High Court in Nutrine Confectionary Company Private Limited v. State of Andhra Pradesh, (2012) 20 KTR 38 (AP). Therein, the transaction involved is by way of an agreement between the petitioner-company and the assignee companies and a royalty of ₹ 500/- per ton of production by the assignee, has been granted to the petitioner-Company for the use of trade and logo for the goods. The matter was considered under Section 2(1)(h) of the Andhra Pradesh General Sales Tax Act, 1957. The Bench was of the view, after going through the terms of the agreement, that the assignee is free to make use of the trademark and logo. The petitioner doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he law declared by the Hon'ble Supreme Court in BSNL's case and Rashtriya Ispat Nigam Limited's case, it has to be held that the FAA is correct in deciding the issue that the transactions between the appellant and the CBUs does not involve the transfer of right to use the trademark or brand name and thereby the brand franchisee fee is not liable for tax. In view of above detailed discussion, the first point is answered in the affirmative. 37. Point No. 2.--The State in the cross appeals has contended that the FAA has erred in coming to the conclusion that there is no transfer of right to use the trademark to the CBUs in the activity of brewing and distribution of beer affixed with the labels having the trademarks of the appellant-company on the basis of agreements. The judgments relied by the State are rendered by the Hon'ble High Courts of Bombay and Madras in Duke and Sons Private. Limited's case and S.P.S. Jayam and Company's case which are earlier to the landmark case of the Hon'ble Supreme Court rendered in BSNL's case. Apart from that, paragraph 7 of the Duke's case judgment clearly distinguishes between the licence to use the trademark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the technical know-how provided by the appellant-company UBL. The economic surplus realised by the appellant-company is only marketing fee and not a consideration towards transfer of right to use the trademark. Further, it is to be noted that the appellant-company M/s. UBL has claimed depreciation on the intangible goods under Schedule 4 of the Annual Reports/Annual Financial Statements. If there had been transfer of right to use the trademark, then the CBUs would have been eligible to claim depreciation on intangibles i.e., the trademarks or licences. This fact also proves that there is no transfer of right to use the trademarks from the appellant to the CBUs concerned. 39. The learned Counsel for the appellant as respondent in the cross appeals has relied on the judgment of our Hon'ble High Court rendered in the case of Indus Towers Limited. In the said judgment, their lordships after analysing the agreement have ruled that there is no transfer of right in case of passive infrastructure. The relevant paragraphs which are to be followed to resolve these appeals are reproduced hereunder: 67. In this context it is useful to notice the nature of right the mobile opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is always with the licensor. Only entry in the premises is made legal. It does not create any title in favour of the licensee. A licence is a mere grant of a person privilege to do something upon, without conferring an estate in the land. If a document gives only a right to use a property in a particular way under certain terms while it remains in the possession and control of the owner thereof, it will be a licence. The legal possession thereof continues to be in the owner of the property but the licensee is permitted to make use of the premises for the particular period. But for the permission his occupation would be unlawful, and does not create in his favour any estate or interest in the property. 71. It is well-settled that, whether the transaction amounts to transfer of right or not cannot be determined with reference to a particular word or clause in the agreement. The agreement has to be read as a whole to determine the nature of the transfer. From a close reading of all the clauses in the agreement it appears to us that under the terms of the contract there is no transfer of right to use the passive infrastructure conferred on the sharing operator/mobile operator. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sustained . 40. The analysis of the agreements as done under Point No. 1 in detail clearly proves that the effective control on the trademarks is in the hands of the appellant-company only as evident from Clause 3, Clause 4, sub-clauses 5.1 to 5.9, Clauses 6 and 7, sub-clauses 9.2.1, 9.2.2, 9.4.3, 9.4.4 and 9.4.5 and Clauses 10, 12, 14, 15 and 16. The agreement tantamount to granting of licence to brew the UB Beer under the control and supervision of the appellant-company right from selection of raw materials, inputs, packing materials and the process of manufacture as per specifications and as per the technical know-how provided by the appellant-company and the UB beer so manufactured is to be marketed as per the guidelines or the norms prescribed by the appellant-company. Therefore, it manifests that the agreement is not for the purpose of transferring the trademark as a right to use but rather the permission is granted as a 'Permitted User'. 41. In the cross appeals, the State has taken the stand that the decisions of the Hon'ble Supreme Court cannot be relied on since trademark is intangible goods. Trademark, Patents, Copyright and Software are all intangible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presentative of a deceased person and any other mode of transfer, not being assignment; ......... 48. (1) Subject to the provisions of Section 49, a person other than the registered proprietor of a trademark may be registered as a registered user thereof in respect of any or all of the goods or services in respect of which the trademark is registered. (2) The permitted use of a trademark shall be deemed to be used by the proprietor thereof, and shall be deemed not to be used by a person other than the proprietor, for the purposes of Section 47 or for any other purpose for which such use is material under this Act or any other law. 50. Power of Registrar for variation or cancellation of registration as registered user .--(1) Without prejudice to the provisions of Section 57, the registration of a person as registered user.-- (a) x x x (b) x x x (c) x x x (d) may be cancelled by a Registrar on his own motion or on the application in writing in the prescribed manner by any person, on the ground that any stipulation in the agreement between the registered proprietor and the registered user regarding the quality of the goods or services in relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intangible properties are within the ambit of service tax since 2004, while deciding that temporary transfer are permitting the use or enjoyment of a copyright cannot be considered as transfer of right to use the copyright falling under Article 366(29-A)(d) of the Constitution of India. 45. Therefore in order to analyze whether the trademark in the instant case also falls under the service tax domain i.e. Finance Act, 1994, the relevant provisions are to be examined. Section 65 of the Finance Act, 1994 is the 'Definitions' section. The relevant clauses for the purpose of these appeals are reproduced hereunder: 65. Definitions.--In this chapter, unless the context otherwise requires.-- (55a) Intellectual property right means any right to intangible property, namely, trademarks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright; (55b) intellectual property service means.-- (a) transferring, temporarily; or (b) permitting the use or enjoyment of, any intellectual property right . 46. Thus from the reading of the clauses (55a) and (55b), it is clear that the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore following the above decisions, it has to be held that the cross appeals of the State do not sustain and liable to be dismissed. Therefore in view of above detailed discussion, Point No. 2 is answered in the negative. 49. Point No. 3.--The appellant has entered into two types of agreements so for as 'Kingfisher' trademark is concerned the first being 'technical know-how agreement' and the second being the 'licence agreement' which are connected with packaged drinking mineral water. The AA has not levied any tax on technical know-how charges received but has confined the levy to royalty received for providing the licence. In fact, the know-how agreement and licence agreement are to be read together and it suggest clearly they are of composite in nature. These two agreements reveals the fact that the appellant-company has granted permission to use the trademark 'Kingfisher' in the process of manufacturing packaged drinking mineral water. The entire process has to be in conformity with the technical know-how provided by the appellant and the licences are granted to various water bottling units at the same time. In view of the law declared ..... X X X X Extracts X X X X X X X X Extracts X X X X
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