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2015 (11) TMI 754 - HC - VAT and Sales TaxLevy of tax / VAT on franchisee fees/royalty paid - Levy of tax on manufacture of Beer and Packaged drinking water - whether there is complete transfer of right to use the said property (being brand name/trade name) in favour of the manufacturer (CBUs) or not - Held that:- only when there is transfer of right to use the brand name/trade mark belonging to the assessee, without any restriction, then alone it could be a case of transfer of right to use the intangible goods, which would be the brand name/trade mark. However, if no such right to use is given to the manufacturer, it would not amount to transfer of right. - In the case of manufacture of beer, the amount paid towards 'brand franchise fees' is to the assessee, and admittedly the assessee, has not transferred any right to the manufacturer of beer to exploit the brand name for its own use. The manufacturers (CBUs) do not get effective control of the brand name for full commercial exploitation. As such, it cannot be considered as 'sale' of intangible goods by the assessee, which would be subject to Sales Tax under the KST Act. It is also noteworthy that, for the amount received by the assessee as 'brand franchise fees' from the CBUs, admittedly, the assessee is paying Service Tax, as the same is covered as Intellectual Property Service under sub-Section 55(b) of Section 65 of the Finance Act, 1994. - levy of tax, penalty and interest, in the case of manufacture of beer, on the amount received by the assessee as 'brand franchise fees' from CBUs for the assessment years in question, cannot be justified in law. Since it is not disputed that under the agreement, the trade mark-'Kingfisher' is transferred to the licensee dealers, with a right to use the trade mark and exploit the same for commercial use, which was on payment of royalty to the assessee, the same would amount to transfer of right to use the intangible goods, being the trade mark-'Kingfisher', which would thus be subject to tax under KST Act. It is not disputed that in case of drinking water-'Kingfisher', the effective control over the brand name is transferred to the licensees to use and exploit the brand name for commercial use, which would amount to transfer of right to use goods, liable to tax under the KST Act. As such, the finding recorded by the First Appellate Authority in this regard, is confirmed and the order of the Tribunal with regard to this issue, is set aside. - Decided partly in favour of Revenue.
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