9911796707
TMI Blog2015 (11) TMI 754X X X X Extracts X X X X X X X X Extracts X X X X ..... e did not carry on any manufacturing activity of its own, within the State of Karnataka or outside. 3. The admitted facts in the case regarding manufacture of Beer are that the respondent-assessee had entered into contracts with certain Contract Bottling Units ('CBUs' for short) for manufacturing beer, in terms of which the assessee was to transfer the know-how for manufacturing beer under its brand name. Such manufacture of beer was to be on behalf of the assessee and supplied only to the assessee or its indentors. No right was given to the CBUs to directly sell the beer to its own customers. In fact, the CBUs were captive manufacturers of beer for the assessee -United Breweries Limited. 4. Under the Brewing and Distribution Agreement entered into between the assessee and the CBUs, the brewing and bottling of the beer was to be done as per the specifications given by the assessee, and by using the trade marks, names and logos of the assessee, made available by it to the CBUs. The entire production, as well as the trade mark, etc., belonged to the assessee and not to the CBUs. The right to use the know-how was given to the CBUs on non-assignable, non-transferable and non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the order of the Assessing Officer, the respondent-assessee filed an appeal before the Joint Commissioner of Commercial Taxes (Appeals) (hereinafter referred to as the 'First Appellate Authority') By an order dated 20-10-2012, the First Appellate Authority allowed the appeal with regard to levy of tax, penalty and interest on the amounts received by the assessee as "brand franchise fees" from the CBUs in the case of beer, which was set aside and deleted in entirety; whereas the levy of tax, penalty and interest on the amount collected by the assessee as royalty from the licensee dealers engaged in the business of manufacture of packaged drinking water as consideration for transfer of right to use the brand name/trade mark-'Kingfisher' was upheld for both the assessment years. 8. Aggrieved by the order passed by the First Appellate Authority, the assessee filed an appeal before the Tribunal, challenging that part of the order by which tax, penalty and interest was held to be chargeable on the amount collected as royalty in the case of packaged water; and the Revenue filed an appeal challenging the other part of the order by which the assessee was exempted from p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. It is submitted that the exclusive right to use the three brand names (details of which have been extracted hereinabove) remained with the assessee, and it is only the manufacturing part which was carried on by the CBUs on behalf of, and at the expense of, the assessee. It has also been submitted that for the 'brand franchise fees' received by the assessee from the CBUs, the assessee pays Service Tax, as the same is covered under the definition of 'Service' as provided under sub-Section 55(b) of Section 65 of the Finance Act, 1994. It is thus contended that since the payment received from CBUs as 'brand franchise fees' would not be termed as 'goods' within the meaning of transfer of right to use the goods, as such, no tax would be leviable under Section 5-C of the Karnataka Sales Tax Act, 1957 (for short 'the KST Act'). 12. Learned counsel for the parties have relied on certain decisions/case laws, which shall be dealt with at the time of considering their submissions. 13. The relevant provisions of the KST Act, Finance Act, 1994 and the Constitution of India, are reproduced below: Section 2(m) of the KST Act: "Goods" means all kin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in the case of tangible goods, even though delivery or possession of the machinery may have been given to the contractor, yet when the effective control of the machinery remained with the respondent, it would not attract Sales Tax because no transfer of right to use takes place. The Constitutional Bench of the Apex Court, in the case of 20th Century Finance Corporation Limited and Another v. State of Maharashtra [2000] 119 STC 182 has, after considering Article 366 (29A)(d) of the Constitution of India, held that the said provision shows "that levy of tax is not on use of goods but on transfer of right to use the goods. The right to use goods accrues only on account of transfer of right. In other words, right to use arises only on transfer of such right and unless there is transfer of right, the right to use does not arise." Therefore, 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s' from CBUs for the assessment years in question, cannot be justified in law. 22. Coming to the next issue of 'Kingfisher' packaged drinking water, the question is regarding the levy of tax on the amount collected by the assessee as royalty from the licensee dealers, engaged in the business of manufacturing packaged drinking water as consideration for transfer of right to use brand name/trade mark-'Kingfisher'. In our opinion, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
