TMI Blog2018 (12) TMI 611X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to use the trademark or patent rights on specified goods which could be marketed and sold anywhere in the country. The consideration of situs of sale insofar as the parties to the transaction herein, the seller and the purchaser, whose principal place of business exist in two different States offers no difficulty insofar as the specific provisions under the CST Act. We are also of the opinion that the amendment to the definition of sale in the CST Act though relevant for the six instances where there is a deemed sale of goods, has no effect insofar as the subject transaction. Dehors the amendment, the sale would come within the concept of sale as available under the CST Act, in which instance we have to look at Section 3, having accepted the sale of a trademark or patent rights as a sale of goods. The situs of the principal place of business, from where the owner of such trademark exercises his right to sell specified goods, under the trademark or enforces his patent rights, which has been obtained by them as a statutory right, is the place where the goods exist. Section 3 of the CST Act, applies on all fours and the agreement of transfer of the intangible, incorporea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he penalty order produced as Exhibit P7 and the notice of demand at Exhibit P8 are challenged in W.P(C) No.13408/2009. Consequent to the imposition of penalty, the Assessing Officer completed the assessment for the year 2004-05 which is produced as Ext. P-9 and challenged in W.P(C)No.6404/2010. As per the assessment order, the non-competition fee received by the petitioner-assessee based on an agreement entered into with the purchaser of trade mark, was assessed as local sale, under the Kerala General Sales Tax Act, 1968 (for brevity 'KGST Act ). In carrying out the assessment, the Assessing Officer also levied tax, as inter-State sale on the sale of Good-Will , ie: sale of trade mark, by the assessee to the purchaser, for which transaction penalty was earlier levied. The sale of good-will was treated as inter-state under the Central Sales Tax Act, (for brevity CST Act) which order is produced as Ext. P-10 and challenged in W.P(C)No.6404/2010. 4. Oriental Extraction (P)Ltd., likewise, was proceeded against for the assessment year 2005-06 under the CST Act on a similar transaction, here a sale of patent. The assessee therein had transferred its patent rights on Manjal Soap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sale can only be fixed by the appropriate Legislature by creating a legal fiction, like the omitted Explanation to Article 286(1)(a), and there could be no situs fixed by mere analogy to Section 4 of the CST Act. The Parliament which is empowered in so far as an inter-State sale is considered, has not fixed the situs , nor is the fiction adopted under the CST Act, was the finding. 7. Later to the decision, the definition of sale in the CST Act was amended in the year 2002, by Act 20/2002, and the fiction as available in the Constitution of India was also introduced in the CST Act. In the subject assessment years, a transaction of right to use may not be regulated by 2 0 t h Century Finance Corporation Ltd. ; but, however, the principle insofar as there being no fiction created by statute squarely applies in the present case where there is a transfer of trademark or patent, which are intangible, incorporeal goods capable of being taxed under the general sales tax law, is the argument. 8. In the present case, when there is a contract entered into for transfer of property in goods, then necessarily the situs would be in the State where the transfer was effected, bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e time of execution of contract, existing in another State and delivery occasioned in one another State. The issue of a transaction occasioning the movement of goods from one State to another as provided under Section 3 of the CST Act never came up for consideration in 2 0 t h Century Finance Corporation Ltd. , since the definition of sale as available in the CST Act did not take in, the transfer of right to use goods as available in Article 366(29A) of the Constitution. It is also argued on the strength of the decision in CUB PTY Limited v. UOI and Ors. [ ( 2016) 388 ITR 617 (Delhi) ] that the situs of an intangible asset has to be determined looking at the situs of the owner of such intangible asset. 11. 2 0 t h Century Finance Corporation Ltd. considered the provisions under the various enactments, specifically that of the State of Maharashtra, wherein the transfer of right to use goods, by an Explanation, was deemed to have taken place in the State of Maharashtra if the goods are situated in that State, at the time of their use, irrespective of the place where the agreement for such transfer was made. The learned Judges of the Hon'ble Supreme Court who endo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer of the right to use goods. The various sub-clauses of Clause (29A) of Article 366 permit the imposition of tax thus: Sub-clause (a) on transfer of property in goods; Sub-clause (b) on transfer of property in goods; Sub-clause (c) on delivery of goods; Sub-clause (d) on transfer of the right to use goods; Sub-clause (e) on supply of goods; and Subclause (f) on supply of services. The words and such transfer, delivery or supply... in the latter portion of Clause (29A), therefore, refer to the words transfer, delivery and supply, as applicable, used in the various sub-clauses. Thus, the transfer of goods will be a deemed sale in the cases of sub-clauses (a) and (b), the delivery of goods will be a deemed sale in case of Sub-clause (c), the supply of goods and services respectively will be deemed sales in the cases of sub-clauses (e) and (f) and the transfer of the right to use any goods will be a deemed sale in the case of Sub-clause (d). Clause (29A) cannot, in our view, be read as implying that the tax under Sub-clause (d) is to be imposed not on the transfer of the right to use goods but on the delivery of the goods for use. Nor, in our view, can a transfer of the right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However the amended definition of sale in the CST Act does not at all affect the subject transaction, that being a sale of goods, without any fiction thereof. In Vikas Sales Corporation Vs. CCT [1996 (102) STC 106] it was held that the REP licenses or Exim scrips were goods for the purpose of levy of sales tax. Those were licences providing registered exporters with facility for importing essential inputs for the manufacture of the goods exported. But there was no obligation on such exporters, to themselves, use the facility and the same could be sold to another and there could also be subsequent sales effected. The definition of goods and property in the Sale Of Goods Act, 1930 were examined, to find that goods includes every kind of movable property and property includes not merely special property but general property in goods as well. Definition of movable property in the General Clauses Act, 1897 was noticed which took in property of every description except immovable property The sales tax enactments of the various States, which arose for consideration there, did not define property but, the definition of goods : means 'all kinds of property except newsp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntellectual property when put in media was held to be goods. Whether the amounts received as royalty for transfer of technological know-how, by deputing suitable personnel, would be goods, was the question raised before a Division Bench of this Court in 2006 (144) STC 536(Ker) [Mechanical Assembly Systems (India) Pvt.Ltd. Vs. State of Kerala] . It was argued that the technological know-how not being copied or incorporated into a media could not be treated as goods. Relying on the afore cited decisions of the Apex Court it was held that all material, even if they be intangible or incorporeal, capable of abstraction, consumption and also possible of being transmitted, transferred or delivered would come within the definition of goods, the meaning of which was found to have undergone a radical change from its traditional understanding; but all the same coming within the scope of its definition as available in the taxing statute. 2009 (24) VST 327(Ker) [Jojo Frozen Foods (P) Ltd. Vs. State of Kerala] and 2009 (24) VST 327(Ker) [Kreem Foods (P) Ltd. Vs. State of Kerala] affirmed the levy made on royalty collected from franchisees for use of trade mark. There is hence no fiction emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition, by the sale effected, there is no transfer of right to use but a transfer of property in goods proper. The right to use the trade mark in the manufactured products or the right to carry on a process for which patent has been received is the intangible, incorporeal goods, that is sold. This is clearly distinguishable from the transfer of right to use goods. 19. In one of the cases herein, the assessee, with their principal place of business in Kerala, had executed the agreement of transfer at Gujarat while the purchaser's principal place of business was situated at Bangalore. In the other case, the assessee who had its principal place of business in Kerala, had gone to the State in which the purchaser had a factory manufacturing soap, the product on which the trademark was granted, for the purpose of executing the contract. If the situs of the trademark is to be so obscure and enigmatic, as the assessees would want us to hold, then the agreement could be executed anywhere within India without reference to the principal place of business. What is required is only a mere assertion that the goods manufactured, on which the trademark is affixed or the patent rights are e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lature could have, through a deeming fiction, provided for the location of an intangible capital asset, such as intellectual property rights, but, it has not done so insofar as India is concerned. With regard to a share or interest in a company registered/incorporated outside India, Explanation 5 has been added to Section 9(1) (i) of the Income Tax Act, 1961 by virtue of the Finance Act, 2012 with retrospective effect from 01.04.1962. The said Explanation 5 reads as under:- Explanation 5. - For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India. 20. Thus, the legislature, where it wanted to specifically provide for a particular situation, as in the case of shares, where the share derives, directly or indirectly, its value substantially from assets located in India, it did so. There is no such provision with regard to intangible assets, such as trademarks, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Otherwise any goods could be taken by the seller to another State and delivered to the purchaser making it an intra-State sale. 24. As to the assessment of non-competition fee, at the hands of the assessee, it is to be observed that the fee is paid by the transferor to the transferee, in pursuance to an agreement by which the transferee-assessee manufactures the goods under trade mark, which right has already been transferred. There is no sale of goods in the said transaction and it has to be reiterated that the fees are paid by the purchaser outside the State to the assessee within the State. Hence Exhibit P9 to the extent it assess the non-competition fee is set aside. Exhibit P10 is upheld to the extent the transfer of trade mark or good will is assessed under the CST Act. W.P.(C) No.6404 of 2010 is partly allowed. If the petitioner has any other issue, not decided herein, to be agitated in statutory appeal, if not already filed, the same shall be taken up within 30 days from the receipt of the certified copy of this judgment and then it will be treated as filed within time. The levy though is not debatable, the assessee was led to follow the course it took, on a misunderstan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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