2005 (9) TMI 607 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether the second sale of branded confectionery items by the petitioner is liable to tax under the Kerala General Sales Tax Act, 1963?
2. Whether the petitioner, as the brand name holder, is liable to tax under section 5(2) of the KGST Act for the sales turnover of products sold under the brand name?

Analysis:
The petitioner, a private limited company manufacturing confectioneries under the brand name "Cryptm," entered into an agreement with another company to manufacture confectioneries under the same brand name. The agreement included provisions for royalty payment and supply of products to the petitioner. The petitioner claimed exemption on second sales turnover, arguing that it purchased goods from the other company, a registered dealer, and thus the sales were non-taxable second sales. However, the authorities held the petitioner liable for tax under section 5(2) of the KGST Act. The Tribunal also upheld this decision.

The petitioner contended that it authorized the other company to manufacture goods under its brand name, making the other company the first seller liable for tax. The petitioner highlighted a rule stating that the tax payable by the brand name holder should be reduced by the tax paid at the previous point of sale. On the other hand, the government pleader argued that the petitioner remained the brand name holder and first seller, thus not entitled to exemption.

To determine liability under section 5(2), the court examined the conditions: sale of manufactured goods under a brand name, by the brand name holder, within the State. Analyzing the agreement, the court found that the petitioner permitted the other company to use its brand name for a royalty. As the exclusive right to sell branded products in Kerala remained with the petitioner, it continued to be the brand name holder. Therefore, the petitioner was liable for tax under section 5(2) on sales under the brand name.

Regarding the reduction of tax payable, the court noted that the Tribunal had directed the assessing officer to consider this claim, requiring no further direction. Ultimately, the court found no merit in the revision petitions and dismissed both petitions.