2009 (2) TMI 768 - HC - VAT and Sales Tax

Demanding tax on the sales turnover of ice cream sold under the brand name - Held that - Party Nos. l and 3 referred to in the agreement are Joy Ice Creams (Bangalore) Pvt. Ltd. and Joy Ice Creams, Bangalore who assigned the franchisee rights in Kerala exclusively to the respondent. Therefore, this contention is an absolutely false claim raised when we were about to reverse the order of the Tribunal. The very purpose of section 5(2) providing for tax at the point of sale by the brand name holder is to ensure that tax is levied on real value of the goods which happens when the brand name or trade mark holder sells the goods irrespective of whether such brand name or trade mark is used by the holder as its owner or as a franchisee or as an assignee. We, therefore, reject this contention raised by the respondent as factually untenable. The sales tax revision cases are therefore allowed reversing the orders of the Tribunal and of the first appellate authority and by restoring the assessments.

Summary

Issues:
Provisional monthly sales tax assessments, Brand name ownership, Interpretation of "holder of brand name," Tax liability under section 5(2) of the Kerala General Sales Tax Act, 1963, Franchisee agreements, Taxation at the point of sale, Real value of goods, Reversal of Tribunal's orders.

Analysis:
The case involved tax revision cases concerning provisional monthly sales tax assessments of the respondent related to the sale of ice creams under the brand name "Joy Ice Creams." The respondent, acting as a franchisee, arranged for the manufacture and sale of ice creams under this brand name by an SSI Unit entitled to sales tax exemption. Initially, exemption for second sales was allowed, but later, the assessing officer deemed the respondent as the first seller liable for tax under section 5(2) of the Kerala General Sales Tax Act, 1963. The Tribunal, following a previous order, allowed the respondent's appeals based on the interpretation of the term "holder of brand name." The court noted that the Tribunal's interpretation was narrow, emphasizing that the respondent, as a franchisee, was indeed the holder of the brand name for the agreed period, despite not being the original owner.

The Tribunal's reliance on a dictionary definition to interpret "holder" as "owner" was deemed incorrect by the court, as the legislative use of "brand name holder" indicated a broader scope beyond ownership. The court highlighted the importance of taxing goods at the point of sale by the brand name holder to ensure the taxation of the actual value of goods, irrespective of the holder's status as an owner, franchisee, or assignee. The court rejected the respondent's claim that the manufacturer had a license with the original brand name holder, clarifying that the purpose of section 5(2) was to tax goods sold under a specific brand name regardless of the contractual arrangements between parties.

Ultimately, the court allowed the sales tax revision cases, overturning the Tribunal's decisions and reinstating the assessments. The judgment emphasized the legislative intent behind taxing goods at the point of sale by the brand name holder to prevent circumvention of tax obligations through franchisee agreements or assignments.