2011 (6) TMI 693 - HC - VAT and Sales Tax

Whether the assessee is liable to pay tax as brand name holder on the sale of products made under brand name/trade mark/ logo under section 5(2) of the Kerala General Sales Tax Act, 1963? Held that - The sales made by the assessee-firm is deemed to be the first sales assessable under section 5(2) of the Act. We are also not able to uphold the order of the Tribunal that with the amendment of the definition clause introducing section 2(viaa) by the Finance Act, 2004, the assessee is liable for tax under section 5(2) of the Act only from 2004-05 onwards. What we notice from the definition clause is that it only expanded the meaning of brand name , which in our view is only clarificatory. We therefore hold that the amendment to section 2 introducing brand name under clause (viaa) is only explanatory or clarificatory to the term brand name contained in section 5(2) which was there in the statute from 1998 onwards. We, therefore, allow the revision case by reversing the orders of the Tribunal and by restoring the assessment order. Consequently, the WP(C) filed by the petitioner-assessee will stand dismissed.

Issues:
Whether the assessee is liable to pay tax as a brand name holder on the sale of products made under a brand name/trade mark/logo under section 5(2) of the Kerala General Sales Tax Act, 1963.

Analysis:
The judgment of the court addressed the issue of liability to pay tax as a brand name holder on the sale of products under a brand name/trade mark/logo under section 5(2) of the Kerala General Sales Tax Act, 1963. The assessee, a partnership firm with a 70-year track record in ayurvedic medicines, marketed products under the name S.D. Pharmacy, manufactured by two sister concerns controlled by the same persons constituting the assessee. The dispute arose regarding whether the sales by the assessee were second sales exempt from tax or deemed first sales under section 5(2) of the Act. The court considered the application of section 5(2) and previous judgments to determine the liability.

The court examined the definition of "brand name" under section 2(viaa) introduced by the Finance Act, 2004, and its impact on the liability of the assessee. It was argued that sales made by the assessee exclusively to franchisees should be considered the first sales, as the assessee was the brand name holder. The court emphasized the importance of the brand name in identifying products and connecting them to the manufacturer. The court also highlighted that the use of a generic name did not conflict with the brand name, as consumers associated products with manufacturers through brand names and logos.

Regarding the interpretation of brand name or trade mark under section 5(2), the court considered the purpose of the provision to levy tax on real first sale turnover and disregarded inter-group sales. The court emphasized that the real wholesale at market price by the assessee should be assessed as deemed first sales, irrespective of the margin charged. The court referenced a previous judgment regarding the liability of a brand name for tax under section 5(2) based on the identification of products with the brand name holder.

Ultimately, the court held that the sales made by the assessee-firm were deemed first sales assessable under section 5(2) of the Act. The court rejected the Tribunal's order suggesting liability only from 2004-05 onwards, stating that the amendment to the definition of "brand name" was clarificatory. The court allowed the revision case, reversing the Tribunal's orders and restoring the assessment order. The court also dismissed the WP(C) filed by the petitioner-assessee.

Additionally, the court addressed the issue of rebate of tax under rule 32(13B) of the KGST Rules, noting that the assessee might not be entitled to rebate if the manufacturers had not collected tax on sales. The court highlighted the importance of manufacturers' tax collection for rebate eligibility under the rules.

In conclusion, the court's judgment clarified the liability of the assessee as a brand name holder for tax under section 5(2) of the Act, emphasizing the significance of brand names in identifying products and connecting them to manufacturers. The court's decision upheld the assessment order, considering the purpose and application of the relevant legal provisions and previous judgments.

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