2007 (5) TMI 133 - HC - Service Tax

Stay/Dispensation of pre-deposit - Whether appellant is liable to pay tax under Delhi Sales Tax on Right to Use Goods Act, 2002 or liable to pay service tax under FA, 1944 - Stay granted

Summary

Issues:
Interpretation of the term 'transfer of right to use any goods' under the Delhi Sales Tax on Right to Use Goods Act, 2002 and Article 336(29A)(d) of the Constitution.

Analysis:

1. The petitioner obtained a non-exclusive license to use various trademarks, including Horlicks, for a range of goods. The Revenue argued that granting a license to another party amounted to a transfer of the right to use goods, making it taxable under the Delhi Sales Tax on Right to Use Goods Act, 2002.

2. The petitioner contended that there was no actual transfer of the right to use goods, emphasizing that trademarks are not goods. Citing a Supreme Court decision, the petitioner argued that certain attributes necessary for a transfer of the right to use goods were absent in the transaction with the other party. The petitioner highlighted that it did not have exclusive rights to the trademarks and could not prevent the trademark owner from granting similar rights to others.

3. Reference was made to Supreme Court cases to distinguish between instances where the right to use goods was intended to be transferred and where it was not. The court noted these distinctions and the legal principles set out in the cases cited by the petitioner, indicating a prima facie case for granting interim relief.

4. The court found that the petitioner had made a prima facie case for relief, despite the Revenue's argument that the petitioner did not disclose its registration under the Delhi Sales Tax on Right to Use Goods Act, 2002. The petitioner's decision not to pursue registration was based on legal advice that the transaction was a service and subject to service tax under the Finance Act, 1994.

5. The court rejected the argument of alternate remedy, asserting that the interpretation of the term 'transfer of right to use any goods' required judicial determination due to its significance in both the Delhi Sales Tax on Right to Use Goods Act, 2002 and the Constitution.

6. The petitioner's compliance with service tax laws and the higher tax rate paid to the Union compared to the Delhi Sales Tax on Right to Use Goods Act, 2002, demonstrated good faith and a willingness to pay taxes. The court found the balance of convenience favored the petitioner, considering the tax differentials and the nature of the goods involved.

7. The court agreed with the petitioner's arguments on balance of convenience and potential undue hardship if required to pay taxes under multiple statutes. Considering the petitioner's business dealing in consumer items, the court upheld the interim order issued in favor of the petitioner.

8. Consequently, the court confirmed the interim order dated 7th July 2006, acknowledging the petitioner's case and the reasons provided for granting relief. The petitioner's decision not to appeal and willingness to abide by the assessment order were also noted.

9. Given the importance of the legal question involved, the court directed the matter to be listed for further directions, indicating the significance of expediting the hearing of the writ petition on 9th August 2007 before the tax matters bench.