2015 (2) TMI 563 - HC - VAT and Sales Tax

Hire purchase agreement - Resale - applicant argued that hire purchase transactions are essentially financial services and are not subject to sales tax - Levy of tax u/s 8 of the BST Act - Applicants were holders of trade mark - Deemed sale - the sale of purchased goods is by a seller who holds a trade mark or a patent or is entitled to use the trade mark or patent in respect thereof - the concept of exhaustion of rights - Held that - A bare perusal of Section 28 would indicate as to how the exclusive right to use of a trade mark given under subsection (1) of section 28 shall be subjected to any conditions and limitations to which the registration is subject. What is infringement of a registered trade mark is dealt with by section 29 and by subsection (1), it is stated as to how the mark being used not by a registered proprietor or a person permitted to use it in the course of its trade uses, a mark which is identical with or deceptively similar to the trade mark in relation to goods or services, in respect of which it is registered and in such manner as to render the use of mark likely to be taken as being used as a trade mark would constitute infringement. - The preceding Chapter III deals with procedure for and duration of registration and the prior provisions enabling registration of trade marks would indicate that so long as the parameters in the legislation are fulfilled, the protection by virtue of registration can be claimed. The registration itself is subjected to renewal, removal and restoration. By section 30, it is clarified that even if the registered trade mark has a limited effect, one cannot, by resorting to section 29 and by virtue of the registration, prevent the use of the registered trade mark by any person for the purpose of identical goods or services as those of the proprietor, provided, Clauses (a), (b), (c), (d) and (e) are satisfied. An action for infringement of registered trade marks may succeed in the event the limitations on effect of registered trade marks set out in section 30(2) of the Trade Marks Act, 1999 are not attracted. By sections 32 and 33, the protection of registration on ground of distinctiveness in certain cases is granted and the law also deals with effect of acquiescence. However, vested rights are saved and such right may vest with any person other than the proprietor or registered user of a registered trade mark. The Act has thus provisions which take care of the rights of those who may be of the category indicated hereinabove. There is a provision enabling rectification and correction of the Register. In all this, one does not find the absolute exhaustion of the trade mark as claimed by Mr. Sridharan. If the Act is read as a whole and the provisions thereof are construed harmoniously, it would be clear that the protection guaranteed by registration of the Trade Mark may have some limitations. However, they affect the enjoyment of the rights conferred by registration. The registered Trade Mark is thus not exhausted as the rights therein are protected so long as the registration is in effect and valid. The rights therein are somewhat diluted and their enjoyment curtailed but we cannot infer from the statute the result that Mr. Sridharan reads in it. It is only the limitations or restrictions on the rights, which have been conferred upon registration that are spelt out. Those may include the restrictive provisions when the goods enter the market. The goods entering the market and dealings in such goods entering the market are cases which are specifically dealt with and some savings and restrictions have been enacted in the legislation pertaining to trade marks. However, the theory and principle which is relied upon by Mr. Sridharan by itself and without anything more cannot assist the Applicant. Such principle or theory ought to find place in the scheme of the Indian legislation. That having not been detected or to be found that we conclude that Mr. Sridharan s contentions based on the above principle have no merit. In the case of Jay Bharat Credit and Investment Co.(2000 (8) TMI 1013 - SUPREME COURT OF INDIA), the Hon ble Supreme Court was considering as to whether transfer of goods on hire purchase can be included in the definition of the term sale under section 2(g) of the Bengal Finance (Sales Tax) Act, 1941 as extended to the Union Territory of Delhi. There, the issue was whether the Respondents, namely, the Commissioner of Sales Tax was justified in holding that the hire purchase transaction entered into by the Appellant (Jay Bharat Credit and Investment Co. Ltd.) was liable to imposition of Sales Tax on the consolidated proceeds. The Hon ble Supreme Court dealt with the Judgment delivered by it in the case of K. L. Johar and Co. vs. Deputy Commercial Tax Officer 1964 (11) TMI 58 - SUPREME COURT OF INDIA . It is after distinguishing it that the Hon ble Supreme Court arrived at the conclusion that the hire purchase transaction can be brought within the purview of the term sale . Similarly, in the Assessee s own case, the High Court of Jharkhand dealt with identical controversy. - Decided against assessee.

Summary

Issues Involved:
1. Tax liability on hire purchase transactions under the BST Act.
2. Inclusion of hire purchase premiums and insurance charges in the sale price.
3. Eligibility for resale exemption under Section 8 of the BST Act.
4. Application of the Explanation to Section 2(26) of the BST Act regarding trade marks and patents.

Detailed Analysis:

1. Tax Liability on Hire Purchase Transactions:

The Tribunal was legally justified in holding that the amount of Rs. 8,34,781 as per the hire purchase agreement was liable to tax under Section 8 of the BST Act, 1959. The Applicant's contention that only the initial sale price of Rs. 5,08,180 should be considered as the sale price was rejected. The Tribunal and the Commissioner concluded that the entire amount, including hire premiums and insurance premiums, received from the hirer should be considered the sale price.

2. Inclusion of Hire Purchase Premiums and Insurance Charges in the Sale Price:

The Tribunal was legally correct in holding that the hire purchase premiums and insurance charges formed part of the sale price as defined in Section 2(29) of the BST Act, 1959. The Applicant argued that these charges should not be included in the sale price. However, the Tribunal upheld the Commissioner's decision that the entire amount, including these charges, constituted the sale price.

3. Eligibility for Resale Exemption under Section 8 of the BST Act:

The Tribunal disallowed the resale claim of the Applicant under Section 8 of the BST Act regarding the sale made on a hire purchase basis. The Applicant contended that the resale exemption should apply as the primary business involved selling vehicles to Dealers, and hire purchase transactions were a minor part of their business. However, the Tribunal and the Court found that the resale claim was not justified because the Applicant held the trade mark in respect of the goods sold, and the Explanation to Section 2(26) applied.

4. Application of the Explanation to Section 2(26) of the BST Act:

The Explanation to Section 2(26) states that a sale of purchased goods shall not be deemed a resale if the seller holds a trade mark or patent in respect of the goods sold. The Tribunal and the Court found that the Applicant was a holder of the trade mark, and thus, the transactions did not qualify as resales. The Court rejected the Applicant's argument that the trade mark was exhausted after the first sale to the Dealer. The Court emphasized that the Explanation was intended to prevent unintended loss of revenue and ensure effective implementation of the BST Act.

Conclusion:

The questions in Sales Tax Reference No. 16 of 2003 were answered in favor of the Revenue and against the Assessee. Similarly, in Sales Tax Reference No. 3 of 2008, the additional question regarding the inclusion of hire purchase premiums in the sale price was also answered against the Assessee. The Tribunal's decision to disallow the resale claim and include hire purchase premiums and insurance charges in the sale price was upheld. The Court emphasized the applicability of the Explanation to Section 2(26) and the intent to prevent revenue loss, thus rejecting the Applicant's arguments.