2016 (10) TMI 938 - SC - VAT and Sales Tax

Levy of tax u/s 5(2) of the KGST Act on sales turnover - sale of home appliances under the brand name Sansui - first sale or second sale? - Whether the appellant-Company is the holder of the brand name in respect of the Sansui products sold by it or not? - Held that - the sale by the brand name holder or the trade mark holder shall be the first sale for the purposes of the KGST Act, if following conditions are satisfied (i) Sale of manufactured goods other than tea; (ii) Sale of the said goods is under a trade mark or brand name; and (iii) The sale is by the brand name holder or the trade mark holder within the State. Applying the aforementioned conditions to the facts of the present case, it is an admitted fact that the goods sold by the appellant-Company are manufactured goods other than tea. The first condition is satisfied. The next condition to be satisfied is that the sale of goods is under a trade mark or brand name. It is an undisputed fact that the manufactured goods sold by the appellant-Company were home appliances under the brand name Sansui . Thus the second condition is also satisfied. Now the last condition to be satisfied in order to attract section 5(2) of the KGST Act is that the sale is by the brand name holder or trade mark holder within the State and whether the appellant-Company is a holder of the brand name SANSUI - when a product is marketed under a brand name, the Assessing Authority is entitled to assume that the sale is by the holder of the brand name or by a person, who is entitled to use the brand name in India. Apart from this, in this case, the marketing is actually done by fully owned subsidiary and/or a group company of the holding company, which was allowed to use the brand name Sansui . If the sale between the holding company and the subsidiary company, both having the right to use the same brand name, is at realistic price and the marketing company namely, the appellant-Company charged only usual margins in the trade, then there is no scope for ignoring the first sale, particularly, when the first seller was also the holder of the brand name and was free to market the products in the brand name. However, the evidence on record shows that the margin charged by the appellant-Company while making the further sale of product is unusually high. So the inter se sale between the groups of companies under the control of the same family was only to reduce tax liability and was rightly ignored by the assessing officer by levying tax under Section 5(2) of the KGST Act. The tax invoking Section 5(2) of the KGST Act was rightly levied on the appellant-Company for the relevant period as it is proved beyond reasonable doubt that the appellant-Company is the brand name holder of Sansui - appeal dismissed - decided against appellant.

Issues Involved:
1. Legality of the impugned judgments and orders by the Kerala High Court.
2. Assessment of tax under Section 5(2) of the Kerala General Sales Tax Act, 1963 (KGST Act).
3. Determination of whether the appellant-Company is the brand name holder of "Sansui".
4. Eligibility for second sale exemption under the KGST Act.
5. Validity of the evidence presented by both parties.

Detailed Analysis:

1. Legality of the Impugned Judgments and Orders by the Kerala High Court:
The appeals challenge the legality of the judgments and orders dated 25.05.2010 and 16.08.2011 by the Kerala High Court. The High Court had allowed the revision petition filed by the respondent-State and dismissed the review petition filed by the appellant-Company, holding the appellant-Company as the brand name holder of "Sansui".

2. Assessment of Tax under Section 5(2) of the KGST Act:
The core issue revolves around the assessment of tax for the year 1999-2000 under Section 5(2) of the KGST Act. The appellant-Company, a dealer in home appliances, was scrutinized for claiming a second sale exemption. The Assessing Authority contended that the turnover of items sold under the "Sansui" brand name should be treated as the first sale, thus attracting tax under Section 5(2).

3. Determination of Whether the Appellant-Company is the Brand Name Holder of "Sansui":
The appellant-Company argued that it was not the brand name holder of "Sansui", asserting that the brand name was owned by M/s Sansui Electric Co. Ltd., Japan. However, the Assessing Authority and the High Court found that the appellant-Company marketed the products under the "Sansui" brand name, using letterheads with the trademark, logo, and brand name of "Sansui". The High Court held that the appellant-Company, being a subsidiary of Videocon International Ltd., was allowed to use the brand name "Sansui" in India.

4. Eligibility for Second Sale Exemption under the KGST Act:
The appellant-Company claimed eligibility for a second sale exemption, arguing that it purchased goods from Videocon International Ltd., which was the first seller. However, the High Court and the Supreme Court found that the appellant-Company was a subsidiary of Videocon International Ltd. and marketed the products under the "Sansui" brand name, thus not qualifying for the second sale exemption.

5. Validity of the Evidence Presented by Both Parties:
The appellant-Company failed to produce valid evidence to substantiate its claim that Videocon International Ltd. was the brand name holder. The High Court relied on various documents, including newspaper reports and affidavits, to establish that the appellant-Company was a subsidiary of Videocon International Ltd. and marketed products under the "Sansui" brand name. The Supreme Court upheld these findings, noting that the appellant-Company's margins on sales were unusually high, indicating an attempt to reduce tax liability.

Conclusion:
The Supreme Court upheld the decisions of the High Court, confirming that the appellant-Company was the brand name holder of "Sansui" and liable for tax under Section 5(2) of the KGST Act. The appeals were dismissed, with no order as to costs.

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