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2018 (3) TMI 1323 - HC - VAT and Sales TaxLevy of sales tax or service tax - brand franchisee fees - whether sales tax is leviable on the assessee on the amount received by the assessee as brand franchisee fees from CBUs (Contract Bottling Units) in case of manufacture of beer? - Held that - the Division Bench of this court in the case of State of Karnataka v. United Breweries Ltd. 2015 (11) TMI 754 - KARNATAKA HIGH COURT for the reasons recorded in the order has found that no sales tax would be leviable on the assesseeon the amount received by the assessee as brand franchisee fees from the CBU in case of manufacture of beer - appeal dismissed - decided against Revenue.
Issues Involved:
1. Whether sales tax is leviable on the assessee on the amount received as "brand franchisee fees" from Contract Bottling Units (CBUs) in the manufacture of beer. Issue-wise Detailed Analysis: 1. Sales Tax on "Brand Franchisee Fees": The primary issue in this case is whether the "brand franchisee fees" received by the assessee from CBUs for manufacturing beer under the brand name/trade name of the assessee amounts to a transfer of the right to use goods, thereby attracting sales tax under the Karnataka Sales Tax Act (KST Act). Tribunal's Decision: The Tribunal dismissed the appeals of the State, relying on its previous decision in the case of United Breweries v. State of Karnataka. The Tribunal observed that the brand franchise fees received by the assessee from CBUs do not constitute a transfer of the right to use the brand name/trade name. The CBUs manufacture beer on behalf of the assessee, following the specifications and directions provided by the assessee. The ownership and control of the brand name remain with the assessee, and the CBUs do not have the right to independently exploit the brand name. High Court's Analysis: The High Court reviewed the Tribunal's decision and the relevant provisions of the KST Act, Finance Act, 1994, and the Constitution of India. The Court noted that the definition of "goods" under the KST Act includes both tangible and intangible property. However, for sales tax to be levied on the transfer of the right to use goods, there must be a complete transfer of such right without any restrictions. In the present case, the CBUs do not acquire any independent right over the brand name/trade mark. They manufacture beer as per the assessee's specifications and sell it to customers designated by the assessee at prices fixed by the assessee. The CBUs are essentially captive manufacturers for the assessee, and the brand franchise fees paid to the assessee do not constitute a transfer of the right to use the brand name. Relevant Case Laws: The Court referred to the Supreme Court's decisions in State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd. and 20th Century Finance Corpn. Ltd. v. State of Maharashtra, which held that for sales tax to be applicable, there must be a transfer of the right to use goods. In the absence of such a transfer, the transaction would not attract sales tax. Service Tax Consideration: The assessee pays service tax on the brand franchise fees under the Finance Act, 1994, as the transaction is considered an "intellectual property service." The Court emphasized that double taxation on the same transaction is not permissible, as held by the Supreme Court in Bharat Sanchar Nigam Ltd. v. Union of India. Conclusion: The High Court concluded that the brand franchise fees received by the assessee from CBUs do not amount to a transfer of the right to use the brand name/trade mark. Therefore, such fees are not subject to sales tax under the KST Act. The Tribunal's order was upheld, and the appeals by the Revenue were dismissed as meritless. Final Order: The appeals were dismissed, and the question was answered in favor of the assessee and against the Revenue.
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