2018 (12) TMI 354 - HC - VAT and Sales Tax

Taxability - transfer of trade mark to sister concerns - whether the transfer of trade mark to sister concerns would lead to a transfer of right to use, thus making the transaction taxable under the Kerala Value Added Tax Act, 2003? - Held that - It is only appropriate that there be a remand to the last fact finding authority, the tribunal to further examine the facts; specifically the terms of the agreement of franchise. The assessee shall produce the agreement before the Tribunal and the Tribunal shall examine the same. Both the assessee and the State would have right to file a revision from the order of the Tribunal since we have not expressed anything on the merits of the matter - revision disposed off.

Summary

Issues:
1. Whether the transfer of a trademark to sister concerns leads to a transfer of the right to use, making the transaction taxable under the Kerala Value Added Tax Act, 2003 (KVAT Act).
2. Interpretation of conflicting judgments regarding the taxability of the transfer of the right to use a trademark.
3. Examination of specific franchise agreements for tax implications under the Kerala General Sales Tax Act, 1963 (KGST Act).

Analysis:

1. The main issue in the revision was whether transferring a trademark to sister concerns constitutes a transfer of the right to use, thereby making the transaction taxable under the KVAT Act. The petitioner relied on the decision in Malabar Gold Private Limited v. Commercial Tax Officer, Kozhikode, which held such transactions as taxable. However, the Senior Government Pleader argued that the Malabar Gold case was challenged in the Supreme Court, citing a contrary view by the Bombay High Court in Tata Sons Ltd. v. State of Maharashtra.

2. The conflicting judgments from the Kerala High Court and the Bombay High Court created uncertainty regarding the taxability of trademark transfers. Despite leaning towards following the Bombay High Court's judgment, the Kerala High Court deemed the Malabar Gold decision binding. The court acknowledged the need for a larger bench to address the issue but refrained from doing so due to pending Supreme Court cases on the same legal question.

3. Referring to the Kreem Foods Pvt. Ltd. case, the court highlighted the tax implications of specific franchise agreements under the KGST Act, distinguishing them from transactions covered under the Finance Act, 1999. The court emphasized the importance of examining the terms of the franchise agreement in determining tax liability and remanded the case to the tribunal for further factual examination based on the Division Bench decision in Malabar Gold.

In conclusion, the court ordered a remand to the tribunal for a detailed review of the franchise agreement terms to ascertain the tax implications, allowing both parties the right to file a revision based on the tribunal's decision. The judgment maintained neutrality on the merits of the case, awaiting the Supreme Court's resolution of the legal issue at hand.