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TMI Blog2015 (2) TMI 563X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - SALES TAX REFERENCE NO. 16 OF 2003 WITH SALES TAX REFERENCE NO. 3 OF 2008 - - - Dated:- 30-1-2015 - C.DHARMADHIKARI A.A.SAYED, JJ. For the Appellant : Mr. V. Sridharan Senior Advocate with Mr.Pradeep S. Jetly, Mr. Puneeth Ganapathy, Mr. H. N. Vakil i/b. M/s. Mulla and Mulla CBC For the Respondent : Mr. V. A. Sonpal Special Counsel JUDGMENT: (Per S.C.Dharmadhikari, J.) These two references under the then Bombay Sales Tax Act, 1959 (hereinafter referred to as the BST Act ) seek an answer and opinion of this Court on the following questions of law, which have been formulated by the Maharashtra Sales Tax Tribunal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finance of motor vehicles. As far as the first reference is concerned, the Applicant purchased a new Tata Diesel Chassis from M/s. India Automobiles, a registered Dealer of the Applicant, on payment of taxes for a total purchase price of ₹ 5,08,180/. The Chassis was sold by the Applicant on hire purchase basis to one Ajit Singh Bhimrao under sale invoice dated 7th February, 1996. As per the hire purchase agreement dated 7th February, 1996, entered into by the Applicant with the said Ajit Singh Bhimrao the buyer was to make initial payment of ₹ 68,180/and to pay the balance amount in 47 monthly installments. Thus, as against a purchase price of ₹ 5,08,180/, the Applicant was to receive an amount of ₹ 8,34,781/from the hirer. This consisted of the price of the Chassis, the hire premium, the insurance premium for three years and auction money. 6) An application was made under section 52 of the BST Act by the Applicant to the Commissioner, regarding determination of the sale price in respect of this vehicle sold by the Applicant on hire purchase. It was the case of the Applicant that the hire charges receivable and received by them from the hirer in the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as similar but a contention was raised by the Applicant that the trade mark was used when they sold their goods to the distributor and there was no occasion to use the trade mark when the vehicle, which was repurchased from the registered Dealer, was sold to the customer on hire purchase basis. The hire purchase premium does not form part of the sale price and should not have been treated as taxable. The Deputy Commissioner did not accept this contention. The assessment was confirmed and equally the Appeal against the same was dismissed. The Appeal also under the CST was dismissed and therefore, two Second Appeals were preferred before the Tribunal. These Second Appeals were partly allowed, holding that the Applicant is not entitled for resale claim. The hire purchase premium cannot be excluded from the sale price. 9) Aggrieved by the Judgment and order of the Tribunal, Reference Applications under section 61(1) of the BST Act were preferred and the Tribunal passed the order on 30th August, 2007 referring the above questions of law for answer and opinion of this Court. 10) Mr. Sridharan Senior Counsel appearing for the Applicants in both matters submitted that the primary bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction produces a bill or cash memorandum containing a certificate that the registration certificate of the selling dealer was in force on the date of sale of the goods to him. Such certificate shall be signed by the selling dealer or a person duly authorized by him in this behalf. .. 14) Mr. Sridharan relies upon Section 2(26) of the BST Act and submits that the Explanation added to the definition of resale in the year 1988 was added with the object and purpose and referred to in the budget speech of the Minister of Finance of the State of Maharashtra for the year 1988-89. The relevant extract of the said speech is as follows: 66. There are many products that are sold under brand names, trade marks etc. and consequently command high prices in the market. But often the manufacture of such products is subcontracted out with the result that sales tax being leviable at the first point, the tax is realized on a lower value. In order to capture the higher value added, I propose to suitably amend the provisions regarding resale. To avoid double or multiple taxation, a provision for setoff is also being made..... 15) Mr. Sridharan further submits that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal law, the provisions will have to be considered in the light of the relevant branches of law. 18) Mr. Sridharan further submits that a trade mark is held in respect of goods that are to be sold or commercially exploited. However, a trade mark held in respect of individual goods is lost or 'exhausted' on its first sale by the owner of the trade mark. This is referred to as 'first sale doctrine' expounded in common law. W. R. Cornish, in his treatise on intellectual property, explains the principle as follows: In every intellectual property law it is necessary to decide which steps in the chain of production and distribution of goods require the licence of the right owner; manufacturer; first sale by the manufacturer; subsequent sales and other dealings; export and import; use.... In many cases, both in British and in Foreign laws the rights are 'exhausted' after first sale by the right owner or with his consent.... It amounts to a principle of .. exhaustion (page 105B of compilation VolumeI) 19) Mr. Sridharan further submits that to understand what is the essential function and subject matter of a trade mark, further reference mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Jharkhand dtd. 1.3.2012 in TELCO v. State of Jharkhand in WP/ 6040/2002 23) Thus, Mr. Sridharan s arguments revolve around the central theme that the trade mark is exhausted once the goods, in respect of which the trade mark is held, are first sold. In the last leg or third sale, the Applicants do not affix the trade mark on the goods. The trade mark is thus not used in respect of that particular sale transaction. In the instant case, the trade mark was already used when the Applicant sold the vehicles to their Dealers. This trade mark was therefore exhausted and the Explanation to section 2(26) will then not come into play. This interpretation is in consonance with the object and purpose of the Explanation. That is only to capture the value of trade mark in levying the sales Tax, where such value had not already been captured. In the present case in the first leg the vehicles are sold to the Dealers, the trade mark is used. Thereafter, these vehicles are repurchased and then disposed of in favour of the customers. In these circumstances, there is no basis for the finding that the Applicants are holders of the mark. The interpretation placed by the Revenue will result in absur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction is nothing but a sale. The price is paid in installments and because the price is paid in installments, the Applicants are charging interest to the customers. The price then paid by them includes this interest. Therefore, it is nothing but a sale. It does not fall within the term resale also because of the Explanation. The speech of the Finance Minister, which has been pressed into service will never control the interpretation of the provision. These are nothing but devices to get over the BST Act and avoid paying taxes. In the present case, there has been no transaction between the Dealer and the customer admittedly. The customer has approached the Applicants, who are manufacturers. It may be that there is a paper sale of the vehicles to the Dealers earlier and repurchase from the Dealers thereafter, but all this is to avoid the consequences under the BST Act. The Explanation which has been introduced in section 2(26) in 1988 would therefore govern the case. He submits that the References be answered in favour of the Revenue and against the Assessee. 27) Mr. Sonpal has relied upon the following decisions and material in support of his contentions: 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-7-81 to date and the word resale shall be construed accordingly; 22-4-1988 to 10-8-1988 Explanation - For the purpose of this clause, a sale of purchased goods excluding declared goods shall not be deemed to be a resale, if the seller holds the trade mark or the patent in respect of the goods sold or if such trade mark or patent is assigned to the seller by the holder of the trade mark or patent in respect of such goods sold by him. 22-4-1988 to 30-4-1992 and 9-9-1992 to 31-3-1994 Explanation - for the purpose of clauses (i), (ii) and (iii) of section 8, a sale of purchased goods other than Declared goods, shall not be deemed to be a resale - (i) if the seller holds a trade mark or a patent in respect of the goods sold or if the seller holds a patent in respect of the method or process of manufacturing the goods sold; or (ii) if the seller is entitled to use a trade mark or a patent in respect of the goods sold, or if the seller is entitled to use a patent in respect of the method or process of manufacturing the goods sold; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of manufacturing the goods sold; or (ii) if the seller is entitled to use a trade mark or a patent in respect of the goods sold, or if the seller is entitled to use a patent in respect of the method or process of manufacturing the goods sold; The statement of objects and reasons leading to the amendments reads as under: In view of the experience gained in the working of the Bombay Sales Tax Act, 1959, certain amendments are proposed to be made in the Act to prevent unintended loss of revenue. Certain other amendments which are required to be made are either procedural or are necessary for the purpose of the effective implementation of the Act. Some of the amendments are being given retrospective effect as mentioned below 2. The following clauses indicate some of the important provisions of the Bill: Clause 2. (a) The definition of Resale in clause (26) of section 2 of the Act is now proposed to be restricted to certain clauses of section 8. It is now being clarified that a dealer holding a patent for a method or process of manufacturing any goods will not be entitled to claim resale in respect of his sale of such goods. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were given retrospective effect. Once this intent is noted and in the light of the plain language of the Explanation, then, there is no scope for limiting the words as desired by the Applicant. 30) Mr. Sridharan would submit that such an insertion or substitution by way of Explanation apart, the Explanation itself is not attracted in the facts and circumstances of the present case. In that regard, he relies upon the activity undertaken by the Dealer/Applicant. He submits that during the manufacture of the vehicles, the primary business that the Applicant is involved is selling of such vehicles to Dealers. That is the principal and dominant activity compared to a small part of the business related to hire purchase. He submits that there are some vehicles which have been directly sold to the Dealers, but when Dealers offer them to the customers, the customers being unable to tender the full price at such sale, seek a facility or concession of payment of the same in installments. Therefore, the Dealers approach the Applicant and request the Applicant to repurchase the vehicles. Such vehicles are then repurchased from the Dealers and thereafter provided to the customers on hire pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y were purchased or without doing anything to them, which amounts to or results in a manufacture can be termed as a resale. However, even when this criteria or test is satisfied, still, if 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, then, the transaction of sale of purchased goods by him is not deemed to be a resale. The language of the Explanation being plain, clear and unambiguous that the Tribunal committed no error in relying on it. If the admitted factual position is noted, then, the Explanation applies with full force. 32) In other words, the Explanation refers to the category or class of dealers holding a trade mark or patent. In other words, Mr.Sridharan submits that the applicability of the Explanation is dependent upon the rights conferred in a holder of the trade mark or patent or a person entitled to a use thereof in terms of the Trade Marks Act, 1999. He submits that the object and purpose sought to be achieved by the Trade Marks Act, 1999 must not be lost sight of. The Explanation will have to be construed in the light of the provisions contained in these two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. The State legislature was aware of the parliamentary statutes namely, the Trade and Merchandise Marks Act, 1958 and the Patent Act holding the field. It did not in any manner legislate contrary to the said statutes. It was aware of the existence of the above statutes when it substituted the Explanation by Maharashtra Act 22 of 1988. The provision of neither Acts can be construed as interfering with the power of the State legislature to make or amend a law, namely the BST Act, 1959/the Maharashtra Sales Tax Act. The area and field covered by the two legislations is distinct. Moreover, for the purpose of classification of the Dealers and who would be subjected to the tax under the BST Act that the legislature inserted or substituted the Explanation in the said Act. It was fully empowered to do so. It referred to the trade marks and the patents only for the purpose of the classification. Beyond that, we do not find that the said Act in any manner enlarges the restricted rights conferred in a trade mark or a patent holder under the parliamentary statutes. The said law therefore cannot be said to be containing any contrary stipulation or provision. We cannot assume that the State leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epealed and its re-enactment is the Trade Marks Act, 1999. It is an Act to amend and consolidate the law relating to trade marks with the same object and purpose as is sought to be achieved by the predecessor Act. This Act also contains similar provisions. It is divided into several Chapters and with more or less identical headings and titles. It contains 159 sections. 36) The term 'mark' is defined in section 2(m) and the term 'trade mark' is defined in section 2(zb). That is a mark capable of being represented graphically and which is capable of distinguishing the goods or services of one person from those of others. Section 2(r) defines 'permitted use' in relation to a registered trade mark. It also enables registration of trade marks. The powers in that behalf in the Registrar are set out in Chapter II and procedure and duration of registration is provided by Chapter III. The effect of registration is that subject to other provisions of the Act, the registration of a trade mark shall, if valid, gives to the registered proprietor of the trade mark, the exclusive right to use of the trade mark in relation to the goods or services in respect of which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k the exclusive right to the use of the trade mark in relation to the goods or services in respect of which the trade mark is registered and to obtain relief in respect of infringement of the mark in the manner provided by this Act. (2) The exclusive right to the use of a trade mark given under subsection (1) shall be subject to any conditions and limitations to which the registration is subject. (3) Where two or more persons are registered proprietors of trade marks, which are identical with or nearly resemble each other, the exclusive right to the use of any of those trade marks shall not (except so far as their respective rights are subject to any conditions or limitations entered on the register) be deemed to have been acquired by any one of those persons as against any other of those persons merely by registration of the trade marks but each of those persons has otherwise the same right as against other persons (not being registered users using by way of permitted use) as he would have if he were the sole registered proprietor. Objects and reasons - Clause 28 - This clause deals with the exclusive rights conferred by registration. This corresponds to the existing sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t apply where there exists legitimate reasons for the proprietor to oppose further dealings in the goods in particular, where the condition of the goods, has been changed or impaired after they have been put on the market. 41) Thus, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court was noted by the High Court of Jharkhand. In these circumstances, we are of the view that the Tribunal committed no error in dismissing the Petitioner's Appeal to the extent indicated in its operative order. 44) In the case of Jay Bharat Credit and Investment Co.(supra), 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 (1965) 16 STC 213 (SC). 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 Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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