State of Kerala vs Maaks Cream Holdings (P) Ltd.

C.N. Ramachandran Nair, J.—The tax revision cases filed by the State pertain to provisional monthly sales tax assessments of the respondent from April to December, 2003. Under an agreement executed between respondent-assessee and Joy Ice Creams, Bangalore Pvt. Ltd., the latter authorised the respondent to manufacture and sell ice creams under the brand name "Joy Ice Creams" in Kerala. Pursuant to the said agreement, the assessee arranged for manufacture of ice creams under the brand name "Joy Ice Creams" by Mascon Frozen Food (P) Ltd. which is an SSI Unit entitled to sales tax exemption on manufactured products. Under this arrangement, the respondent purchased and marketed the entire products. Even though exemption originally claimed by the respondent as second sales was allowed, the assessing officer later noticed that the ice creams sold by the respondent are under the brand name "Joy Ice Cream" and so much so, the respondent is a deemed first seller of the product liable to tax u/s 5(2) of the Kerala General Sales Tax Act, 1963. Consequently revised orders were issued u/s 19(1) demanding tax on the sales turnover of ice cream sold under the brand name. First appeals filed by the respondent were dismissed. However, in second appeals filed by the respondent, the Tribunal followed their earlier order in respondent''s own case in T.A. No. 571 of 2004 and allowed the cases. In fact, the State had challenged the Tribunal''s order for earlier year in T.A. No. 571 of 2004 with a delay and this Court dismissed the tax revision case on the ground of delay, i.e., without considering the case on merits. The Government Pleader submitted that while dismissing the case for the earlier year, this Court specifically left freedom to the State to raise the issue on merits in subsequent assessments. Since the Tribunal has only followed their earlier order in T.A. No. 571 of 2004, the Government Pleader has produced a copy of the same and challenged correctness. We have heard Government Pleader and counsel appearing for the respondents.

On going through the Tribunal''s order for the earlier year which was followed by the Tribunal for allowing the appeals against which these revisions are filed, we notice that the Tribunal has extracted the entire agreement between the respondent and the brand-name owner, namely, Joy Ice Creams, Bangalore Pvt. Ltd. Even though under this franchisee agreement the respondent had agreed to pay licence fee towards consideration for use of the brand name of Joy Ice Creams, Bangalore Pvt. Ltd. under the name area fee and the respondent in fact got ice cream manufactured and sold under the brand name "Joy Ice Creams" under this agreement, the Tribunal still held that the respondent is not liable to pay tax u/s 5(2) for the reason that the respondent is not the brand-name holder as contemplated u/s 5(2) of the KGST Act. According to the Tribunal, holder of brand name means "owner of the brand name". It is on this narrow interpretation the Tribunal has allowed the cases. It is seen that the Tribunal considered the decision of this Court in Bechu & Co. v. Assistant Commissioner (Assessment) reported in [2003] 132 STC 68(SC) : [2004] 12 KTR 155 wherein the High Court has considered the meaning of "holder of brand name" from Collins Cobuild English Dictionary for Advanced Learners Major New Edn. (3rd Edn. 2001). After quoting the Dictionary meaning of the word "holder" in the said judgment as "one that holds something : as a (1) possessor, owner-often used in combination" the court observed as follows (page 92 of STC) : "In this context it must be noted that when a person uses a particular brand name or trade name for his product, ordinarily he has got the ownership over the said brand name or trade name." We do not find from the judgment that this Court has given the meaning for "holder" "as owner" which is a thorough misunderstanding of the judgment by the Tribunal. All what this Court has said is that generally brand name owners use their brand name and so much so, holder in such context means owner. However, it is seen that Section 5(2) uses only the word "brand name holder" instead of "owner". It is clear from this that the Legislature was well aware of the practice of franchisee agreements generally executed by brand name owners permitting grantees to manufacture and sell in the brand name of its owner on consideration agreed between parties. In fact, brand name or trade mark is an assignable right and in this case admittedly under the agreement, the respondent has a five-year agreement on payment of a massive consideration of Rs. 75 lakhs for use of brand name "Joy Ice Creams" which is a reputed brand name in ice creams. In view of the clear-cut admission of the Tribunal itself that the respondent is the franchisee allowed to use the brand name "Joy Ice Cream" by its owner, the respondent is the holder of the brand name for the period of five years covered by the agreement. The finding of the Tribunal that "holder" means "owner" is absolutely untenable and will defeat the purpose of legislation because anybody by assigning brand name to another person can get over the statutory provision providing for levy of tax on sale of goods in brand names. Counsel for the respondent-assessee raised another contention that the manufacturer itself has got a licence with the original brand name holder for manufacture and sale of ice creams in the same brand name in Kerala. Clause (14) of the agreement which is extracted in the Tribunal''s order is as follows:

During the period of the agreement the first and third party shall not give the right to manufacture, market or sell any product under the name Joy Ice Creams in the territory of Kerala.

Party Nos. 1 and 3 referred to in the agreement are Joy Ice Creams (Bangalore) Pvt. Ltd. and Joy Ice Creams, Bangalore who assigned the franchisee rights in Kerala exclusively to the respondent. Therefore, this contention is an absolutely false claim raised when we were about to reverse the order of the Tribunal. The very purpose of Section 5(2) providing for tax at the point of sale by the brand name holder is to ensure that tax is levied on real value of the goods which happens when the brand name or trade mark holder sells the goods irrespective of whether such brand name or trade mark is used by the holder as its owner or as a franchisee or as an assignee. We, therefore, reject this contention raised by the respondent as factually untenable. The sales tax revision cases are therefore allowed reversing the orders of the Tribunal and of the first appellate authority and by restoring the assessments.