IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- THE HONOURABLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE A.K.BASHEER MONDAY, THE 23RD JUNE 2008 / 2ND ASHADHA 1930 S.T.Rev.No.26 of 2004 ------------------------------------- T.A.NO.361/2003 OF THE KERALA SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH-II, ERNAKULAM - ORDER DATED 22.09.2003 (ASSESSMENT YEAR 1998-99) .................... PETITIONER/RESPONDENT/APPELLANT/ASSESSEE:- ------------------------------------------------------------------------------ M/S.TEEJAN FOODS PRIVATE LIMITED, MUTTOM, THAIKKATTUKARA.P.O., ALWAYE-6. BY ADV. SRI.K.I.MAYANKUTTY MATHER SRI.V.V.ASOKAN SMT.S.AMINA RESPONDENT/APPELLANT/RESPONDENT/REVENUE:- ----------------------------------------------------------------------------- STATE OF KERALA, REPRESENTED BY DEPUTY COMMISSIONER (LAW), COMMERCIAL TAXES, ERNAKULAM. BY SENIOR GOVERNMENT PLEADER SRI.MUHAMMED RAFIQ. THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 23/06/2008, ALONG WITH S.T.REV.NOS.27/2004 &12/2006, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: H.L.Dattu, C.J. & A.K.Basheer, J. ------------------------------------------------------------- S.T.Rev.Nos.26 of 2004, 27 of 2004 & 12 of 2006 ------------------------------------------------------------ Dated, this the 23rd day of June, 2008 ORDER H.L.Dattu,C.J. In all these Sales Tax Revisions, the one and only question that arises for our consideration and decision is, whether the royalty income received by the assessee from the franchisees for the use of the trademark is exigible to tax under the Kerala General Sales Tax Act, 1963 (“K.G.S.T.Act” for short) in the hands of the assessee. The other question is whether, in the facts and circumstances of the present case, can it be said that there exist the concept of “goods”, “turnover” and “taxable turnover” with reference to the receipt of royalty by the assessee from their franchisees? 2. The questions of law raised by the assessee in these revision petitions are no more debatable in view of what has been stated by this Court in the case of Mechanical Assembly Systems (I) Pvt. Ltd. v. State [(2006) 144 STC 536]. In the said decision, the Court was pleased to observe as under: “The traditional meaning of the word “goods” has made radical change due to technological and scientific developments. Reference may also be made to a recent decision of the apex Court in Tata Consultancy Services v. State of Andhra Pradesh [2004] 137 STC 620; (2005) 13 KTR 1, wherein the apex Court examined the constitutional S.T.Rev.26/2004 & connected cases - 2 - definition of the word “goods” and held that it includes all materials, articles and commodities both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed, etc. Court held, software programmes contain all these characteristics. It is relevant to refer to the dictum laid down by the Supreme Court which is extracted below: “In our view, the term 'goods' as used in article 366(12) of the Constitution of India and as defined under the said Act are very wide and include all types of movable properties, whether those properties be tangible or intangible. We are in complete agreement with the observations made by this Court in Associated Cement Companies Ltd. [2001] 124 STC 59 (SC); (2001) 4 SCC 593. A software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or canvas (in case of painting) or computer discs or cassettes, and marketed would become 'goods'. We see no difference between a sale of a software programme on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. Sale is S.T.Rev.26/2004 & connected cases - 3 - not just of the media which by itself has very little value. The software and the media cannot be split up. What the buyer purchases and pays for is not the disc or the CD. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media, i.e., the paper or cassette or disc or CD. Thus a transaction sale of computer software is clearly a sale of 'goods' within the meaning of the term as defined in the said Act. The term 'all materials, articles and commodities' includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed, etc. The software programmes have all these attributes”. 3. Similar issue came up for consideration before the Bombay High Court in the case of Commissioner of Sales Tax v. Duke & Sons Pvt. Ltd. [(1999) 112 STC 370] and the Madras High Court in the case of S.P.S.Jayam and Co. v. Registrar, T.N.T.S.T. [(2004) 137 STC 117]. 4. In Duke & Sons' case (supra), the learned Judges of the Bombay High Court have held as under: “6. The Maharashtra Sales Tax on the Transfer of the Right to use any Goods for Any Purpose Act, 1985 was enacted with a view to levying tax on transfer of right to use any goods for any purpose for cash, deferred payment or any S.T.Rev.26/2004 & connected cases - 4 - other valuable consideration in the State of Maharashtra. Under section 3 of the Act, tax is leviable on the turnover of sales in respect of transfer of right to use any goods. “Turnover of sales” has been defined in clause (15) of section 2 to mean aggregate of the amounts of sale price received or receivable during the year by a dealer in respect of the transfer of the right to use any goods. “Sale price” has been defined in clause (11) of Section 2 to mean the amount of valuable consideration received or receivable for the transfer of the right to use any goods for any purpose. The transfer of right to use any goods for any purpose is regarded as “sale” under the Act as is evident from the definition of “sale” in clause (10) of section 2 of the Act which defines sale to mean transfer of any right to use any goods for any purpose for cash, deferred payment or any other valuable consideration. From a conjoint reading of the above provisions it is thus clear that tax is leviable under the Act on the amount received by the assessee for the transfer of the right to use any goods for any purpose. In the instant case, the assessee received a sum of Rs.1,500 by way of royalty on the transfer of right to use the trade mark of which the assessee is the owner. The right was transferred by an agreement with the transferee by which the transferee was allowed to use the trade marks of the assessee on payment of consideration by way of royalty at the rate specified therein. It was made clear in the agreement that what was transferred to the transferee was only the right to use the trade mark in the manner set out therein and not the right or interest of the assessee in the trade mark. The S.T.Rev.26/2004 & connected cases - 5 - assessee's case is that mere user of the trade mark without transfer of any right in the trade mark would not amount to transfer of right to use the trade mark within the meaning of clause (10) of section 2 of the Act. However, on perusal of the clear provisions of the 1985 Act, we find it difficult to accept the same. This contention, in our opinion, goes counter to the very scheme and object of the 1985 Act. The 1985 Act was enacted for the purpose of levying tax on the transfer of right to use the goods. It is not applicable to transfer of right or title in the goods which may attract the provisions of the Bombay Sales Tax Act. In case of trade mark, what is taxable under the 1985 Act is the transfer of right to use the trade mark. Admittedly, by agreement between the assessee and M/s.Salstar Foods & Beverages Ltd., there was a transfer of right to use the trade mark to M/s.Salstar Foods & Beverages Ltd. The royalty of Rs.1,500 was payable in respect of transfer of the right to use the trade mark. Such transfer clearly falls within the provisions of the 1985 Act. 7. “Trade mark” has been defined in section 2(1)(v) of the Trade and Merchandise Marks Act, 1958 to mean a mark used in relation to goods for the purpose of indicating a connection in the course of trade between the goods and some person having the right, either as a proprietor or as registered user, to use the mark whether with or without any indication of the identity of that person. There is a distinction between transfer of right to use a trade mark and assignment of a trade mark. “Assignment” of trade mark is taken to be a sale or S.T.Rev.26/2004 & connected cases - 6 - transfer of the trade mark by the owner or proprietor thereof to a third party inter vivos. By assignment, the original owner or proprietor of trade mark is divested of his right, title or interest therein. He is not so divested by transfer of right to use the same. Licence to use a trade mark is thus quite distinct and different from assignment. It is not accompanied by transfer of any right or title in the trade mark. The transfer of right to use a trade mark falls under the purview of the 1985 Act and not the assignment thereof. The manner of transfer of the right to use the goods to the transferee would depend upon the nature of the goods. For transfer of right to use a trade mark, permission in writing as required by law may be enough. In case of tangible property, handing over of the property to the transferee may be essential for the use thereof. All that will depend upon the nature of the goods. Take for instance, transfer of right to use machinery. This right to use the machinery cannot be transferred by transferor to the transferee. Without transfer of control over it. The case before the Andhra Pradesh High Court in Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer [1990] 77 STC 182 was a case of transfer of right to use machinery. It was in that context, the above decision came to be rendered. But the position in case of trade mark is different. For transferring the right to use the trade mark, it is not necessary to handover the trade mark to the transferee or give control or possession of trade mark to him. It can be done merely by authorising the transferee to use the same in the manner required by the law as has been done in the present case. The right to use the trade mark can S.T.Rev.26/2004 & connected cases - 7 - be transferred simultaneously to any number of persons. The decision of the Andhra Pradesh High Court in Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer [1990] 77 STC 182 thus has no application to the transfer of right to use a trade mark”. 5. In S.P.S.Jayam Company's case (supra) the Madras High Court has held as under: “8. Coming to the facts of the present case, the petitioner/assessee permitted M/s.Muthu Agencies to use their trademark in the course of trade at the rates specified therein for various items during a particular period. Of course, it retained the liberty to make use of the trademark in the event of the licensor starting to manufacture the products. Equally, it retained the liberty to grant licence to any other individual person or company to use the trademarks. Trademark is the property right and it exclusively belongs to the party who has registered it. Such a right is an intangible or incorporeal goods, which can be merchandised by the registered owners. As pointed out by the Supreme Court, the word “goods” is defined in very wide terms so as to bring in both tangible and intangible objects. General Clauses Act would explain movable property as property of every description except immovable property. Trademark right is intangible goods, which can be subject-matter of transfer. As already pointed out, M/s.Muthu Agencies was granted S.T.Rev.26/2004 & connected cases - 8 - permission to use the trademark without any restriction whatsoever for a particular period. Consequently, it can only be taken as transfer of a right to use and not a mere right to enjoy. Simply because the assessee retained the right for himself to use the trademark and reserved the right to grant permission to others to use the trademark, it would not take way the character of the transaction as one of transfer of a right to use. That being so, this Court has to only hold that the order of the Tamil Nadu Taxation Special Tribunal, Chennai, confirming the order of the Joint Commissioner-III (SMR), Chepauk, is well in order”. 6. We are in respectful agreement with the view expressed by the learned Judges in those two decisions. 7. However, Sri.K.I.Mayankutty Mather, learned counsel appearing for the assessee, has invited our attention to the observations made by the apex Court in the case of Pepsi Foods Ltd. v. Collector of Central Excise [(2004) 134 STC 344] and State of H.P. v. Gujarat Ambuja Cements Ltd. [(2005) 6 SCC 499]. In our view, the decisions cited by the learned counsel appearing for the assessee would in no way assist him. In the decision cited in Pepsi Food case (supra), the apex Court was considering the provisions of Central Excise Act and in Gujarat Ambuja Cements' case (supra), the Supreme Court was considering whether purchase tax was liable to be paid on the royalty paid. S.T.Rev.26/2004 & connected cases - 9 - 8. In view of the above, respectfully following the observations made by this Court in Mechanical Assembly Systems case [(2006) 144 STC 536], these revision petitions require to be rejected and they are rejected. 9. In view of the order passed in the Sales Tax Revisions, all pending interlocutory applications are dismissed. Ordered accordingly. Sd/- H.L.Dattu Chief Justice Sd/- A.K.Basheer vku/dk. Judge (True copy)