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Bombay High Court judgment upholds sales tax on use of trademarks;
rejects reliance placed on BSNL ruling
25 February 2015
Background
The Bombay High Court, in the case of Tata Sons
Limited (the petitioner), has held that transfer of right to
use goods of incorporeal or an intangible character
such as trademarks, copyrights, patents, etc. is exigible
to State Value Added Tax and that there need not be
any exclusive and unconditional transfer. The
transaction should attract tax even if there may be
multiple transferees and the transferor continues to use
goods. Further, it observed that the Supreme Court in
1
the case of Bharat Sanchar Nigam Limited (BSNL)
dealt with altogether different controversy, and hence
its ruling can be distinguished from the present case.

The said Agreement entered into by TSL with
various subscriber companies was examined by
the sales tax department who concluded that the
transactions embodied in the said Agreement was
covered by the provisions of the Maharashtra
Sales Tax on the Transfer of the Right to use any
Goods for any Purposes Act, 1985 (the Lease Tax
Act) and issued notices for assessment and
passed separate Assessment Orders.

Being aggrieved, the petitioner filed appeals which
were dismissed by the Deputy Commissioner of
Sales Tax (Appeals) and then by the Honourable
Maharashtra Sales Tax Tribunal level;

The petitioner then filed a writ petition with the
Bombay High Court challenging the levy of tax on
the subscriptions received by it from subscribing
companies.
Facts of the case

The petitioner entered into agreements with various
TATA companies (Subscribing Companies) with a
view to systematically develop, promote and
enhance the Tata brand, as well as to legally
protect the same. The said Agreement granted to
the subscribing companies the right to obtain a
non-exclusive and non-assignable licence to use
the Tata Marks.
___________
Issue before the High Court

Whether the subscriptions received by the
petitioner under the agreements entered into with
various subsidiaries and group companies is liable
to tax under the Lease Tax Act?
1
Bharat Sanchar Nigam Limited v. Union of India and others (2006) STC Vol.
195 pg. No. 91
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
High Court’s judgment
The Bombay High Court has held as follows:

Upon reading of the entire Lease Tax Act and various
provisions together and harmoniously, the transaction
between the petitioners and the subscribers envisage a
transfer of right to use the goods which would include
the Marks as well. Further, the Lease Tax Act does not
give any indication that the right to use the
incorporeal/intangible goods should be exclusively and
unconditionally transferred in favour of the transferee.

The underlying controversy in the decision of BSNL was
the relationship between a telephone connection
service provider and its customer which was essentially
in the nature of service. The observations, findings and
conclusions of the said judgment cannot be extended to
the facts and circumstances of the present case. Going
by the plain and unambiguous language of the Lease
Tax Act, the element of exclusivity and unconditional
transfer cannot be read in. Therefore, the tests in para
(d) and (e) of para 98 as specified in BSNL judgment
cannot be read in isolation and into the Lease Tax Act.

Further, it is incorrect to hold the Division Bench ruling
2
in Duke & Sons Pvt. Ltd. as no longer good in law,
since the judgment has been consistently referred and
quoted with approval by Kerala High Court and Andhra
Pradesh High Court which was subsequent to the
judgment of the Supreme Court in BSNL.

The Bombay High Court upheld the levy of sales tax on
the agreements under the Lease Tax Act.
Further, the High Court has not expressed any opinion
on the Maharashtra Sales Tax Tribunal’s favourable
6
decisions in the case of Smokin Joe and Diageo
7
India where separate proceedings are pending with
the Bombay High Court.
In light of this High Court judgment, the transactions of
transfer of right to use, with or without exclusive and
unconditional transfer, could also be brought under
the purview of sales tax/VAT and may lead to reopening of the debate regarding the meaning of
transfer of the right to use goods.
This is expected to also raise the question of dual
taxation on licences in respect of intellectual property
such as trademarks, copyrights, patents, etc. which
are already subject to service tax.
Our comments
The issue of taxability of transaction of transfer of right to
use has always been a matter of litigation. The decision of
the Bombay High Court has re-ignited the controversial
issue of transfer of right to use. The Bombay High Court in
the present judgment has concurred with the earlier
decision in the case of Dukes & Sons Pvt. Ltd by holding
that it is good law. The said decision has been referred and
relied upon by the Kerala High Court in the case of Kreem
3
Foods Private Limited and in the case of Jojo Frozen
4
Foods (P) Ltd and by the Andhra Pradesh High Court in
5
the case of Nutrine Confectionery Co Pvt Ltd .
_____________________
_____________
2
Commissioner of Sales Tax v. Dukes and Sons Pvt. Ltd. 1999 (1) MH.L.J. 26
Kreem Foods Private Limited v. State of Kerela (2009) 24 VST 333
Jojo Frozen Foods (P) Ltd. v. State of Kerela (S.T.Rev. No. 12 of 2006)
5
Nutrine Confectionery Co. Pvt. Ltd. v. State of Andhra Pradesh (2011) 40 VST 327
(AP)
3
4
6
Smokin’ Joe’s Pizza Pvt Ltd v. State of Maharashtra – Appeal No. 25 of
2004
7
Diageo India Pvt. Ltd. v. State of Maharashtra – Second Appeal Nos. 1432
to 1438 of 2006
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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