By TIOL News Service

NEW DELHI, OCT 27, 2016: THE Assessing Authority, the respondent-State, while scrutinizing the second sale exemption as claimed by the appellant-Company, KAIL, found that it is the brand name holder of "Sansui" and hence the turnover of the items sold under "Sansui" brand name will be treated as first sale under Section 5(2) of the KGST Act. Passing through several channels, the issue reached the Supreme Court.

The appellant contended before the Supreme Court that it purchased the entire goods from Videocon International Ltd., Kochi Branch, after paying tax under the KGST Act. The appellant-Company is only the second seller of the goods and the Assessing Authority ought to have noted that the appellant-Company is eligible for rebate of tax under Rule 32(13B) of the Kerala General Sales Tax Rules, 1963. There is no material on record for the respondent-State to contend that the appellant-Company has any brand name rights to treat them as the seller of the goods under the brand name "Sansui" in India. In other words, the short contention of learned senior counsel for the appellant-Company is that Videocon International Ltd. itself, which brought the manufactured goods to Kerala, was the brand name holder and their sale was the first sale as well as the sale falling under Section 5(2) and so much so the second sale exemption was rightly claimed by the appellant-Company.

The appellant-Company is a registered dealer under the KGST Act in Kerala, engaged in marketing products like television, washing machine etc. manufactured under the brand name "Sansui". The entire products are purchased by the appellant-Company from Videocon International Ltd. In fact, Videocon International Ltd., the holding company, brings the goods to Kerala on stock transfer and the entire goods were sold to its subsidiary, the appellant-Company, for marketing in Kerala. Even though Videocon International Ltd. returned the entire sales as first sales on which they have collected tax from the subsidiary company, the appellant-Company was assessed for sales tax by the Assessing Officer while scrutinizing the second sale exemption as claimed by the appellant-Company and found that the goods in respect of which second sale exemption was claimed by the appellant-Company were goods sold under brand name "Sansui" and so much so, tax under Section 5(2) is payable by the appellant-Company. The appellant-Company opposed the same by stating that the brand name "Sansui" is owned by Sansui Electric Ltd., Japan and is not at all related to the appellant-Company. During the course of proceedings, the Assessing Officer found that the correspondence sent to the Department was in the letter head with the trademark, logo and brand name of "Sansui". Since the products were sold under the brand name "Sansui", assessment was made under Section 5(2) of the KGST Act after disallowing second sale exemption as claimed by the appellant-Company.

Section 5(2) of the KGST Act (as it stood at the relevant time) reads as:-

Levy of tax on sale of goods.-

"Notwithstanding anything contained in this Act, in respect of manufactured goods other than tea, which are sold under a trade mark or brand name, the sale by the brand name holder or the trade mark holder within the State shall be the first sale for the purpose of the Act."

The Supreme Court observed,

We are of the view that when a product is marketed under a brand name, the Assessing Authority is entitled to assume that the sale is by the holder of the brand name or by a person, who is entitled to use the brand name in India. Apart from this, in this case, the marketing is actually done by fully owned subsidiary and/or a group company of the holding company, which was allowed to use the brand name "Sansui".

Brand name has no relevance when the products are manufactured and sold in bulk by the holding company to its subsidiary company for marketing. However, the brand name assumes significance when goods are marketed with publicity in the market. Moreover, when the goods are sold under the brand name, necessarily, it has to assume that the marketing company is the holder of the brand name or has the right to market the products in the brand name because, it is the first company introducing the products in the market. The objective of Sec 5(2) of KGST Act is to assess the sale of branded goods by the brand name holder to the market and the inter se sale between the brand name holders is not intended to be covered by Sec. 5(2) of the KGST Act.

However, if the sale between the holding company and the subsidiary company, both having the right to use the same brand name, is at realistic price and the marketing company namely, the appellant-Company charged only usual margins in the trade, then there is no scope for ignoring the first sale, particularly, when the first seller was also the holder of the brand name and was free to market the products in the brand name. However, the evidence on record shows that the margin charged by the appellant-Company while making the further sale of product is unusually high. So the inter se sale between the groups of companies under the control of the same family was only to reduce tax liability and was rightly ignored by the assessing officer by levying tax under Section 5(2) of the KGST Act.

In view of the foregoing discussion, we are of the opinion that the tax invoking Section 5(2) of the KGST Act was rightly levied on the appellant-Company for the relevant period as it is proved beyond reasonable doubt that the appellant-Company is the brand name holder of "Sansui". We uphold the decisions rendered by the High Court in revision petition and review petition and no interference is warranted into it.

The appeals are dismissed.

(See 2016-TIOL-181-SC-CT)