By TIOL News Service

MUMBAI, MAY 18, 2018: THE appellants are the owners of brand name "SWASTIK and had entered into an agreement with M/s New Sahyadri Industries Ltd. for permitting them to use the said trade name. As per the agreement, the appellants were charging 0.01% of the value of the sale of the goods from M/s New Sahyadri Industries Ltd.

Revenue treated this amount as a consideration for the taxable service provided under Intellectual Property Service and demanded Service Tax on the same.

The demands were confirmed along with interest and penalties and, therefore, the appellant is before the CESTAT.

It is argued by the appellant that they have paid VAT on this receipt treating brand name as ‘goods'; that under the VAT Laws, brand name is treated as ‘goods' and therefore, transfer of right to use of goods is taxable under VAT; that since they have paid the VAT, there cannot be any leviability of Service Tax.

Reliance is placed on the following case laws to buttress their submission –

+ Tata Sons Ltd. & Another Vs. The State of Maharashtra & Another 2015-TIOL-345-HC-MUM-CT.

+ Mahyco Monsanto Biotech (India) Pvt. Ltd. Vs. Union of India - [2016-TIOL-1766-HC-MUM-VAT]

Furthermore, decision of jurisdictional High Court in the case of Tata Sons (supra) would be binding on the Tribunal even though the High Court of Kerala [Malabar Gold Pvt. Ltd. - 2012-TIOL-1032-HC-KER-VAT (Single Judge) overruled 2013-TIOL-512-HC-KERALA-ST] has differed with the same.

The AR submitted that the decision in the case of  Tata Sons Ltd. (supra)  pertains to the period 2001-02 and during the said period, there was no taxable service under the head of IPR and therefore, the provisions of Finance Act, 1994 were not before the High Court. Reliance is placed on the decision in McDonalds India Pvt. Ltd. [2017-TIOL-961-HC-DEL-VAT].

It is also brought to the notice of the Bench that in the case of Mahyco Monsanto Biotech (India) Pvt. Ltd. [2016-TIOL-1766-HC-MUM-VAT] two appeals were considered and whereas in case of  Mahyco Monsanto Biotech (India) Pvt. Ltd., the decision was against the Revenue but in case of M/s Subway Systems India Pvt. Ltd. , the decision was in favour of Revenue.

After extensively extracting the decision delivered in the case of Mahyco Monsanto Biotech (India) Pvt. Ltd., the Bench noted that the terms of the agreement need to be examined in each case before a decision is taken regarding leviability of VAT or Service Tax.

Adverting to the apex court decision in BSNL 2006-TIOL-15-SC-CT-LB, the CESTAT examined the terms of the contract in the appellant's case and observed –

"…It is apparent from the agreement that, (i) No exclusive right to use the trade mark "Swastik" has been given to M/s New Sahyadri Industries Ltd. The appellants are free to give this trade mark to other even in the same territory.(ii) M/s New Sahyadri Industries Ltd. are not free to permit use of the trade mark to anybody else i.e. they cannot sub-license. (iii) If M/s New Sahyadri Industries Ltd. wish to permit to any other support for use then they have to seek permission of the appellant. The trade mark cannot be assigned to anybody by M/s New Sahyadri Industries Ltd. (iv) While the agreement is for a period of 10 years, both parties have option to terminate the agreement by giving the notice of three months.

Noting that the agreement is very similar to the agreement examined by Hon'ble High Court in respect of M/s Subway in the decision reported in case of Mahyco Monsanto (supra), the Bench held that the agreement is an agreement of permissive use of the trade mark "Swastik.

Accordingly, it was concluded that there was no merit in argument of the appellant that the said transaction is not liable to Service Tax under Finance Act, 1994.

On the submission made by the appellant that they have paid VAT and therefore, no Service Tax can be demanded, the CESTAT observed –

"…It is not in the jurisdiction of this Tribunal to adjudicate on the leviability of VAT or otherwise. This Tribunal is competent to adjudge regarding leviability of Service Tax under the Finance Act, 1994 only. In these circumstances, in so far as the payment of VAT is concerned, the appellant may approach the appropriate authority.

As regards the argument by the appellant that the impugned order did not give any findings with respect to imposition of penalties, the Tribunal reproduced paragraph 18 of the impugned order and observed –

"…, we find that the elements for imposing the penalty are identical to those necessary to invoke the extended period of limitation. In these circumstances, no separate specific findings are needed for imposition of penalty under Section 78 of the Finance Act, 1994.

The appeals were dismissed.

In passing: Also see Godfrey Phillips India Ltd. 2017-TIOL-4488-CESTAT-MUM.

(See 2018-TIOL-1564-CESTAT-MUM)