Right to use trademark being intangible, whether it was “deemed sale” as defined under the Kerala Value Added Tax Act, 2003 when service tax was paid on royalty received.

Petitioner is engaged in marketing, trading, export and import of jewellery, diamond ornaments, platinum, watches etc. and the sole proprietor of the trademark “Malabar Gold”. The petitioner has entered into franchise agreements with several companies situated inside and outside Kerala and also abroad, to use the trademark and receives royalty as consideration. The petitioner paid service tax on royalty. The respondent contended that the transfer to use trademark is transfer of goods and therefore exigible to Kerala Value Added Tax Act, 2003.

The petitioner on receipt of show causes notices filed writ petition before the Honourable High Court. The petitioner relied on the case of Imagic Creative (P) Ltd vs. Commissioner of Commercial Taxes 2008 (9) STR 337 (SC) and BSNL vs. UOI 2006 (2) STR 161 (SC) while the respondents relied on the provisions of Article 366(29A) of the Constitution of India and decisions of Tata Consultancy Services vs. State of A.P. 2004 (178) ELT 22 (AP) and other similar decisions of the Kerala High Court. According to the petitioner, the cases relied by the respondent were prior to the application of the Finance Act, 1994 and they had paid service tax on the use of trademark and therefore, VAT should not have been levied as decided by the Supreme Court in the case of Imagic Creative (supra) and that VAT and service tax are mutually exclusive and both cannot be levied on the same transaction. The petitioner also contended that the right to use trademark not to the exclusion to the transferor was transferred and as held in BSNL (supra) this was one of the necessary attributes for treating the transaction as sale of goods not satisfied.

Held

The Honourable High Court held that the facts of the present case wherein it has been conceded by the petitioner that trademark is transferred for use for consideration i.e. royalty is distinguishable from the facts of BSNL case (supra) wherein the issue examined was whether BSNL provided sale or service in the light of the fact that BSNL was retaining physical control and possession and hence, BSNL case (supra) could not be considered. The Honourable High Court also held that the transfer of trademarks for use was exigible to Kerala VAT tax and as the petitioner did not challenge the applicability of service tax on such a transaction, it did not comment upon the same and hence, Imagic Creative (supra) could not be relied upon.