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Friday, October 28, 2016

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.= 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.- 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”.

                                     REPORTABLE
                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION

               CIVIL APPEAL NOs. 4283-4284 OF 2013



KAIL Ltd.
(Formerly Kitchen Appliances India Ltd.)            .... Appellant(s)

            Versus

State of Kerala
Represented thrgh. Jt. Commr. (Law)                .... Respondent(s)






                               J U D G M E N T


R.K. Agrawal, J.

1)    Challenge in the  above  said  appeals  is  to  the  legality  of  the
impugned judgments and orders dated 25.05.2010 and 16.08.2011 in ST REV  No.
36 of 2007 and RP No. 337 of 2011 respectively rendered by a Division  Bench
of the High Court of Kerala at Ernakulam.
2)    Factual position in a nutshell is as follows:-
   a) The above said appeals relate  to  the  assessment  under  the  Kerala
      General Sales Tax Act, 1963 (in short ‘the KGST  Act’)  for  the  year
      1999-2000.  KAIL  Ltd.-the  appellant-Company  is  a  dealer  in  home
      appliances at Ernakulam having registered office at Bangalore.
   b) The issue is with regard to the tax under Section 5(2) of the KGST Act
      on sales turnover of home appliances for  Rs.  27,27,20,230/-  on  the
      ground that the appellant-Company had sold the home  appliances  under
      the brand  name  “Sansui”.   To  put  it  more  clear,  the  Assessing
      Authority- the respondent-State, while scrutinizing  the  second  sale
      exemption as claimed by the appellant-Company, 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.
   c)   The appellant-Company was served with  a  show  cause  notice  dated
      15.02.2004 by the  Office  of  the  Assistant  Commissioner  (Assmt.),
      Ernakulam against which a reply was filed on  15.03.2004  denying  the
      averments of the notice stating that the appellant-Company is not  the
      holder of the brand name “Sansui” indicating that the said brand  name
      is owned by  M/s  Sansui  Electric  Co.  Ltd.  Japan.   The  Assessing
      Authority, vide order dated 22.03.2004, dismissed  the  claim  of  the
      appellant-Company with regard to the brand name holder.  Aggrieved  by
      the order dated  22.03.2004,  the  appellant-Company  went  in  appeal
      before the Deputy Commissioner  (Appeals),  Ernakulam  along  with  an
      application for stay.  The Deputy Commissioner (Appeals),  vide  order
      dated 30.09.2004, dismissed the appeal filed by the  appellant-Company
      being Sales Tax Appeal No. 530 of 2004.
   d)  Aggrieved  by  the  order  dated  30.09.2004,  the  appellant-Company
      approached the Kerala Sales Tax  Appellate  Tribunal  (in  short  ‘the
      Tribunal’) by filing T.A. No. 736 of 2004 which was decided in  favour
      of the appellant-Company vide order dated 12.04.2006.
   e) The respondent-State, aggrieved by the abovesaid  order,  preferred  a
      revision petition being ST REV No. 36 of 2007 before the  Kerala  High
      Court.   A  Division  Bench  of  the  High  Court,  vide  order  dated
      25.05.2010, allowed the revision filed by the respondent-State holding
      that the appellant-Company is  the  brand  name  holder  of  “Sansui”.
      Feeling aggrieved, the appellant-Company filed a Review Petition being
      No. 337 of 2011 before the High Court which was dismissed  vide  order
      dated 16.08.2011.
   f) Aggrieved by the judgments and order dated 25.05.2010 and  16.08.2011,
      the appellant-Company has preferred these appeals by  way  of  special
      leave before this Court.
3)    We have  heard  learned  counsel  for  the  parties  and  perused  the
records.
4)    Learned senior counsel  for  the  appellant-Company  contended  before
this Court that  the  appellant-Company  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 (in short ‘the Rules’).  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.
5)    Per contra, learned senior counsel for the respondent-State  submitted
that  the  appellant-Company  could  not  produce  any  valid  evidence   to
substantiate the contention that M/s  Videocon  International  Ltd.  is  the
brand name holder during the relevant year.   The  assessing  authority  has
rightly established by  giving  legitimate  reasoning  that  the  appellant-
Company is the brand name holder of “Sansui” goods.   Also  from  the  facts
and  materials  on  record  and  from  the  observations  of  the  assessing
authority, it could be easily gauged that  during  the  relevant  year,  the
appellant-Company has marketed the products under the brand name “Sansui”.
6)    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.
7)    For deciding the controversy in issue,  it  would  be  appropriate  to
reproduce Section 5(2) of the KGST Act (as it stood at  the  relevant  time)
which reads as under:-
      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.”




However, what is opposed by the appellant-Company is  that  it  is  not  the
“holder” of the brand name in respect of the “Sansui” products sold  by  it.

8)    Whether the appellant-Company is the  holder  of  the  brand  name  in
respect of the “Sansui” products sold by it or not, it would be  appropriate
to quote certain paragraphs of the revision petition  decided  by  the  High
Court which are as under:-


      “Government Pleader produced before  us  the  files,  which  show  the
      respondent’s correspondence even with the Department with letter  head
      printed in the name of Sansui with their logo and  trademark.  He  has
      further  produced  cuttings  from  Financial  Express   published   on
      25.1.2000 wherein, the newspaper has reported that Kitchen  Appliances
      Ltd., a wholly owned subsidiary of  Videocon  International  Ltd.  has
      acquired manufacturing facility from  Philips  India  Ltd.,  Calcutta.
      During the previous postings, we  requested  the  company  to  produce
      annual report, memorandum of articles etc. only to verify whether  the
      case of  the  State  that  respondent  is  a  subsidiary  of  Videocon
      International Ltd. is correct or not. However, no document is produced
      to demolish the State’s claim  that  respondent  is  a  subsidiary  of
      Videocon International Ltd. Going by the evidence on record,  we  have
      to only hold that the respondent is  only  a  subsidiary  of  Videocon
      International Ltd., which marketed the  entire  products  through  the
      respondent in Kerala. Further, from the terms of the agreement between
      the respondent’s holding company  and  Sansui  Electric  Ltd.,  Japan,
      extracted in Tribunal’s order, we notice that  Videocon  International
      Ltd. and their subsidiary companies are allowed to use  the  trademark
      and brand name of Sansui in India. So much so, Videocon  International
      Ltd., which made the first sales to the appellant, is also the  holder
      of the brand name “Sansui” in India.”
                                        (emphasis supplied by us)

9)    As is clear from the language itself that in order  to         attract
sub-Section (2) of Section 5, the following conditions are to be satisfied
      (i)   Sale of manufactured goods other than tea;
      (ii)  Sale of the said goods is under a trade mark or brand name; and
      (iii) The sale is by the brand name holder or the  trade  mark  holder
           within the State.
If all the aforesaid conditions are satisfied, the sale by  the  brand  name
holder or the trade mark holder shall be the first sale for the purposes  of
the KGST Act.
10)   Applying the aforementioned conditions to the  facts  of  the  present
case, it is an admitted fact that the goods sold  by  the  appellant-Company
are manufactured goods other than tea. The  first  condition  is  satisfied.
The next condition to be satisfied is that the sale  of  goods  is  under  a
trade mark or brand name. It is an undisputed  fact  that  the  manufactured
goods sold by the appellant-Company were home  appliances  under  the  brand
name “Sansui”. Thus the second condition is also satisfied.   Now  the  last
condition to be satisfied in order to attract section 5(2) of the  KGST  Act
is that the sale is by the brand name holder or  trade  mark  holder  within
the State and whether the appellant-Company is a holder of  the  brand  name
“SANSUI”.
11)   On 25.01.2000, a newspaper  report  was  published  in  the  Financial
Express stating that Kitchen Appliances Ltd. now  KAIL  is  a  wholly  owned
subsidiary of Videocon International Ltd.  and  has  acquired  manufacturing
facility from Phillips India Ltd., Calcutta. The  position  got  more  clear
from the affidavit filed in the  High  Court  by  Shri  Venugopal  Dhoot,  a
family member of the Dhoot family, who holds a controlling interest  in  the
appellant-Company as well as in M/s Videocon International Ltd., wherein  he
honestly admitted that Dhoot  family,  directly  or  indirectly,  is  having
shareholding control in the appellant-Company and Dhoot  brothers  are  also
the promoters of Videocon International Ltd. The relevant paragraphs of  the
said affidavit are as under:-
      “I, Venugopal S/o.  Late  Shri  Nandlal  Dhoot,  Age  60  years,  Occ.
      Industrialist, R/o. 221, Fort House, 2nd Floor, Dr. D.N.  Road,  Fort,
      Mumbai, do hereby state on solemn affirmation as follows:
      1.    That I am filing  this  affidavit  as  per  directions  of  this
      Hon’ble Court as per order dated 24/06/2011. I have been  director  in
      the respondent company since 30/12/1998 till this date…
      2.    This Hon’ble Court has directed any of the  director  member  of
      Dhoot family to file  an  affidavit  explaining  relationship  between
      Videocon International Ltd. and Kitchen Appliances  (India)  Ltd.  and
      about control of Dhoot family over these two companies. Accordingly, I
      am clarifying the position. I say and submit that  Kitchen  Appliances
      (India) Ltd. now name changed  to  KAIL  Ltd.,  is  a  public  limited
      company and Dhoot family,  directly  or  indirectly,  through  various
      group companies are having shareholding control in respondent  company
      as per the facts and various filings with the Regulatory  Authorities.
      However, the powers of the management are vested  with  the  Board  of
      Directors “Director Board”) of  the  company  and  I  am  one  of  the
      directors of the said respondent company…..
      3.    I respectfully say and submit that at  that  time,  as  per  the
      facts and various filings,  Videocon  International  Ltd.  was  having
      15.31% shareholding  in  the  respondent  company  and  various  other
      companies of  Videocon  Group  were  holding  remaining  equity  share
      capital of the respondent company. We, Dhoot Brothers are promoters of
      respondent company. It is closely held company.
      5.    I further say that Dhoot Brothers are also promoters of Videocon
      International Ltd. and based on the facts and the filings made by  the
      company, from time to time, with the Stock  Exchanges,  the  promoters
      together with various Videocon Group Companies were holding 35.11%  of
      equity shares in Videocon International Ltd. as on 31/3/0000. Copy  of
      shareholding pattern of Videocon International Ltd as on 31/3/2000  is
      produced herewith and marked as Annexure R-1 (G).


      6.    I respectfully further say and submit that at no point  of  time
      the respondent company was  a  subsidiary  of  Videocon  International
      Limited. The same is evident from various  filings  made  by  Videocon
      International   Limited   and   the   respondent   company.   Videocon
      International Limited and, KAIL  Limited  were/are  part  of  Videocon
      Group.
      Affiliated Group
      “The principal operating companies in the Wider Videocon Group outside
      the Videocon Group, including: Videocon Appliances  Limited,  Videocon
      Communication Limited, Applicomp  India  Limited,  Kitchen  Appliances
      India  Limited,  Millennium  Appliances  (India)  Limited  and   their
      consolidated subsidiaries.”
      In this context, other related/relevant definitions are:-
      Dhoot Family
      Mr. V.N. Dhoot, Mr. P.N. Dhoot, Mr. R.N. Dhoot  and  their  blood  and
      marital relations and companies or other entities  outside  the  Wider
      Videocon Group owned and/or controlled directly or indirectly  by  all
      or any such persons.
      Wider Videocon Group
      The affiliated Group and Videocon Group
      Videocon Group
      Videocon Industries  Limited,  and  where  the  context  permits,  its
      subsidiaries….”



12)        Similarly,  paragraph  6  of  the  same  affidavit   shows   that
Videocon International Ltd and KAIL Ltd are part of Videocon group. It  also
shows that during 1999-2000, the  appellant-Company  had  manufactured  2057
colour television sets and 961 black and white  television  sets  in  SANSUI
brand at Calcutta factory. Furthermore, at page Nos. 109-110 of the  website
publication produced by learned senior counsel for the appellant-Company  in
the High  Court  shows  that  as  on  30.06.2006,  100%  shares  of  Kitchen
Appliances India Ltd. were held by Dhoot family.  The  given  evidences  are
sufficient enough to show that the appellant-Company is a subsidiary  and/or
a group company of  M/s  Videocon  International  Ltd  and  hence,  is  also
allowed to use the brand name SANSUI.  Further,  evidence  on  record  shows
that even the letter head used by the appellant-Company  for  correspondence
is printed with the name of SANSUI with their logo and trademark.
13)   In Cryptm Confectioneries (P) Ltd. vs. State of Kerala (2015)  13  SCC
492, this Court while dealing with exactly similar incidence of tax held  as
under:-

      “9. In order to  attract  Section  5(2)  of  the  Act,  the  following
      conditions are to be satisfied:
         (i) Sale of manufactured goods other than tea;
         (ii) Sale of the said goods is under a trade mark/brand name; and
        (iii) The sale is by the brand name holder or the trade mark holder
        within the State.
      If the above three conditions are satisfied, the  sale  by  the  brand
      name holder or the trade mark holder shall be the first sale  for  the
      purpose of the Act.




      10. The aforesaid sub-section commences with  a  non  obstante  clause
      i.e. irrespective of Section 5(1) of the Act or  any  other  provision
      under the Act. The said sub-section speaks of a sale made by  a  brand
      name holder or the trade mark holder within the State. The legislature
      deems that such a sale by the brand name  holder  or  the  trade  mark
      holder shall be the first sale within the State. In our  opinion  this
      is the only possible construction that can be given to sub-section (2)
      of Section 5 of the Act.”


Further, 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”.
14)   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.
15)    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.
16)   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.
17)   Above being the position, the appeals are dismissed with no  order  as
to cost.



                            ...…………….………………………J.


                                 (SHIVA KIRTI SINGH)






































                            .…....…………………………………J.


                               (R.K. AGRAWAL)



NEW DELHI;
OCTOBER 26, 2016.

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