Allahabad HC upholds the Jurisdiction of UP VAT Authorities to demand Tax from Dominos Pizza in Royalty received [Read Judgment]

In a recent ruling, the Allahabad High Court observed that the UP VAT authorities has jurisdiction to assess Dominos Pizza Overseas Franchising in respect of Royalty received. While dismissing the writ petition filed by the Company, the Court observed that though the petitioners contended that the franchise agreement between petitioner and JFL was executed outside India, the place of contract is actually in India as per the provisions of Indian Contract Act.

Coming to the facts of the case, the Petitioners M/ S Dominos Pizza Overseas Franchising, denied their VAT liability in respect of royalty amount received from M/s Jubilant Foodworks Ltd as per the as per the Franchise Agreement between these two parties for the purpose of developing and operating Dominos Pizza Stores and to grant sub franchise of Dominos Pizza Stores in India, Nepal, Bangladesh and Srilanka. The case of the Department was that JFL is using trademark of petitioner, therefore, Royalty paid by it on sale of manufactured goods is taxable under U.P. Value Added Tax Act, 2008. The order was impugned by the petitioners before the High Court.

The petitioners contended that the incidence of tax is on ‘dealer’ and levy of tax is, “sale and purchase of goods”. Term ‘dealer’ is defined under Section 2(h) of VAT Act, 2008 which includes any person who carries on business of transfer of right to use any goods for any purpose (whether or not for a specified period) for cash or for deferred payment or other valuable consideration in State of U.P. It is said that only when transfer of right to use any goods is subjected in State of U.P., the same is taxable and not otherwise.Therefore, according to the petitioners, the VAT officer has no jurisdiction to levy tax on transaction executed outside India since agreement between petitioner and JFL was executed outside India.

While determining the place of contract, the Court observed that “In the present case there is no averment regarding mode of communication adopted by petitioner communicating its acceptance. There is not even a whisper as to how and in what manner communication of acceptance was made. In absence of any specific pleading so as to attract exceptions with regard to communication, we have no option but to hold that acceptance will be completed only when it is communicated to offer or and that communication would be at a place where from offer was made. That be so,the agreement can be said to become a concluded contract and executed when it is communicated to Proposer/ Offer or at NOIDA where from offer was made. The ultimate result would be that the very foundation of argument that taxing authorities in Uttar Pradesh had no jurisdiction, disappears and vanishes. It cannot thus be said that impugned orders are patently without jurisdiction.”

Read the full text of the Judgment below.