In a recent decision, the two-judge bench of the Supreme Court held that the sale of branded goods among a Holding Company and a subsidiary Company do not constitute “first sale” within the meaning of section 5(2) of the Kerala General Sales Tax Act, 1963 since the same is sale among the same brand owners. Therefore, the sale of branded goods by a subsidiary company to the market will be treated as “first sale” and consequently, will attract tax liability u/s 5(2) of the Act.The decision was on an appeal filed by the KAIL against the order of the Kerala High Court in which it was held thatthe appellants are the brand name holder of “Sansui” and therefore the sales made by them are liable to be assessed u/s 5(2) of the Act.
The assessing authority, in the instant case, completed assessment against the appellant-Company by invoking s. 5(2) of the KVAT Act finding that they had sold the home appliances under the brand name “Sansui”. The Officer found that the appellant is the brand name holder of “Sansui” and hence the turnoverof the items sold under “Sansui” brand name will be treated asfirst sale under Section 5(2) of the KGST Act.Though the first appellate authority confirmed the assessment order, the Appellate Tribunal set aside the same. However, on a revision petition preferred by the State, theHigh Court reversed the decision of the Tribunal by observing that the appellant comes within the ambit of section 5(2) and confirmed the addition made by the assessing officer.
The Court noticed that the sale by the brand name holder or the trade mark holder shall be the first sale for the purposes of the KGST Act, if it satisfies three conditions such as, (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 trademark holder within the State.
“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 andwhether the appellant-Company is a holder of the brand name “SANSUI”.”
Regarding the third condition, it was pointed out that the appellant-Company also satisfies the same since it is a subsidiary of M/s Videocon International Ltd and hence, is also allowed to use the brand name SANSUI.
The Court emphasized 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 above, the Court upheld the order of the High Court finding that the appellant-Company is the brand name holder of “Sansui” and therefore attracts tax liability under the KGST Act.
Read the full text of the Judgment below.
