The Commissioner of Sales Tax, Maharashtra on July 13 has issued a trade circular under Section 10(10) of the Maharashtra Value Added Tax Act, 2002 (MVAT Act), according to which Value Added Tax (VAT) can be levied on transfer of right to use goods of intangible nature like trademarks, copyrights and technical know-how, even if such right is transferred to multiple companies.
The said circular has been issued pursuant to the decision of Bombay High Court in the case ofTata Sons Limited and Another v. State of Maharashtra (Writ Petition No. 2818 of 2012) wherein the Court delved into the issue whether the agreement executed by Tata Sons with the Tata Companies providing detailed guidelines for use of the Tata name and trademark will attract tax
under Transfer of Right to Use Goods for Any Purposes Act, 1985 (hereinafter referred to as the ‘Act of 1985’).
Brief Facts of the Case and Court’s Judgement in the Case
- The Petitioner (Tata Sons) in the year 1998 entered into agreements with multiple companies with a view to systematically develop and enhance the brand equity in the word TATA. By the Agreement, the companies were granted the right to obtain a non-exclusive and non-assignable license to use TATA marks;
- The impugned Agreements entered into by the Petitioner were examined by the Sales Tax Department which concluded that the transaction embodied in the Agreements fell under the purview of the Maharashtra Sales Tax on the Act of 1985 and thereby issued Assessment Notices for levy of sales tax and passed Assessment Order;
- Aggrieved by the aforesaid, the Petitioner filed appeals against the assessment order. However, the appeals were dismissed by the Deputy Commissioner of Sales Tax (Appeals) and the Maharashtra Sales Tax Tribunal;
- Thereafter, the Petitioner filed a writ petition with the Bombay High Court claiming that such an agreement would not attract the law as enumerated under the Act of 1985;
- While advancing its arguments, the Petition heavily relied on the Apex Court’s decision in the case of Bharat Sanchar Nigam Limited v. Union of India & Ors. (2006) STC Vol. 195. and contented that in the said case the Supreme Court considered somewhat identical issues and the Tribunal should have considered the Court’s opinion in the case instead of brushing them aside;
- That the facility and concession given to the use of trademark and the name will not necessarily mean that there is any transfer within the meaning of Act of 1985;
- That the impugned agreement (Brand Equity and Business Promotion Agreement) is an incident of right to use the trademark and is not an agreement for the transfer of trademark;
- That the Act of 1985 dealt with the right to use any goods and the words “exclusive” and “unconditional” which are being read into this Act by the Petitioner are totally absent therein;
- That if the right to use trademark is transferred then the Act applies and it does not necessarily mean that the trademark is itself transferred or assigned;
- That there could be multiple transfer of right to use and in such circumstances when the Act does not contemplate cession of user by transfer, then levy could not be avoided;
High Court’s Decision and Observations in the case:
- That in case of intangible goods the right to use them is capable of being transferred and if transferred it may be subjected to tax. The Act does not give an indication that right to use the incorporeal right goods should be exclusive transfer in favour of the transferee;
- That the deal or transaction between the Petitioners and the subscribers envisage that a transfer of right to use the goods and which could be said to be the marks as well;
- That upon a conjoint reading of the provisions of the Act, the Court was of the opinion that in case of intangible goods the right to use them is capable of being transferred and if transferred it may be subjected to tax;
- That it is clear from the clauses of the Agreement that proprietor continues to control even the limited right conferred by the clauses in favour of the subscribers;
- That we are of the opinion that so long as the agreement transfers the right to use intangible goods which are the trademark in this case, then there is no question of the petitioners escaping the consequences of the enactment;
In view of the decision of the Bombay High Court the Commissioner of Sales Tax (Maharashtra) has issued the circular clarifying tax imposition on transfer of right to use intangible goods including trademarks, copyrights and technical-know how even when transferred to multiple users.