service tax on use of trade mark
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65. 17/2004- Service Tax, dated
10-09-2004. [G.S.R.591(E)
dated 10-09-2004]
Service tax ! "#der $
i!te##ect%a# &r&ert' ri"t -
E$$ective rate $ d%t'
Exe&ti! &rvided %!der
*ti$icati! *. 14/2012
dt. 20.06.2012
We are sharing with you analysis of an important recent judgment ofthe Honble Kerala High Court in the case of Malabar Gold Pvt
Ltd (hereinafter referred to as the Petitioner) Vs. Commercial
Tax Officer !"#! (##) TM$ %!& ' *+L+ ,$G, CO-*T] on thefollowing issues:-
Issue:
Whether Trademark is !oods" Whether right to use of Trademark
ta#able under $tate %&T &cts as sale of goods"
Whether %&T or $er'ice Ta# applicable on right to use of Trademark"
Facts:
The (etitioner Company had entered into )ranchisee &greements with
se'eral companies* situated inside and outside Kerala and also abroad*as per which* on mutually agreed terms and conditions* these
companies were allowed to use the Trademark owned by the petitioner+
,n return* it is recei'ing royalty* the rate of which is also specified in theagreement+ )ranchisee $er'ices* being an acti'ity attracting $er'ice Ta#
under the )inance &ct* ../* the petitioner obtained registration under$ection 0.of the )inance &ctand is paying ser'ice ta#+
They were issued notice by the Kerala $tate %&T authorities stating that
transfer of right to use any goods is ta#able under $ection 012 of underthe Kerala %alue &dded Ta# &ct 1hereinafter referred to as the &ct2
and that* 3oyalty recei'ed by the petitioner from its franchisees for use
of its Trade 4ark would attract %&T under entry 05 of the third scheduleto the &ct+
Then* the (etitioner Company has filed Writ (etitions against the
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demand of %&T on 3oyalty recei'ed for use of its trademark and for
sharing business know-how+
Held:
The Kerala High Court /held the demand of V+T b0 holdin1 thatTrade Mar2 is 1oods and *o0alt0 received from franchisees for
se of its trademar2 and for sharin1 bsiness 2no3'ho3 isleviable to V+T.
The Court held that as per &rticle 600 17.&2of the Constitution of
,ndia* 4tax on the sale or /rchase of 1oods4 incldes a tax onthe transfer of the ri1ht to se an0 1oods for an0 /r/ose
(3hether or not for a s/ecified /eriod) for cash5 deferred/a0ment or other valable consideration4and 8!oods9 under
$ection 71##2 of the &ct means that all kinds of mo'able property
1other than newspapers* actionable claims* electricity* stocks andshares and securities2 and includes li'estock* all materials* commodities
and articles and e'ery kind of property 1whether as goods or in someother form2 in'ol'ed in the e#ecution of a works contract* and all
growing crops* grass or things attached to* or forming part of the land
which are agreed to be se'ered before sale or under the contract ofsale+ The e#pression would mean all kinds of mo'able property*
including li'estock* all materials* commodities and articles other thanwhat are e#cluded in the section itself+ ta#managementindia+com
6ecision of the Cort on 3hether V+T or 7ervice Tax
a//licable8 The(etitioner contended that the transaction in uestionattracted ser'ice ta# and that in 'iew of the principles laid down in
the $ma1ic Creative (P) Ltd. v. Commissioner of Commercial
Taxes and others !""9 (#) TM$ ! ' 7-P*M CO-*T O: $;6$+*payments of ser'ice ta# and %&T are mutually e#clusi'e and hence %&T
is not payablesince the petitioner is paying ser'ice ta# on royaltyrecei'ed* the impugned demand for %&T and penalty are illegal+ The
Court held that this Court is not called upon to decide the legality of thele'y of ser'ice ta# on the royalty recei'ed by the petitioner+
Therefore* if the petitioner has a case that levy of service tax is illegal
for any reason, it is up to them to challenge the levy in appropriate
proceedings.
Paradigm Shift in Taxation of Service w.e.f 1stJul! "#1":
> (!%+)from thedefinition of 7ervice is not leadin1 to anomal0 ? confsion for
Trade@
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&s you are aware of that temporary transfer or permitting the use or
enjoyment of any intellectual property right* is a one of declaredser'ice under $ection 00;1c2 of the )inance &ct and $er'ice ta# is
applicable"
The term $er'ice is defined under $ection 0>of the ConstittionAor
(iii) a transaction in money or actionable claim..
$onclusion:Cant be ha'esimplicity in our ta# systems as they
broadly reflect the philosophy of the e#isting ta# rules+ These principles
can be summari>ed as follows:
%eutralit:Ta#ation should seek to be neutral and euitable
between forms of commerce+ =usiness decisions should be
moti'ated by economic rather than ta# considerations+ =usinesses insimilar situations carrying out similar transactions should be subject
to similar le'els of ta#ation?
&fficienc: Compliance costs for businesses and administrati'e
costs for the ta# authorities should be minimi>ed as far as possible?
$ertaint and sim'licit: The ta# rules should be clear and simple
to understand so that businesses can anticipate the ta#conseuences of a transaction* including knowing when* where and
how the ta# is to be accounted?
&ffectiveness and fairness:Ta#ation should produce the rightamount of ta# at the right time+ The potential for ta# e'asion anda'oidance should be minimi>ed while keeping counter-acting+
Flexi(ilit:The systems for ta#ation should be fle#ible and dynamic
to ensure that they keep pace with technological and commercial
de'elopments+
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Food for Thought:
)oods and Services Tax *)ST+is the need of the hour* which is
,ndias most ambitious indirect ta# reform that would replace e#isting$tate and Central ta#es such as e#cise duty* ser'ice ta# and 'alue-
added ta# and purchase ta#* etc+ ,t is a consumption based ta# that willcreate a seamless pan-,ndia market and also bring down the total
incidence of ta#es on goods and ser'ices by eliminating doubleta#ation@ cascading of ta#es* etc+
=y lowering business costs* it will boost economic growth and increase
e#ports and bring ,ndia in line with practices followed in many
de'eloped countries+