High Court of KeralaDivision Bench2018-09-06Remanded for remand and factual examination; no...

M/S. Lunar Rubbers Pvt. Ltd. v. State of Kerala

Case / Petition Number:OT.Rev. Nos. 121-123 of 2013

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: K. Vinod Chandran
Ashok Menon
Judgment Date: 2018-09-06
Court Decision / Holding: Remand to the Kerala VAT Appellate Tribunal for fresh examination of the facts, specifically the terms of the franchise agreement, with liberty for either party to file revisions; no express opinion on the merits; revisions disposed of by remand; no costs awarded.
Final Disposition: Remanded for remand and factual examination; no merits decision; cost not determined.

Parties to the Case

Appellants / Petitioners

Lunar Rubbers Pvt. Ltd., Thodupuzha (represented by its Managing Director, Isaac Joseph)

Respondents

State of Kerala, represented by Finance Secretary, Secretariat, Thiruvananthapuram-695001

Legal Representation & Advocates

Counsels for Petitioners

• Smt. S.K. Devi

Counsels for Respondents

• Sri. V.K. Shamsudhin

Case Synopsis & Summary

This intra‑court revision petitions (OT.Rev. Nos. 121, 122, & 123 of 2013) arise from disputes under the Kerala Value Added Tax Act, 2003 (KVAT Act) regarding whether transfer of a trade mark to sister concerns constitutes a transfer of the right to use and thereby renders the transaction taxable. The petition challenges the Kerala VAT Appellate Tribunal’s approach which relied on a line of cases (notably Malabar Gold Private Limited v. Commercial Tax Officer, Kozhikode) to treat such transfers as taxable turnover. The State defends the position, highlighting that Malabar Gold is under challenge in a Supreme Court proceeding and pointed to contrary views in Bombay High Court (Tata Sons Ltd. v. State of Maharashtra) and other decisions, while acknowledging that Kreem Foods Pvt. Ltd. v. State of Kerala had previously supported revenue’s position but was subsequently reversed by Malabar Gold. The bench notes conflicting authorities and the pending apex court proceedings, along with the need to examine franchise agreements and the precise terms of the arrangement, including sections of the Finance Act and KGST Act. In a posture of caution, the court remands the matter to the Tribunal for a detailed factual examination of the franchise agreement, with liberty for revision by either party and without expressing any merits. The order effectively dispositions the revisions by remand and costs are not awarded.

Provisions of Law Cited

Kerala Value Added Tax Act, 2003Finance Act, 1999, Section 65(47)Kerala General Sales Tax Act, 1963

Legal Doctrines & Maxims

res integra
aspects theory (as propounded in Federation of Hotel and Restaurant Association of India v. UOI, 1989)

Submissions & Arguments

Contentions of Appellants / Petitioners

The petitioners contend that the issue as to whether transfer of a trade mark to sister concerns amounts to transfer of the right to use and thereby taxable under KVAT Act is no longer res integra in light of Malabar Gold Pvt. Ltd. v. CTO (Ker) and related authority; the Tribunal’s reliance on that line should be re-appreciated in light of pending apex court proceedings and conflicting authority (including Tata Sons Ltd. v. State of Maharashtra). They urge afresh examination of the franchise terms—especially the franchise agreement and its impact on taxable turnover—through a remand to the Tribunal for extensive factual verification, rather than a merits adjudication, noting possible franchise definitions under the Finance Act, 1999 (Section 65(47)).

Contentions of Respondents

The State argues that Malabar Gold is being challenged in the Supreme Court, and there exists a contrary line of authority (e.g., Tata Sons Ltd. v. State of Maharashtra). It maintains that Kreem Foods remains part of the binding discussion but was reversed by Malabar Gold, and that franchise/transfer issues require careful appraisal of the specific franchise agreements under KVAT Act and the Finance Act (Section 65(47)), with Bombay High Court’s view cited as persuasive but not binding. Given the competing authorities and pending apex court decision, it contends for a remand to ascertain the factual matrix before any merits decision is made.

Cited Precedents (4)

Case Name	Citation	Treatment	Explanation
Malabar Gold Private Limited v. Commercial Tax Officer, Kozhikode	(2013) 63 VST 497 (Ker)	Positive	Cited as binding authority; the court recognizes Malabar Gold as controlling the issue and would have preferred following it, though noting it is subject to Supreme Court review.
Kreem Foods Pvt. Ltd. v. State of Kerala	(2009) 24 VST 333 (Ker)	Overruled	Reversed by Malabar Gold; division bench in Malabar Gold treated Kreem Foods as not maintaining the same stance.
Tata Sons Ltd. v. State of Maharashtra and another	(2015) 80 VST 173 (Bom)	Mentioned Only	Cited as a contrary view from Bombay High Court and discussed as persuasive but not binding on Kerala.
Federation of Hotel and Restaurant Association of India v. Union Of India	(1989) 3 SCC 634	Mentioned Only	Referenced for aspects theory; not adopted in the present decision.

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Extracted Judgment Text

Exact text extracted from official judgment records.

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **THURSDAY ,THE 06TH DAY OF SEPTEMBER 2018 / 15TH BHADRA, 1940** **OT.Rev.No. 122 of 2013** **AGAINST THE ORDER/JUDGMENT IN TAVAT 114/2011 of KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM DATED 26-02-2013** ## **REVISION PETITIONER/S:** **M/S. LUNAR RUBBERS PVT. LTD. THODUPUZHA, REPRESENTED BY ITS MANAGING DIRECTOR, ISSAC JOSEPH.** **BY ADV. SMT.S.K.DEVI** ## **RESPONDENT/S:** **STATE OF KERALA REPRESENTED BY ITS FINANCE SECRETARY, SECRETARIAT, THIRUVANANTHAPURAM-695001.** ## **BY SR. GOVERNMENT PLEADER SRI.V.K SHAMSUDHIN** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 06.09.2018, ALONG WITH OT.Rev.121/2013 & OT.Rev.123/2013, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **O.T.Rev. Nos. 121, 122, & 123 of 2013 ::2::** **O.T.Rev. Nos. 121, 122, & 123 of 2013 O R D E R** ## **Vinod Chandran, J** **The issue raised in the above revision is whether the transfer of trade mark to sister concerns would lead to a transfer of right to use, thus making the transaction taxable under the Kerala Value Added Tax Act, 2003 (for brevity “the KVAT Act only). The learned Counsel for the revision petitioner would submit that the issue is no longer** _**res integra**_ **covered by** _**[(2013) 63 VST 497 (Ker)] Malabar Gold Private Limited v. Commercial Tax Officer, Kozhikode.**_ **It is pointed out that the very judgment of the learned Single Judge which was reversed in the afore cited decision by a Division Bench of this Court was relied on by the Tribunal to find transaction of transfer of trade mark to be taxable under the KVAT Act as transfer** ## **O.T.Rev. Nos. 121, 122, & 123 of 2013 ::3::** **of right to use.** **2. The learned Senior Government Pleader, however, would contend that** _**Malabar Gold**_ **has been challenged before the Hon'ble Supreme Court wherein a Civil Appeal is now pending against the said decision. It is also submitted that the Bombay High Court had taken a contrary view with respect to transfer of right to use the trademark in** _**[(2015) 80 VST 173 (Bom)] Tata Sons Ltd., v. State of Maharashtra and another.**_ **An appeal has been filed by the assessee therein to the Hon'ble Supreme Court wherein in SLP No.7768/2015 by order dated 23.11.2015 there was a stay granted, but only insofar as the penalty imposed by the Assessing Authority. It is also pointed out that the Division Bench in** _**Malabar Gold (supra**_ **) did not properly appreciate the binding declaration in** _**[(2009) 24 VST 333 (Ker)] Kreem Foods Pvt. Ltd., v. State of Kerala;**_ **by a coordinate bench of this Court.** ## **O.T.Rev. Nos. 121, 122, & 123 of 2013 ::4::** **3. We see from** _**Kreem Foods**_ **(supra) that therein specific franchise granted for manufacture and sale of ice creams was held to be taxable turnover under Kerala General Sales Tax Act, 1963 ( for brevity “the KGST Act” only). A different stand was taken only for reason of the transaction of franchise being covered under the Finance Act, 1999 as taxable service from 2003 onwards under Section 65(47) : franchise which reads as under:-** **““franchise” means an agreement by which the franchisee is granted representational right to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not a trade mark, service mark, trade name or logo or any such symbol, as the case may be , is involved.”** **4. Left to ourselves we would have** ## **O.T.Rev. Nos. 121, 122, & 123 of 2013 ::5::** **been persuaded to follow the judgment in** _**Tata Sons Ltd(supra**_ **) but for the difficulty insofar as the said judgment having only persuasive effect while** _**Malabar Gold**_ **is binding on us. Appropriately we would have then referred the case for decision by a larger bench, especially noticing the fact that the aspects theory as propounded by the Hon'ble Supreme Court in** _**Federation of Hotel and Restaurant Association of India vs Union Of India. (1989) 3 SCC 634**_ **having not been taken into account by the Division Bench in** _**2013 VST 497 (Ker)**_ **. However, we notice that the conflicting decisions from this Court and the High Court of Bombay are pending before the Hon'ble Supreme Court which is on identical question of law. In such circumstances, we would not attempt a reference and would as of now concede respectfully to the decision of the Division Bench of our Court in** _**Malabar Gold.**_ **In so conceding we have to notice that the Division Bench** ## **O.T.Rev. Nos. 121, 122, & 123 of 2013 ::6::** **had specifically looked at the agreements and terms which the assessee herein also says are identical in the assessee's case. We should then observe that the agreement was not looked into by any of the fact finding authorities for reason of the binding declaration of the learned Single Judge, in favour of the Revenue, which stood reversed by the Division Bench in** _**Malabar Gold .**_ **5. In such circumstances, it is only appropriate that there be a remand to the last fact finding authority, the tribunal to further examine the facts; specifically the terms of the agreement of franchise. The assessee shall produce the agreement before the Tribunal and the Tribunal shall examine the same looking at the Division Bench decision of this Court in** _**Malabar Gold**_ **. We make it clear that both the assessee and the State would have right to file a revision from the order of the Tribunal since we have not expressed** ## **O.T.Rev. Nos. 121, 122, & 123 of 2013 ::7::** **anything on the merits of the matter, especially on account of the issue pending before the Hon'ble Supreme Court.** **The revisions would stand disposed of with the above order of remand. No order as to** **Costs.** **Sd/-** **K. Vinod Chandran, Judge Sd/Ashok Menon, Judge** **jma** ## **O.T.Rev. Nos. 121, 122, & 123 of 2013** **::8::** ## **APPENDIX** ## **(in O.T.Rev.No.122/2013)** **PETITIONER'S/S EXHIBITS:** **ANNEXURE I TRUE COPY OF THE ASSESSMENT ORDER NO.32060400175/2006-07 DATED 19.05.2010 ANNEXURE II TRUE COPY OF THE FIRST APPEAL ORDER NO. KVATA NO. 2016 TO 2018/2010 ANNEXURE III TRUE COPY OF THE ORDER OF THE APPELLATE TRIBUNAL TA(VAT) NO.113/11, 114/11, 114/11 & 115/11 DATED 26.02.2013** //true copy//