KWALITY BISCUITS P LTD Vs. STATE OF KARNATAKA

JUDGEMENT

(1.) This revision is by the Assessee challenging the order passed by the Tribunal as well as the authorities holding that the Assessee is liable to pay sales tax on the sale of intellectual property.

(2.) The Assessee is a private limited company incorporated under the Customs Act. 1956. The Assessee is a dealer registered under the provisions of the Karnataka Sales Tax Act. 1957 (for short hereinafter referred to as 'the Act'). It is engaged in the activity of manufacture and sale of biscuits and confectionery, wheat products, jams, jellies and creams. On 29.3.2001 the promoters of the Assessee-Company entered into 'Heads of Agreement' with M/s. Britannia Industries Ltd.. a public Limited Company, for transfer of their biscuits business comprising of manufacture, distribution and sale along with the entire market network and the related trademarks, brands, copyrights and designs with all assets and liabilities of the biscuits business. Under the terms of the agreement entered into, the promoters of the Petitioner Company agreed to altogether got out of the business of biscuits by effecting a sale of the entire business as a whole and as a going concern. The entire assets and liabilities including the movables and immovables, goodwill, intellectual property, assets such as registered trademarks and brand names as well as unregistered trade marks and brand names stood transferred by virtue of sale/transfer of equity shares held by the promoters along with their family particulars in the Assessee company in favour of Britannia Industries Ltd. In terms of the aforesaid agreement M/s. Britannia Industries Ltd. acquired 49% of the equity in the Assessee and its associate companies M/s.J.B. Mangharam Foods Pvt. Ltd. acquired 26% of the equity and M/s. Manna Foods Pvt. Ltd. acquired 25% of the equity. M/s. Britannia Industries Ltd. acquired the trade mark of 'Kwality' with goodwill, copyright and designs from the Assessee and by virtue of which the trademark 'Kwality' is now fully owned by the Britannia Industries Ltd. The said agreement has got 10 schedules which are described as schedule A to J. Schedule 'C pertains to intellectual property assets (registered trade marks and branch names) whereas, schedule D pertains to intellectual property assets (unregistered trade marks and brand names). The Assessee-Company Tiled its annual return in Form No. 4, However, the Deputy Commissioner of Commercial Taxes (Assessments), Fast Track-31, Bangalore, issued a proposition notice in Form 31-A dated 28.1.2003 proposing to reject the annual return filed by the Petitioner in Form No. 4 as being incorrect and incomplete. Further, it has proposed to levy tax on the turn over relating to sale of trade mark, design and copy right. Upon receipt of the proposition notice, the Assessee filed a detailed reply by way of objection to the proposition notice objecting the proposals. The Assessee contended what was transferred by way of a sale was a business as a whole and that too as a going concern and therefore, there is no sale of goods as such there is no liability to pay sales tax under the Act. The Assessing Authority over ruled the said objections and held that the Assessee is liable to pay sales tax on the consideration received for the sale of intellectual property and as it was not declared as a turn over in the returns filed, the Assessee is liable to pay penalty also. The said order came to be passed on 18.3.2003 and consequential notice of payment was issued on 20.3.2003. Aggrieved by the order and the consequential payment, the Assessee preferred a writ petition before this Court in W.P. No. 18595/2003. The said order and the demand came to be set aside on the short ground of violation of the principles of natural justice inasmuch as before passing the impugned order the Assessee was not heard. After remission the Assessee appeared before the Assessing Authority arguing the matter on merits and produced all necessary and relevant, documents including the agreements called for by the Assessing Authority. The Assessing Authority passed an order dated 28.7.2003 again over ruling the objections of the Assessee and tax liability was created as was done earlier. However, penalty proceedings were dropped. Aggrieved by the said order, the Assessee preferred one more writ petition 38975/2003 which came to be rejected directing the Assessee to prefer a statutory appeal within a period of two weeks from the date of receipt of the order in the writ petition. Accordingly, the Assessee filed an appeal before the Joint Commissioner of Commercial Taxes (Appeals) Bangalore City Division-3. The Appellate Authority after hearing both the sides, dismissed the appeal confirming the order passed by the Assessing Officer by its order dated 27.11.2003. The Assessee preferred an appeal before the Karnataka Appellate Tribunal challenging the aforesaid two orders. The said appeal also came to be dismissed by an order dated 27.10.2006. In those circumstances, the Assessee is before this Court.

(3.) The learned Counsel for the parties submit the subject matter of these revision petitions is only the tax payable for the consideration received for the sale of intellectual property only. In other words, the intellectual property owned by the Assessee has been sold for a sum of Rs. 30 crore, a sum of Rs. 3 erore at 10% is claimed as Sales Tax. The question is whether the Assessee is liable to pay the said tax on the sale consideration of intellectual properties.