STATE OF KERALA Vs. KITCHEN APPLIANCES INDIA LTD

JUDGEMENT

(1.) State has filed this revision against the order of the Tribunal cancelling the assessment under Section 5(2) of the Kerala General Sales Tax Act, 1963 on the products sold under brand name "Sansui" that was confirmed in first appeal. We have heard Government Pleader appearing for the revision Petitioner and Sri K. Srikumar appearing for the Respondent-Assessee.

(2.) The Respondent is a registered dealer under the KGST Act in Kerala, which is engaged in marketing products, like television, washing machine, etc., manufactured under the brand name "Sansui". The entire products are purchased by the Respondent from Videocon International Ltd., of which Respondent is a 100 per cent subsidiary company. In fact, Videocon International Ltd., the holding company, brings the goods to Kerala on stock transfer and the entire goods are sold to its subsidiary, the Respondent, for marketing in Kerala. Even though Videocon International returned the entire sales as first sales on which they have collected tax from the subsidiary company, the Respondent herein and they were assessed for sales tax, the assessing officer, while scrutinizing the second sale exemption claimed by the Respondent-company, found that, the goods, in respect of which second sales exemption was claimed by the Respondent, are goods sold under brand name "Sansui" and so much so, tax under Section 5(2) is payable by the Respondent. Even though the Respondent opposed the proposal by stating that Sansui brand name is owned by Sansui Electric Ltd., Japan and not by the Respondent, the assessing officer found that even the correspondence sent to the Department was in the letter head with the trademark, logo and brand name of Sansui. Since the products were sold under the brand name "Sansui", assessment was made on the Respondent under Section 5(2) after disallowing, second sale exemption claimed by the Respondent on the goods purchased from the holding company, Videocon International Ltd. Even though the assessment was confirmed in first appeal, the Tribunal, on second appeal by the company, allowed the claim by holding that the Respondent is not the "holder" of the brand name "Sansui" in India. It is against this order of the Tribunal, this revision is filed by the State.

(3.) The Government Pleader relied on a Division Bench judgment of this Court in S. T. (Rv) No. 145 of 2009 dated January 13, 2010 (State of Kerala v. Nilkamal Plastics Limited, 2010 30 VST 510 wherein this Court upheld the brand name assessment under Section 5(2) of the Act in respect of plastic chairs manufactured and sold in Kerala. He further referred to the finding of the Tribunal wherein, the Tribunal, after referring to a decision of this Court in Bechu & Company v. Assistant Commissioner (Assessment), Special Circle I, Kozhikode,2003 132 STC 68, held that of the two conditions required, for assessment under Section 5(2) of the Act, the first is satisfied in this case inasmuch as the products sold are covered by Section 5(2) and the sale was also under the brand name. However, what is opposed by the State is the finding of the Tribunal on the sole question that the Respondent is not the "holder" of the brand name in respect of the Sansui products sold by them. Counsel appearing for the Respondent contended that the agreement produced before the Tribunal clearly establishes beyond doubt that Videocon International Ltd., was the company, which was allowed to use the trademark and brand name "Sansui" in India under agreement with Sansui Electric Ltd., Japan. Therefore according to him, there is no material for the State to contend that the Respondent has any brand name rights to treat them as the seller of the goods under the brand name "Sansui" in India. In other words, the short contention of the counsel for the Respondent is that Videocon International Ltd., itself, which brought the manufactured goods to Kerala, was the brand name holder and their sale was the first sale as well as the sale falling under Section 5(2) and so much so the second sale exemption was rightly claimed by the Respondent. The Government Pleader produced before us the files, which show the Respondent's correspondence even with the Department with letter head printed in the name of Sansui with their logo and trademark. He has further produced cuttings from Financial Express published on January 25, 2000 wherein, the newspaper has reported that Kitchen Appliances Ltd., a wholly owned subsidiary of Videocon International Ltd., has acquired manufacturing facility from Philips India Ltd., Calcutta. During the previous postings, we requested the company to produce annual report, memorandum of articles, etc., only to verify whether the case of the State that the Respondent is a subsidiary of Videocon International Ltd., is correct or not. However, no document is produced to demolish the State's claim that the Respondent is a subsidiary of Videocon International Ltd. Going by the evidence on record, we have to only hold that the Respondent is only a subsidiary of Videocon International Ltd., which marketed the entire products through the Respondent in Kerala. Further, from the terms of the agreement between the Respondent's holding company and Sansui Electric Ltd., Japan, extracted in Tribunal's order, we notice that Videocon International Ltd. and their subsidiary companies are allowed to use the trademark and brand name of Sansui in India. So much so, Videocon International Ltd., which made the first sales to the Respondent, is also the holder of the brand name "Sansui" in India. 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, brand name assumes significance when goods are marketed with publicity in the market. We have already found from the agreement that the Respondent, being a subsidiary of Videocon International Ltd., has also got the right of use of the brand name Sansui in India. Moreover, when the goods are sold under the brand name, necessarily it has to be assumed that the marketing company is the holder of the brand name or has the right to market the products in brand name because, it is the first company introducing the products in the market. However if the sale between the holding company and the subsidiary company, both having the right to use the same brand name, is at the realistic price and the marketing company, namely, Respondent charged only usual margins in the trade, then there is no scope for ignoring the first sale, particularly when, the first seller is also the holder of the brand name and was free to market the products in the brand name, if they so chose. In other words, the mere fact that products are marketed through the wholly owned subsidiary company does not mean that the first sale by the holding company to the marketing company is only to reduce the incidence of tax. We are surprised to note that the assessing officer has not chosen to collect the details of purchase turnover for the very same goods sold either from the Respondent or from the holding company before completing the assessment in this case under Section 5(2) of the Act. In fact, since the holding company is also assessed in the same city, the assessing officer could have easily collected the sales turnover of that company, which is the purchase turnover of the Respondent and, if unusual margins are charged by the Respondent, then, certainly, it could have been concluded that brand name value is loaded only by the Respondent and Section 5(2) could have been invoked against the Respondent with an additional ground that the first sale in the State is not genuine and is only an attempt to evade payment of tax due in the State on the actual value of the products.