VAT can be levied on transfer of right to use goods of intangible nature even if it is transfered to multiple users

8th floor, Vikrikar Bhavan, Mazgaon, Mumbai-400010

TRADE CIRCULAR
(U/s.10
(10)of the MVAT Act, 2002)

To,

No.VAT/2015-16/0SD-VP/B-                                                                  Mumbai, dt. 13.07.2015

Trade Circular No. 11Tof 2015

Sub: Bombay High Court judgment in the case of Tata Sons
Ltd, Writ Petition No.2818 of 2012
decided on

20.01.2015.

Recently
the Bombay High Court in the case of Tata Sons had an occasion to decide as to whether the agreement executed by Tata Sons with
the Tata Companies providing detailed guidelines
for use of the Tata name and the trade mark will attract tax under the Transfer
of Right to use goods for any purposes Act, 1985. In the course of the
argument the petitioner had relied upon the
judgment of the Hon. Supreme Court in the case of BSNL, especially upon Para 79
and 98 of the judgment. As per the
petitioner, the trade mark were assigned to multiple companies which meant that
there is no transfer within the meaning of the Act. On the other hand, it was
argued by the department 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. If the right to use the trade mark is transferred
then the Act applies and it does not necessarily mean that the trade mark is itself transferred or
assigned. It was also argued there could be multiple transfers of right to use and in such
circumstances also when the Act does not contemplate cession of user by the transfer or, then, levy cannot be
avoided.

The High Court, upon a perusal of the provisions and the
agreement observed 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
given any indication that right to use the incorporeal goods should
be exclusive transfer in favor of the transferee.

It
observed,”

…Upon perusal of the entire Act and reading these
provisions together and harmoniously,
we are in agreement with Mr. Kumbhakoni that the deal or transaction
between the petitioners and the subscribers envisage that a transfer of a right to use the goods and which could be said to
be the marks as well. Upon a conjoint
reading of the provisions of the Act we are of the opinion that in the case of
intangible/incorporeal goods the right to use them is capable of being
transferred and ir transferred it may,
be subjected to tax. The Act does not give any indication as is rightly
urged before us that the right to use the incorporeal /intangible goods should be exclusively transferred in favour of the
transferee. The nature of the transfer
or the nomenclature assigned to the act of will therefore not necessarily be decisive.

Further,
it observed.

“We
have referred to the clauses in the agreement between the petitioner NO.1 petitioners that the right to use is not transferred.
However their argument is that it is not
exclusive but conditional. Secondly, it is clear from the clauses of the agreement that the proprietor continues to control
even the limited right conferred by
the above clauses in favour of the subscribers. We are of the opinion that so long as the agreement transfers the right
to use intangible goods which are the
trade marks in this case, then, there is no question of the petitioners
escaping the consequences of the enactment. The enactment and the definitions which we have referred together with
the substantive provisions does not
envisage exclusive and unconditional transfer to the above right.

The High Court distinguished the remarks of the Supreme
Court in the case of BSNL. The observation of one of the three judges bench of
the Supreme Court in the case of BSNL was that in order to attract levy under transfer of right to use
goods, the transfer has to be to the exclusion of the transferer and once the right to use the goods is
transferred the owner again cannot transfer the right to others. This observation led to the conclusion that
there cannot be transfer of right to use trade mark, copy rights and technical know how and other
intangibles to multiple users. However, the High
Court has put to rest the controversy and has comprehensively held that even
when there is transfer of right to use goods to multiple users it would attract
tax under the MVAT Act It further held that
Bombay High Court judgment in the case of Dukes and Sons Ltd is still good law.
The law is therefore now settled that VAT can be
levied on transfer of right to use goods of intangible nature i.e. trade mark, technical know how, copy right and
other intangibles etc even if it is transfered to multiple users.

Sd/-

(Rajiv Jalota)

Commissioner
of Sales Tax,
Maharashtra State, Mumbai.

N o.VAT/201 5- 1 6/OSD-VP/B-                                                             Mumbai, dt.   
13.07.2015

Trade Circular No. 11T of
2015

Copy forwarded to:

Joint Commissioner of Sales Tax (Mahavikas) with the
request to upload this Trade Circular on the
Departments web-site.

Yours
faithfully

                                                                                                                                                              
Sd/-

Vishakha Borse
OSD to Commissioner of Sales Tax,
Maharashtra State, Mumbai.

 

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