A.S. Venkatachalamoorthy, J.
1. The petitioner seeks for issuance of a writ of certiorarified mandamus to call for the records of the first respondent in T.C.(A) No.3709 of 1997, quash the impugned order dated 09.02.2001 and to direct the 3rd respondent, his agents or subordinates not to impose sales tax on the receipts of Royalty received by the petitioner.
2. The petitioner/assessee, during the assessment year 1987-1988, allowed one Tvl.Muthu Agencies, Madurai, to use their trade-mark and for which the petitioner received a sum of Rs.7,26,835/-. In the books of accounts, this amount is shown as Royalty received. In the original assessment, the turnover relating to this transaction was exempted, accepting the claim that it was only a Royalty. Subsequently, the Assessing Authority, took the view that the said consideration was received for a transfer of right to use the trade-mark and hence, the same is taxable. The Assessing Authority issued a Notice as contemplated under law to the assessee to file his objections before revising the assessment, but however, the assessee did not respond. Thereupon, the Assessing Authority viz., the Deputy Commercial Tax Officer, proceeded on the basis that there was a transfer of incorporeal goods, which is taxable under the Sales Tax Act and consequently, passed orders of revised assessment, holding that the sale consideration of Rs.7,26,835/- received by the assessee was taxable at 5% and levied tax. The assessee preferred an appeal before the Appellate Assistant Commissioner, who accepted the claim of the assessee that the amount received was only a Royalty which could not be called as sale consideration and held that the reassessment was not proper. The Joint Commissioner took up the matter under his purview in suo motu revision and, placing reliance on a ruling reported in 61 S.T.C.P. 165, held that the transfer of trade-mark right is a sale of incorporeal goods for consideration and therefore, the amount received is taxable under the TNGST Act. The aggrieved petitioner/assessee preferred T.C.(A) No.3709 of 1997 before the Tamil Nadu Taxation Special Tribunal, Chennai. The said Tribunal, after duly considering the matter, dismissed the appeal, with a direction to the Assessing Authority to give effect to the order for assessment under Section 3-A of the Tamil Nadu General Sales Tax Act, 1959.
3. Learned counsel for the petitioner contended that the transaction will not amount to sale. Or in other words, there was no transfer of a right to use the trademark for consideration and, in fact, Tvl.Muthu Agencies was given a mere right to enjoy the trade-mark for a period, and in those circumstances, it can only be said that the petitioner/assessee received the amount only towards Royalty and hence, the said amount should have been exempted while calculating the turnover.
4. On the other hand, learned counsel, appearing for the Revenue, submitted that the transaction is a sale of incorporeal goods. Or in other words, there was a transfer of right to use the trade-mark and hence the consideration received in that regard is taxable and that the authorities below have rightly decided the matter.
5. Before this Court refers to the various rulings cited by both sides, for a better appreciation, it is but necessary that the relevant clauses in the terms of agreement dated 1.4.1987, between the writ petitioner/assessee and M/s.Muthu Agencies, are set out. The following are some of the conditions found in the said agreement:-
' 1) Licensor on the request of the licensee hereby grants to the licensee the permission to affix the trade marks in the course of trade to respective goods to be bought and re-packed by them for sale.
2) The licensee hereby agrees to pay the licensor towards royalty for the permission granted to use the Trade Mark in the course of trade at the rate of 8 paise per packet of Gopal Tooth Powder 15/20 grams. 5 paise for Anjol Aluppu Marundhu 2 grams and 3 paise for the Jet Tooth Powder 15 grams sold by the licensee.
3) During the period of agreement, the licensor would be at liberty to make use of the Trade Mark in the event of licensor starting to manufacture Tooth Powder and energy Foods notwithstanding the fact that the license granted to the licensee continues without being revoked.
4) During the period of the agreement, the licensor would also be at liberty to grant license to any other individual person or company to use the trade marks of Gopal, Anjol and Jet notwithstanding the fact that the license granted to the licensee still continues without being revoked.
5) Licensee hereby covenants with the licensor that all acts of infringement and passing off that may be observed by them of their Trade Marks would be promptly brought to the notice of the licensor for taking prompt legal action.'
6. Section 2(j) of the Tamil Nadu General Sales Tax Act defines the term 'goods' as under,
' 'goods' means all kinds of movable property (other than newspapers, actionable claims, stocks and shares and securities) and includes all materials, commodities, and articles including the goods (as goods or in some other form) involved in the execution of a works contract or those goods to be used in the fitting out, improvement or repair of movable property and all growing crops, grass or things attached to, or forming part of the land which are agreed to be severed before sale or under the contract of sale.'
While the word 'property' has not been defined in the Tamil Nadu General Clauses Act, 1891, and in the General Clauses Act, 1897, the terms 'movable property' and 'immovable property' are defined. 'Movable property' is defined as to mean property of every description except immovable property. The term 'immovable property' is defined as to include land, benefits to arise out of land and things attached to earth or permanently fastened to anything attached to earth.
7. Let us proceed to deal with the various Rulings cited by both sides in a chronological order which would help us to decide the issue in question.
A. Vol.77 Sales Tax Cases 182 (Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer).
The petitioner in that case owned Visakhapatnam Steel Project and for the purpose of steel project, allotted different works of the project to contractors. To facilitate the execution of work by the contractors with the use of sophisticated machinery, the petitioner had undertaken to supply the machinery to the contractors for the purpose of being used in the execution of the contracted works of the petitioner and received charges for the same. The Department made provisional assessment levying tax on the hire charges and that was questioned by the petitioner by way of seeking a writ of declaration that the tax levied by the Department is illegal and unconstitutional.
The Andhra Pradesh High Court ruled that the transaction did not involve transfer of right to use the machinery in favour of the contractors. To come to such a conclusion, the Court pointed out,
(a) Even while the machineries were in the use of the contractors, the same were under the effective control of the assessee;
(b) The contractors were not free to make use of the same for other works or move them out during the period the machineries were in use;
(c) The contractor could not make use the machinery according to his wishes but it was under the control of the assessee/company.
This Ruling of the Andhra Pradesh High Court was confirmed by the Supreme Court on 6th March, 2002, and the said Ruling is reported in 126 STC 114 (State of A.P. v. Rashtriya Ispat Nigam Ltd.)
The assessee places much reliance on this ruling and we fail to understand as to how this decision would support the case of the assessee.
In the present case, the trade mark that was assigned to be used by M/s.Muthu Agencies was not under any restrictions and it had the absolute right to use the trade mark during the period covered under the agreement.
B. Vol.102 S T C 106 (Vikas Sales Corporation and another v. Commissioner of Commercial Taxes and another).
In the above case, a question arose, whether the transfer of an import licence called REP Licence/Exim scrip by the the holder thereof to another person constitutes a sale of goods within the meaning of and for the purposes of the sales tax enactment of Tamil Nadu. The Court, in that case, considered in extenso the terms 'goods', 'property', 'movable property' and 'immovable property'. After referring to the various definitions and also the dictionaries, the Court observed that the wordings also commonly used to denote everything which is the subject of ownership, corporeal or incorporeal, tangible or intangible, visible or invisible, real or personal and everything that has an extendable value or which goes to make wealth or estate. Referring to the Jowitt's Dictionary of English Law (Sweet & Maxwell Limited, 1977), the Court observed as under:-
' This definition also shows that the expression signifies 'things and rights considered as having a money value'. Even incorporeal rights like trade marks, copyrights, patents or rights in personam capable of transfer or transmission, such as debts, are also included in its ambit.' The Court, in the later part of the said Judgment, again observed as follows:-
' Similarly, patents, copyrights and other rights in rem which are not rights over land are also included within the meaning of movable property.' C. Volume 112 STC 370 (Commissioner of Sales Tax v. Duke & Sons Pvt. Ltd.).
In that case, there was an agreement between Duke & Sons Private Limited and M/s.Salstar Foods & Beverages Ltd. on 6th September, 1985. The latter was permitted to use the trade-mark of the assessee on the bottles of beverages manufactured by them in Maharashtra and to market the same under the trade mark of the assessee. The assessee charged royalty for the use of its trade marks at the rate specified in the agreement. With a view to ascertaining its liability to pay tax under the Maharashtra Sales Tax on the Transfer of the Right to use any Goods for Any Purpose Act, 1985, on the amount of royalty received by it, the assessee applied to the Additional Commissioner of Sales Tax for determination of the question whether it was liable to pay tax on the amount of Royalty received by it for the transfer of the right to use its trade mark under the 1985 Act. The Tribunal held that it did not amount to transfer of right to use trade mark by the assessee to its customers and no tax could be levied on the Royalty received by the assessee. The Revenue applied for Reference of the question of law arising therefrom to the High Court. Before the High Court, the Revenue submitted that the Tribunal was at fault, while the assessee contended that there was no transfer of right to use the trade mark and placed reliance on the ruling by the Supreme court in the case of Rashtriya Ispat Nigam Ltd. (cited supra). The Bombay High Court held as follows:-
' 'Trade mark' has been defined in section 2(1)(v) of the Trade and Merchandise Marks Act, 1958 to mean a mark used in relation to goods for the purpose of indicating a connection in the course of trade between the goods and some person having the right, either as a proprietor or as registered user, to use the mark whether with or without any indication of the identity of that person. ..... The manner of transfer of the right to use the goods to the transferee would depend upon the nature of the goods. For transfer of right to use a trade mark, permission in writing as required by law may be enough. In case of tangible property, handing over of the property to the transferee may be essential for the use thereof. All that will depend upon the nature of the goods. Take for instance, transfer of right to use machinery. The right to use the machinery cannot be transferred by transferor to the transferee without transfer of control over it. The case before the Andhra Pradesh High Court in Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer was a case of transfer of right to use machinery. It was in that context, the above decision came to be rendered. But the position in case of trade mark is different. For transferring the right to use the trade mark, it is not necessary to hand over the trade mark to the transferee or give control or possession of trade mark to him. It can be done merely by authorising the transferee to use the same in the manner required by the law as has been done in the present case. The right to use the trade mark can be transferred simultaneously to any number of persons. The decision of the Andhra Pradesh High Court in Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer thus has no application to the transfer of right to use a trade mark.' In the present case, it has to be pointed out that this is also a case of transfer of a trade mark and that here also the assessee retains his right to use it himself so also to transfer such a right to others. The Revenue's claim that this ruling fully supports its stand has to be sustained.
D. Volume 113 S T C 317 (Aggarwal Brothers V. State of Haryana).
The assessee hired shuttering to builders and contractors who use it in the course of construction of buildings. On the hire charges received, sales tax was sought to be imposed. A writ petition was filed to quash the assessment orders. On behalf of the Revenue, it was contended that the customers were in effective control of the shuttering during the periods it remained in their possession and therefore, there was a transfer of right to use the shuttering. In the said Judgment, the Court pointed out the legal position as under:-
' The said Act defines 'sale' to mean the transfer of property in goods for cash or deferred payment or other valuable consideration and includes the 'transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration'. Such transfer of the right to use goods for consideration is 'deemed' to be a sale. The provision expressly speaks of 'transfer of the right to use goods' and not of transfer of goods. There is, therefore, no merit in the submission that to be a deemed sale within the meaning of the abovementioned provision of the said Act there must be a legal transfer of goods or that the transaction must be like a lease.
Where there is a transfer of a right to use goods for consideration, the requirement of the abovementioned provision of the said Act is satisfied and there is deemed to be a sale. In the instant case, the assessees owned shuttering. They transferred the shuttering for consideration to builders and building contractors for use in the construction of buildings. There can, therefore, be no doubt that the requirements of a deemed sale within the meaning of the abovementioned provision of the said Act are satisfied.'
Thus, the Court held that the hire charges were taxable under the Act. The learned counsel for the Revenue has rightly placed reliance on this ruling.
E. Volume 119 S T C 182 (20th Century Finance Corporation Limited v. State of Maharashtra).
In that case, the Supreme Court ruled that taxable event is the transfer of the right to use the goods regardless of when or whether the goods are delivered for use and what is required is that the goods should be in existence so that they may be used. The Supreme Court also held that, also of no relevance to the deemed sale is where the goods are delivered for use pursuant to the transfer of the right to use them, though it may be that in the case of an oral or implied transfer of the right to use goods, it is effected by the delivery of the goods.
F. Volume 130 STC 1 (State of Uttar Pradesh and another vs. Union of India and another).
In that case, the Supreme Court, pointing out the various Rulings which are to the effect that Electricity also falls within the meaning of 'goods', held that the Department of Telecommunications is a 'dealer', which collects rental for the supply of transfer of use of telephonic connection, which is compendiously called 'service' and the supply of the telephone satisfies the requirements of a 'transfer of the right to use the goods' within the meaning of 'sale' and the Department also receives the consideration and therefore, the Department is liable to pay the sales tax. The Supreme Court observed that even if a subscriber uses his own telephone, that would not make any difference. The Court ruled as under:-
' Before taking up the other contentions, we may conveniently dispose of a short point--ambit of the definition of the term 'goods'--quoted above. It is defined in very wide terms so as to bring in both tangible and intangible objects. It takes in its fold every kind or class of movables, including all material commodities and articles involved in the execution of a works contract, and growing crops, grass, trees and things attached to or fastened to anything permanently attached to the earth which under the contract of sale are agreed to be severed but excluding actionable claims, stocks, shares, securities or postal stationery sold by the Postal Department. ... ..... ...... ....
It is true that under the Rules, referred to above, as service, a number is allotted, an instrument/apparatus and other appliances are installed at the premises of a subscriber and the same are connected with the area exchange to enable him to have access to the whole system, to dial and to receive calls. In our view, it makes no difference whether any subscriber replaces instrument of the DoT with his own instrument because the most important thing is the connection of the subscriber's telephone number with the area exchange and that was provided by the DoT. In so far as the contention of giving possession or control of the whole system of exchange is concerned, which is said to comprise mostly of immovable property, it needs to be borne in mind that handing over of the possession is not sine qua non of completing the transfer of the right to use any goods.'
The definition given for the term 'goods' in U.P. Trade Tax Act (Section 2(d)) and the Tamil Nadu General Sales Tax Act (Section 2(j)) are practically the same.
8. Coming to the facts of the present case, the petitioner/assessee permitted M/s.Muthu Agencies to use their trade mark in the course of trade at the rates specified therein for various items during a particular period. Of course, it retained the liberty to make use of the Trade Mark in the event of the licensor starting to manufacture the products. Equally, it retained the liberty to grant lincence to any other individual person or company to use the trade marks. Trade mark is the property right and it exclusively belongs to the party who has registered it. Such a right is an intangible or incorporeal goods, which can be merchandised by the registered owners. As pointed out by the Supreme Court, the words 'goods' is defined in very wide terms so as to bring in both tangible and intangible objects. General Clauses Act would explain movable property as property of every description except immovable property. Trade mark right is intangible goods, which can be subject matter of transfer. As already pointed out, M/s.Muthu Agencies was granted permission to use the trade mark without any restriction whatsoever for a particular period. Consequently, it can only be taken as transfer of a right to use and not a mere right to enjoy. Simply because the assessee retained the right for himself to use the trade mark and reserved the right to grant permission to others to use the trade mark, it would not take away the character of the transaction as one of transfer of a right to use. That being so, this Court has to only hold that the order of the Tamil Nadu Taxation Special Tribunal, Chennai, confirming the order of the Joint Commissioner-III (SMR), Chepauk, is well in order.
9. In this view of the matter, there are no merits in this Writ Petition and the same is dismissed. Connected W.P.M.Ps. stand closed.