Central Sales Tax | Cross-Border Trademark Transfers Are Export Of Goods, Not Taxable As Local Sale: Bombay High Court
The Bombay High Court has held that the assignment of the well-known trademark “Crocin” by Duphar Interfran Ltd. to SKB Plc (UK) amounted to a sale “in the course of export” of intangible goods, and therefore could not be taxed as a local sale within the State of Maharashtra under the Bombay Sales Tax Act, 1959. A Division Bench of Justice M.S. Sonak and Justice Advait M....
The Bombay High Court has held that the assignment of the well-known trademark “Crocin” by Duphar Interfran Ltd. to SKB Plc (UK) amounted to a sale “in the course of export” of intangible goods, and therefore could not be taxed as a local sale within the State of Maharashtra under the Bombay Sales Tax Act, 1959.
A Division Bench of Justice M.S. Sonak and Justice Advait M. Sethna, while hearing a Sales Tax Reference overturned the view of the Sales Tax Tribunal and held that the situs of an intangible property follows the situs of its owner (mobilia sequuntur personam) and thus, the assignment of the trademark amounted to export, attracting the bar under Section 5(1) of the Central Sales Tax Act, 1956 read with Article 286(1)(b) of the Constitution.
Per Section 5(1) of the Central Sales Tax Act, 1956 a sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India.”
The Assessee, Duphar Interfran Ltd., Mumbai, owned the registered trademark Crocin. under a Brand Acquisition Agreement, it assigned the trademark to SKB Plc, United Kingdom, and SKB subsequently applied for mutation of ownership before the Registrar of Trademarks, Mumbai.
However, the Commissioner of Sales Tax held that the transaction was a local sale within Maharashtra, taxable at 4% under Schedule Entry C-I-26 of the BST Act, 1959, resulting in a tax demand.
Subsequently, the Sales Tax Tribunal upheld the tax levy, assailing the said order, the assessee preferred a sales tax reference before the High Court to decide:
Whether the assignment of the Crocin trademark was a local sale within Maharashtra, liable to 4% sales tax, or
Whether the transaction amounted to a sale “in the course of export” under Section 5(1) of the CST Act, meaning no State sales tax could be levied.
The Bench held that the transfer constituted an export of intangible goods because the ownership of the trademark moved to a foreign entity located in the UK. It emphatically rejected the Revenue's argument that the place of registration of the trademark in India determines situs.
The Bench stated that the Brand Acquisition Agreement dated 18 January 1996 in respect of trademark 'Crocin' is an Agreement to Sale, and such sale shall be deemed to have taken place in the course of export of the said trademark outside India, as contemplated under Section 5(1) of the CST Act.”
The Bench applied the doctrine of mobilia sequuntur personam, observing that the situs of an intangible asset is the situs of its owner, unless legislation provides otherwise.
In view of the above, the Bench answered the Reference in favour of the assessee, holding that no sales tax is leviable in Maharashtra on the transaction.
Case Title: M/s Duphar Interfran Ltd. Vs. The State of Maharashtra
Case No: Sales Tax Reference No. 9 of 2012
Appearance for Applicant: Mr. Ishaan V. Patkar, a/w Mr. Vinit V. Raje i/by Jindagi Shah
Appearance for Respondent: Ms. Jyoti Chavan, Addl. G.P. a/w Mr. Himanshu Takke, AGP