Restraining the Maharashtra government from imposing penalty on Tata Sons over use of the TATA name by its subscribing companies, the Supreme Court on Monday admitted the company’s appeal seeking clarity on taxability of transaction of transfer of right to use the trademark assigned to its group companies.
A bench headed by Chief Justice HL Dattu stayed the penalty after senior counsel Harish Salve told the court that the company had paid Rs 300 crore sales tax as levied by the state government over use of TATA name by its subscribing companies.
Tata Sons’ had challenged a Bombay High Court judgment that upheld the state government’s decision. The HC had held that transfer of right to use goods of incorporeal or an intangible character such as trademarks, copyrights, patents, etc. is exigible to State Value Added Tax and that there need not be any exclusive and unconditional transfer. The transaction should attract tax even if there may be multiple transferees and the transferor continues to use goods.
Challenging the levy of tax on the subscriptions received by it from subscribing companies, Tata Sons said that the trade mark were assigned to its group companies which meant that there is no transfer within the meaning of the Right to use any Goods for any Purposes Act, 1985 (the Lease Tax Act). Besides, no right has been created and it is a mere permission for facilitating the use which would at best amount to a license, it stated.
Tata Sons in 1998 had entered into an brand equity and business promotion agreement with its various companies (Subscribing Companies) with a view to promote the TATA name. The agreement granted to the subscribing companies the right to obtain a non-exclusive and non-assignable licence to use the Tata trademarks.
However, the state’s sales tax department held that the transactions were covered under the provisions of the Lease Tax Act. It slapped sales tax dues to the extent of around Rs 300 crore between 1998 and 2002.