1. New industrial unit claiming sales tax exemption under Rule 3(66a), West Bengal Sales Tax Rules, 1941, while using a brand name belonging to another existing unit. (Para 3 )
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1996 Supreme(SC) 452
SUPREME COURT OF INDIA
B P Jeevan Reddy, K S Paripoornan
COMMERCIAL TAX OFFICER AND OTHERS, APPELLANTS
VERFSUS
EMKAY INVESTMENTS PVT. LTD., RESPONDENT.
Civil Appeal No. 3848 of 1996 [Arising out of SLP (C) No. 12451 of 1944], decided on February 23, 1996.
Important Points
The Supreme Court held that a new small-scale industry using an existing industrial unit's brand name for some products is denied sales tax exemption only for those specific products, not the entire production, provided the manufacturer proves which goods do not use the brand name.
Subject
Taxation Law - Sales Tax Exemption
Act Referred
WEST BENGAL SALES TAX RULES: R.3(66)(a), R.3(6)(6)(i)
Headnote
SALES TAX-West Bengal Sales Tax Rules, 1941-Rule 3(66a), Explanation-Benefit of exemption from payment of sales tax under-Respondent is a new unit engaged in manufacture of plywood-In respect of a portion of its products, it is using the brand name of existing unit, not entitled to exemption-Respondent shall not be entitled to the benefit of the said exemption in respect of the goods for which trade mark of an existing industrial unit is used.
Held : Clause (vi) of the Explanation is very clear and unambiguous. It says that the said benefit of exemption from sales tax is available only to such newly set up small scale industry which does not use the trade mark or the brand name of any product of an existing industrial unit. In this view of the matter, the respondent-industry cannot claim the benefit of exemption. But the question is whether it would be reasonable to read the said Explanation literally which would mean that if a manufacturer uses the brand name or trade mark of an existing industrial unit even in respect of a small portion of its production, it would be totally deprived of the benefit of the said exemption. We are of the opinion that having regard to the object and purpose underlying the said Rule, it would be reasonable to say that the respondent shall not be entitled to the benefit of the said exemption in respect of the goods, for which the trade mark or brand name of an existing industrial unit is used. But insofar as other products for which the brand name is not used are concerned, it will be entitled to claim the benefit of the aforesaid sub-rule. The burden of clearly establishing that in respect of certain of its goods manufactured by it, the trade mark or brand name or an existing industrial unit is not being used, shall be squarely upon the manufacturer. (Para 4)
Legal Category Hierarchy
Table of Contents
2. Whether use of an existing industrial unit's brand name for a portion of products disentitles a new unit from claiming sales tax exemption under Rule 3(66a). (Para 4 )
3. The court reasoned that the exemption should be denied only for specific goods using an existing brand name rather than the entire production of the unit. (Para 5 )
4. Exemption under Rule 3(66a) is denied only for goods using an existing unit's brand name, provided the manufacturer proves other goods do not use it. (Para 5 )
5. Appeal allowed and the tribunal's order set aside. (Para 6 )
6. Does the use of an existing industrial unit's brand name disqualify a new unit from sales tax exemption under Rule 3(66a)?
Yes, Clause (vi) of the Explanation to Rule 3(66a) specifies that the exemption is available only to newly set up small-scale industries that do not use the trade mark or brand name of any product of an existing industrial unit. (Para 5 )
7. If a new unit uses an existing brand name for only some of its products, is the entire production disqualified from exemption?
No. The court held that it is reasonable to deny the exemption only in respect of the specific goods for which the existing trade mark or brand name is used, while allowing it for other products. (Para 5 )
8. Who bears the burden of proof to establish that certain goods are not using an existing industrial unit's brand name?
The burden of clearly establishing that the trade mark or brand name of an existing industrial unit is not being used for certain manufactured goods rests squarely upon the manufacturer. (Para 5 )
ORDER
1. Heard counsel for the parties.
2. Leave granted.
3. This appeal is preferred against the judgment of the West Bengal Taxation Tribunal. The respondent is a new unit engaged in the manufacture of plywood. It is entitled to exemption from payment of sales tax, being a new industry as contemplated by Rule 3(66a) of the WEST BENGAL SALES TAX RULES , 1941. It, however, appears that in respect of a portion of its products, it is using the brand name "M/s Merinoply" which brand name belongs to another company called "M/s Marinoply and Chemicals Limited".
4. Relying upon the Explanation to Rule 3(66a), the sales tax authorities denied the certificate enabling the respondent to claim exemption from sale tax. Their case was that since the respondent is using the brand name of another unit, which is not entitled to the said exemption, the respondent is disentitled from claiming any exemption. However, when the matter reached the Tribunal, it held in favour of the respondent by a majority of 2 : 1. If found that the Marinoply brand name is not applied to all the products manufactured by the respondent but only to a certain portion of its products. Notwithstanding this finding, it allowed the respondents appeal in full and declared it to be entitled to exemption in respect of all the products manufactured by it. Rule 3(66a) insofar as it is relevant reads thus :
"3(66a)(i) Sales by a newly set up small-scale industry of goods or class of goods, other than those included in Schedule X appended to this clause, manufactured by it during the period of three years, if the said industry is situated within the area of the Calcutta Metropolitan Planning Area as described in the First Schedule to the West Bengal Town and Country (Planning and Development) Act, 1979 (West Bengal Act 13 of 1979) or five years, if it is situated elsewhere in West Bengal, since the date of its first sale of such manufactured goods :
Provided that the dealer claiming the benefit of this clause will be so eligible only if he keeps separate accounts in respect of such newly set up small-scale industry, issues serially numbered cash/credit memos for sales of goods manufactured in such industry, keeps vouchers and other documents for purposes of plant and machinery for establishment of such industry and maintains other records to prove that sales claimed exempt under this clause were of goods manufactured in such industry set up him :
Provided further that the dealer claiming the benefit of this clause will be eligible, if he possesses a valid certificate of eligibility in Form No. XXXVI-A granted by the appropriate Assistance Commissioner in this behalf, for such period as mentioned in the said certificate :
Provided also that ... Section 4-AA of that Act.
Explanation. - For the purpose of this clause newly set up small-scale industry means a new industrial unit, -
(i)-(v)(a), (b) * * *
(vi) which does not use the trade mark or the brand name of any product of an existing industrial unit,
(vii) * * *"
5. Clause (vi) of the Explanation is very clear and unambiguous. It says that the said benefit of exemption from sales tax is available only to such newly set up small-scale industry which does not use the trade mark or the brand name of any product of an existing industrial unit. In this view of the matter, the respondent-industry cannot claim the benefit of exemption. But the question is whether it would be reasonable to read the said Explanation literally which would mean that if a manufacturer uses the brand name or trade mark of an existing industrial unit even in respect of a small portion of its production, it would be totally deprived of the benefit of the said exemption. We are of the opinion that having regard to the object and purpose underlying the said rule, it would be reasonable to say that the respondent shall not be entitled to the benefit of the said exemp
