Point of Law : Court see no difference between a sale of a software program on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD.

ORDER :

Mohammed Nias C.P., J.

These O.T.Revisions are preferred by the State aggrieved by the common judgment dated 03.10.2018 of the Kerala Value Added Tax Appellate Tribunal, Ernakulam, in T.A.(VAT) No.162/2015 and connected cases.

2. The short facts leading to the filing of the above revisions are as follows:-

The respondent is an assessee on the rolls of the Commercial Tax Officer, Ernakulam. The assessing officer, on scrutiny of the audited statement of accounts and assessment records, noticed that the assessee had received an amount of Rs.3,68,97,749.05/- towards income from the copyright and royalty for the transfer of right to use ringtone for a specific period during the assessment years in question, namely, 2005-2006, 2006-2007, 2007-2008, 2008-2009, 2009-2010 and 2010-2011 and, finding that the assessee had not declared the said turnover in their monthly/annual return, reopened and completed the assessments under Section 25 (1) of the Kerala Value Added Tax Act, 2003 (hereinafter referred to as ‘KVAT Act'). Aggrieved by the order of the assessing officer, appeals were preferred by the assessee, which were allowed in their favour. The State filed a second appeal before the Tribunal challenging the order of the Appellate Assistant Commissioner, and the same was dismissed by the Appellate Tribunal by Annexure-C order, which is challenged in these revisions.

3. The issue before the authorities was regarding the taxability of receipts towards royalty and the transfer of the right to use intangible property. According to the assessing authority, under Entry 68 of the III Schedule, intangible items such as copyright, patent, etc., are specifically included, and under Section 6(1)(c) of the KVAT Act, 2003, transfer of the right to use any good for any purpose for a specified period is taxable at 4%. The assessing officer held that courts had held that trademark is intangible goods, which can be the subject matter of transfer and royalty received by dealers from franchisees for the use of a trademark is liable to tax, and in the same analogy, royalty received from intangible goods like copyright, patent, etc. is also liable to be taxed as the consideration received for the transfer of the right to use goods under the KVAT Act. In holding so, the assessing officer relied on the judgment of the Supreme Court in Tata Consultancy Services v. State of Andhra Pradesh [(2005) 1 SCC 308] and also the decision of the High Court in Malabar Gold Pvt. Ltd. v. Commercial Tax Officer [2013 SCC Online Ker 1162] to hold that so as to attract liability on transfer of right to use the goods, the transfer did not have to be to the exclusion of all others and even in the absence of an element of exclusive transfer, a deemed sale could take place. The assesse also had a contention that they are paying service tax and service is rendered as per the provisions of the Central Finance Act and relied on the decision of the Supreme Court in Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes [(2008) 12 VST 371 (SC)] to state that VAT and service tax are mutually exclusive. With respect to the assessment year 2005-2006, the assessee contended that the assessment sought is completely barred by limitation by Finance Act 2010; as all assessments pending, including that for 2005-06, were to be completed on or before 31/3/2011 and therefore, the proposed assessment is well beyond the time. The said contentions were not accepted by the assessing authority.

4. In the first appeal filed by the assessee, the Appellate Authority found that the assessee cannot be made liable under the KVAT Act in respect of the royalty received as the same has been subject to the levy of service tax under the Central Legislation. The appellate authority also found that the assessing authority had placed reliance on the decision of the learned single Judge in Malabar Gold (supra), which decision was reversed by the Division Bench and therefore, going by the dictum of the Divi