IMPORTANT POINT
Franchise agreements grant non-exclusive rights and do not constitute a transfer of the right to use goods, thus exempting them from Value Added Tax under the UPVAT Act.

JUDGMENT :

SHEKHAR B. SARAF, J.

1. This is a commercial tax revision petition under Section 58 of the Uttar Pradesh Value Added Tax Act, 2008 (hereinafter referred to as the ‘UPVAT Act’). The following question of law has been admitted by this Court:

“Whether on the facts and circumstances of the case the Commercial Tax Tribunal was legally justified in deleting the amount of tax which is taxable under schedule 2 part A at serial No. 3 (All intangible goods like copyright, patent, license etc. transfer of right to use goods).”

2. In the instant case, first appellate authority had concluded that the dealer/respondent had sold his brand name/title under the franchise agreement, and since it is to be considered as a sale, therefore, Value Added Tax has to be levied on it.

3. Against the order of the first appellate authority, the dealer/respondent had gone into appeal before the Commercial Tax Tribunal. Relying upon the judgment of Delhi High court in M/s Mc Donalds India Pvt. Ltd. V. Commissioner of Trade Taxes New Delhi, 2017 (5) GSTL 120, the Commercial Tax Tribunal held that since the franchise of trademark can be transferred to several persons at the same time, it is merely a license to use the goods and not a transfer of the exclusive right to use the goods, and therefore, no Value Added Tax can be levied on the same. It is this order which is assailed before this Court.

CONTENTIONS OF THE REVISIONIST

4. Mr. Bipin Kumar Panday, learned Standing Counsel appearing on behalf of the revisionist has made the following submissions before this Court:

a. Once the copyright has been transferred and royalty amount has been received in lieu of the same, it becomes taxable under the provisions of the Act because entry at Serial No. 3 in Part A of Schedule-II of the Act makes clear that “All intangible goods like copyright, patent, rep. license etc; transfer of right to use of goods” are taxable.

b. It is further submitted by him that since franchise or trademark falls within the meaning of transfer of right to use the goods hence Value Added Tax is leviable on it.

c. It is further submitted by him that even if service tax was paid, it does not absolve the liability under the UPVAT Act, as Value Added Tax and Service Tax were separate and distinct taxation regimes before the introduction of the Goods and Services Tax Act, 2017. Further, the term ‘sale’ as defined under Section 2 (ac) of the UPVAT Act includes a 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.

d. In support of his contentions, he relies upon the judgment of the Supreme Court in case of Vikas Sales Corporation v. Commissioner of Commercial Tax reported in (1996) 4 SCC 433 wherein it was held that REP license/Exim scrips were goods on the sale of which sales tax can be levied.

e. Further reliance has been placed upon the judgment of Madras High Court in the case of S.P.S. Jayam and Co. v. Registrar, Tamil Nadu Taxation Special Tribunal, 2004 SCC Online Mad 1018 and the judgment of Bombay High Court in Commissioner of Sales Tax v. Duke & Sons Pvt. Ltd. (1999) 112 STC 370.

CONTENTIONS OF THE RESPONDENT

5. Mr. Shubham Agrawal, learned counsel appearing on behalf of the respondent has argued as follows:

a. The franchise agreement which the respondent dealer had entered into with various parties, only a mere license was given by the respondent for use of his brand name. The said franchise agreement grants only a representational right and not an exclusive right to the licensees to sell/manufacture goods.

b. The permission granted by the dealer under the agreement was a non-exclusive right given to the licensees, as it was not to the exclusion of others. Thus, the license does not constitute a ‘transfer of right to use of goods’.

c. He further relies upon the judgment of the Supreme Court in the case of BSNL v. Union of India, 2006 (3) SCC 1 wherein the Supreme Court propounded a test for th