Page 1 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOs. 4283-4284 OF 2013

KAIL Ltd.

(Formerly Kitchen Appliances India Ltd.) .... Appellant(s)

Versus

State of Kerala

Represented thrgh. Jt. Commr. (Law) .... Respondent(s)

J U D G M E N T

R.K. Agrawal, J.

1)Challenge in the above said appeals is to the legality of

the impugned judgments and orders dated 25.05.2010 and

16.08.2011 in ST REV No. 36 of 2007 and RP No. 337 of 2011

respectively rendered by a Division Bench of the High Court of

Kerala at Ernakulam.

2)Factual position in a nutshell is as follows:-

a)The above said appeals relate to the assessment under the

Kerala General Sales Tax Act, 1963 (in short ‘the KGST Act’)

for the year 1999-2000. KAIL Ltd.-the appellant-Company is a

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Page 2 dealer in home appliances at Ernakulam having registered

office at Bangalore.

b)The issue is with regard to the tax under Section 5(2) of

the KGST Act on sales turnover of home appliances for Rs.

27,27,20,230/- on the ground that the appellant-Company

had sold the home appliances under the brand name “Sansui”.

To put it more clear, the Assessing Authority- the

respondent-State, while scrutinizing the second sale

exemption as claimed by the appellant-Company, found that it

is the brand name holder of “Sansui” and hence the turnover

of the items sold under “Sansui” brand name will be treated as

first sale under Section 5(2) of the KGST Act.

c) The appellant-Company was served with a show cause

notice dated 15.02.2004 by the Office of the Assistant

Commissioner (Assmt.), Ernakulam against which a reply was

filed on 15.03.2004 denying the averments of the notice

stating that the appellant-Company is not the holder of the

brand name “Sansui” indicating that the said brand name is

owned by M/s Sansui Electric Co. Ltd. Japan. The Assessing

Authority, vide order dated 22.03.2004, dismissed the claim of

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Page 3 the appellant-Company with regard to the brand name holder.

Aggrieved by the order dated 22.03.2004, the

appellant-Company went in appeal before the Deputy

Commissioner (Appeals), Ernakulam along with an application

for stay. The Deputy Commissioner (Appeals), vide order

dated 30.09.2004, dismissed the appeal filed by the

appellant-Company being Sales Tax Appeal No. 530 of 2004.

d)Aggrieved by the order dated 30.09.2004, the

appellant-Company approached the Kerala Sales Tax Appellate

Tribunal (in short ‘the Tribunal’) by filing T.A. No. 736 of 2004

which was decided in favour of the appellant-Company vide

order dated 12.04.2006.

e)The respondent-State, aggrieved by the abovesaid order,

preferred a revision petition being ST REV No. 36 of 2007

before the Kerala High Court. A Division Bench of the High

Court, vide order dated 25.05.2010, allowed the revision filed

by the respondent-State holding that the appellant-Company

is the brand name holder of “Sansui”. Feeling aggrieved, the

appellant-Company filed a Review Petition being No. 337 of

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Page 4 2011 before the High Court which was dismissed vide order

dated 16.08.2011.

f)Aggrieved by the judgments and order dated 25.05.2010

and 16.08.2011, the appellant-Company has preferred these

appeals by way of special leave before this Court.

3)We have heard learned counsel for the parties and perused

the records.

4)Learned senior counsel for the appellant-Company

contended before this Court that the appellant-Company

purchased the entire goods from Videocon International Ltd.,

Kochi Branch, after paying tax under the KGST Act. The

appellant-Company is only the second seller of the goods and

the Assessing Authority ought to have noted that the

appellant-Company is eligible for rebate of tax under Rule

32(13B) of the Kerala General Sales Tax Rules, 1963 (in short

‘the Rules’). There is no material on record for the

respondent-State to contend that the appellant-Company has

any brand name rights to treat them as the seller of the goods

under the brand name “Sansui” in India. In other words, the

short contention of learned senior counsel for the

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Page 5 appellant-Company is that Videocon International Ltd. itself,

which brought the manufactured goods to Kerala, was the

brand name holder and their sale was the first sale as well as

the sale falling under Section 5(2) and so much so the second

sale exemption was rightly claimed by the appellant-Company.

5)Per contra, learned senior counsel for the respondent-State

submitted that the appellant-Company could not produce any

valid evidence to substantiate the contention that M/s

Videocon International Ltd. is the brand name holder during

the relevant year. The assessing authority has rightly

established by giving legitimate reasoning that the

appellant-Company is the brand name holder of “Sansui”

goods. Also from the facts and materials on record and from

the observations of the assessing authority, it could be easily

gauged that during the relevant year, the appellant-Company

has marketed the products under the brand name “Sansui”.

6)The appellant-Company is a registered dealer under the

KGST Act in Kerala, engaged in marketing products like

television, washing machine etc. manufactured under the

brand name “Sansui”. The entire products are purchased by

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Page 6 the appellant-Company from Videocon International Ltd. In

fact, Videocon International Ltd., the holding company, brings

the goods to Kerala on stock transfer and the entire goods

were sold to its subsidiary, the appellant-Company, for

marketing in Kerala. Even though Videocon International Ltd.

returned the entire sales as first sales on which they have

collected tax from the subsidiary company, the

appellant-Company was assessed for sales tax by the

Assessing Officer while scrutinizing the second sale exemption

as claimed by the appellant-Company and found that the

goods in respect of which second sale exemption was claimed

by the appellant-Company were goods sold under brand name

“Sansui” and so much so, tax under Section 5(2) is payable by

the appellant-Company. The appellant-Company opposed the

same by stating that the brand name “Sansui” is owned by

Sansui Electric Ltd., Japan and is not at all related to the

appellant-Company. During the course of proceedings, the

Assessing Officer found that the correspondence sent to the

Department was in the letter head with the trademark, logo

and brand name of “Sansui”. Since the products were sold

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Page 7 under the brand name “Sansui”, assessment was made under

Section 5(2) of the KGST Act after disallowing second sale

exemption as claimed by the appellant-Company.

7)For deciding the controversy in issue, it would be

appropriate to reproduce Section 5(2) of the KGST Act (as it

stood at the relevant time) which reads as under:-

Levy of tax on sale of goods.-

“Notwithstanding anything contained in this Act, in respect of

manufactured goods other than tea, which are sold under a trade

mark or brand name, the sale by the brand name holder or the

trade mark holder within the State shall be the first sale for the

purpose of the Act.”

However, what is opposed by the appellant-Company is that it

is not the “holder” of the brand name in respect of the

“Sansui” products sold by it.

8)Whether the appellant-Company is the holder of the brand

name in respect of the “Sansui” products sold by it or not, it

would be appropriate to quote certain paragraphs of the

revision petition decided by the High Court which are as

under:-

“Government Pleader produced before us the files, which

show the respondent’s correspondence even with the

Department with letter head printed in the name of Sansui

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Page 8 with their logo and trademark. He has further produced

cuttings from Financial Express published on 25.1.2000

wherein, the newspaper has reported that Kitchen

Appliances Ltd., a wholly owned subsidiary of Videocon

International Ltd. has acquired manufacturing facility from

Philips India Ltd., Calcutta. During the previous postings, we

requested the company to produce annual report,

memorandum of articles etc. only to verify whether the case

of the State that respondent is a subsidiary of Videocon

International Ltd. is correct or not. However, no document is

produced to demolish the State’s claim that respondent is a

subsidiary of Videocon International Ltd. Going by the

evidence on record, we have to only hold that the respondent

is only a subsidiary of Videocon International Ltd., which

marketed the entire products through the respondent in

Kerala. Further, from the terms of the agreement between

the respondent’s holding company and Sansui Electric Ltd.,

Japan, extracted in Tribunal’s order, we notice that Videocon

International Ltd. and their subsidiary companies are

allowed to use the trademark and brand name of Sansui in

India. So much so, Videocon International Ltd., which made

the first sales to the appellant, is also the holder of the brand

name “Sansui” in India.”

(emphasis supplied by us)

9)As is clear from the language itself that in order to

attract sub-Section (2) of Section 5, the following conditions

are to be satisfied

(i)Sale of manufactured goods other than tea;

(ii)Sale of the said goods is under a trade mark or

brand name; and

(iii)The sale is by the brand name holder or the trade

mark holder within the State.

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Page 9 If all the aforesaid conditions are satisfied, the sale by the

brand name holder or the trade mark holder shall be the first

sale for the purposes of the KGST Act.

10)Applying the aforementioned conditions to the facts of

the present case, it is an admitted fact that the goods sold by

the appellant-Company are manufactured goods other than

tea. The first condition is satisfied. The next condition to be

satisfied is that the sale of goods is under a trade mark or

brand name. It is an undisputed fact that the manufactured

goods sold by the appellant-Company were home appliances

under the brand name “Sansui”. Thus the second condition is

also satisfied. Now the last condition to be satisfied in order to

attract section 5(2) of the KGST Act is that the sale is by the

brand name holder or trade mark holder within the State and

whether the appellant-Company is a holder of the brand name

“SANSUI”.

11)On 25.01.2000, a newspaper report was published in the

Financial Express stating that Kitchen Appliances Ltd. now

KAIL is a wholly owned subsidiary of Videocon International

Ltd. and has acquired manufacturing facility from Phillips

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Page 10 India Ltd., Calcutta. The position got more clear from the

affidavit filed in the High Court by Shri Venugopal Dhoot, a

family member of the Dhoot family, who holds a controlling

interest in the appellant-Company as well as in M/s Videocon

International Ltd., wherein he honestly admitted that Dhoot

family, directly or indirectly, is having shareholding control in

the appellant-Company and Dhoot brothers are also the

promoters of Videocon International Ltd. The relevant

paragraphs of the said affidavit are as under:-

“I, Venugopal S/o. Late Shri Nandlal Dhoot, Age 60 years,

Occ. Industrialist, R/o. 221, Fort House, 2

nd

Floor, Dr. D.N.

Road, Fort, Mumbai, do hereby state on solemn affirmation

as follows:

1. That I am filing this affidavit as per directions of this

Hon’ble Court as per order dated 24/06/2011. I have been

director in the respondent company since 30/12/1998 till

this date…

2. This Hon’ble Court has directed any of the director

member of Dhoot family to file an affidavit explaining

relationship between Videocon International Ltd. and

Kitchen Appliances (India) Ltd. and about control of Dhoot

family over these two companies. Accordingly, I am clarifying

the position. I say and submit that Kitchen Appliances

(India) Ltd. now name changed to KAIL Ltd., is a public

limited company and Dhoot family, directly or indirectly,

through various group companies are having

shareholding control in respondent company as per the

facts and various filings with the Regulatory Authorities.

However, the powers of the management are vested with

the Board of Directors “Director Board”) of the company

and I am one of the directors of the said respondent

company…..

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Page 11 3. I respectfully say and submit that at that time, as per

the facts and various filings, Videocon International Ltd.

was having 15.31% shareholding in the respondent

company and various other companies of Videocon

Group were holding remaining equity share capital of the

respondent company. We, Dhoot Brothers are promoters

of respondent company. It is closely held company .

5. I further say that Dhoot Brothers are also promoters

of Videocon International Ltd. and based on the facts and

the filings made by the company, from time to time, with the

Stock Exchanges, the promoters together with various

Videocon Group Companies were holding 35.11% of equity

shares in Videocon International Ltd. as on 31/3/0000.

Copy of shareholding pattern of Videocon International Ltd

as on 31/3/2000 is produced herewith and marked as

Annexure R-1 (G).

6. I respectfully further say and submit that at no point

of time the respondent company was a subsidiary of

Videocon International Limited. The same is evident from

various filings made by Videocon International Limited and

the respondent company. Videocon International Limited

and, KAIL Limited were/are part of Videocon Group.

Affiliated Group

“The principal operating companies in the Wider Videocon

Group outside the Videocon Group, including: Videocon

Appliances Limited, Videocon Communication Limited,

Applicomp India Limited, Kitchen Appliances India Limited,

Millennium Appliances (India) Limited and their consolidated

subsidiaries.”

In this context, other related/relevant definitions are:-

Dhoot Family

Mr. V.N. Dhoot, Mr. P.N. Dhoot, Mr. R.N. Dhoot and their

blood and marital relations and companies or other entities

outside the Wider Videocon Group owned and/or controlled

directly or indirectly by all or any such persons.

Wider Videocon Group

The affiliated Group and Videocon Group

Videocon Group

Videocon Industries Limited, and where the context permits,

its subsidiaries….”

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Page 12 12) Similarly, paragraph 6 of the same affidavit shows that

Videocon International Ltd and KAIL Ltd are part of Videocon

group. It also shows that during 1999-2000, the

appellant-Company had manufactured 2057 colour television

sets and 961 black and white television sets in SANSUI brand

at Calcutta factory. Furthermore, at page Nos. 109-110 of the

website publication produced by learned senior counsel for the

appellant-Company in the High Court shows that as on

30.06.2006, 100% shares of Kitchen Appliances India Ltd.

were held by Dhoot family. The given evidences are sufficient

enough to show that the appellant-Company is a subsidiary

and/or a group company of M/s Videocon International Ltd

and hence, is also allowed to use the brand name SANSUI.

Further, evidence on record shows that even the letter head

used by the appellant-Company for correspondence is printed

with the name of SANSUI with their logo and trademark.

13)In Cryptm Confectioneries (P) Ltd. vs. State of Kerala

(2015) 13 SCC 492, this Court while dealing with exactly

similar incidence of tax held as under:-

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Page 13 “9. In order to attract Section 5(2) of the Act, the following

conditions are to be satisfied:

(i) Sale of manufactured goods other than tea;

(ii) Sale of the said goods is under a trade mark/brand

name; and

(iii) The sale is by the brand name holder or the trade

mark holder within the State.

If the above three conditions are satisfied, the sale by the

brand name holder or the trade mark holder shall be the

first sale for the purpose of the Act.

10. The aforesaid sub-section commences with a non

obstante clause i.e. irrespective of Section 5(1) of the Act or

any other provision under the Act. The said sub-section

speaks of a sale made by a brand name holder or the trade

mark holder within the State. The legislature deems that

such a sale by the brand name holder or the trade mark

holder shall be the first sale within the State. In our opinion

this is the only possible construction that can be given to

sub-section (2) of Section 5 of the Act.”

Further, we are of the view that when a product is marketed

under a brand name, the Assessing Authority is entitled to

assume that the sale is by the holder of the brand name or by

a person, who is entitled to use the brand name in India.

Apart from this, in this case, the marketing is actually done by

fully owned subsidiary and/or a group company of the holding

company, which was allowed to use the brand name “Sansui”.

14)Brand name has no relevance when the products are

manufactured and sold in bulk by the holding company to its

subsidiary company for marketing. However, the brand name

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Page 14 assumes significance when goods are marketed with publicity

in the market. Moreover, when the goods are sold under the

brand name, necessarily, it has to assume that the marketing

company is the holder of the brand name or has the right to

market the products in the brand name because, it is the first

company introducing the products in the market. The

objective of Sec 5(2) of KGST Act is to assess the sale of

branded goods by the brand name holder to the market and

the inter se sale between the brand name holders is not

intended to be covered by Sec. 5(2) of the KGST Act.

15) However, if the sale between the holding company and

the subsidiary company, both having the right to use the same

brand name, is at realistic price and the marketing company

namely, the appellant-Company charged only usual margins

in the trade, then there is no scope for ignoring the first sale,

particularly, when the first seller was also the holder of the

brand name and was free to market the products in the brand

name. However, the evidence on record shows that the margin

charged by the appellant-Company while making the further

sale of product is unusually high. So the inter se sale between

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Page 15 the groups of companies under the control of the same family

was only to reduce tax liability and was rightly ignored by the

assessing officer by levying tax under Section 5(2) of the KGST

Act.

16)In view of the foregoing discussion, we are of the opinion

that the tax invoking Section 5(2) of the KGST Act was rightly

levied on the appellant-Company for the relevant period as it is

proved beyond reasonable doubt that the appellant-Company

is the brand name holder of “Sansui”. We uphold the

decisions rendered by the High Court in revision petition and

review petition and no interference is warranted into it.

17)Above being the position, the appeals are dismissed with

no order as to cost.

...…………….………………………J.

(SHIVA KIRTI SINGH)

.…....…………………………………J.

(R.K. AGRAWAL)

NEW DELHI;

OCTOBER 26, 2016.

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