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.= 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 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.- 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”.

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 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 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 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 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 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 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 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.
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 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, 2nd 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…..
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….”

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:-

“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 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 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.