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       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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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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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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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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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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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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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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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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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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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…..  

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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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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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“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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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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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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