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REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOs. 2678-2679 OF 2010

ACC LTD.                                    Appellant

                               VERSUS

STATE OF KERALA                             Respondent

WITH

CIVIL APPEAL NOs. 5980-5981 OF 2010

J U D G M E N T

Dipak Misra, J.

The  appellant  entered  into  an  agreement  on

08.04.1993  with  Cochin  Cement  Limited  -  a  company

registered under the Companies Act,  1956.  The relevant

clauses of the agreement are as follows :-

"1.  ACC shall sell to Cocem Cement Clinker Ex its Wadi Cement Works on regular basis at the supply  rate  of  300  T  per  day  so  as  to  enable

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Cocem to produce Ordinary Portland Cement or any other type of  cement as per the marketing need from time to time.  The price of clinker will be  linked  to  the  price  of  cement  in  the  Kerala market and will be reviewed every six months on this  basis.  The  formula  for  such  price adjustments will  be as detailed in Annexure 'A' attached to and forming part of this Agreement. For the sake of easier operation of the contract it is  agreed  that  a  specific  quantify  of  clinker supplied by ACC for any six months period will have  a  co-relation  with  the  price  at  which  the cement  will  be  handed  over  to  ACC  for  sale during  the  said  period  of  six  months.   Any shortfall on either side in the matter of supply of clinker from ACC and supply of cement by Cocem would  have  to  be  made  good  at  the  already agreed rate prior to finalisation of price for  the subsequent period.   

xxxxx xxxxx

3. Cocem  shall  entrust  to  ACC  all  matters pertaining  to  quality  assurances  in  respect  of cement produced by Cocem.  ACC shall arrange to depute its personnel to the factory of Cocem with  a  view  to  ensure  that  quality  of  cement produced is as per the internal norms/standard of ACC.  Fees to be paid by Cocem to ACC for this service  shall  be  mutually  agreed  upon  by  the parties separately.   

4. Cement  produced  by  Cocem  under  ACC's brand same shall only be marketed by ACC and shall not complete with cement directly supplied to the Kerala market by ACC.   

5. Clinker  ground  into  cement  shall  be purchased  by  ACC  at  a  mutually  agreed  price which will include the cost that ACC may incur in organising  marketing  and  sale  of  cement

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manufactured  by  Cocem.   Cocem  will  supply cement  to  different  parties  strictly  as  per  the programme given by ACC.  In respect  of  direct consumers of cement the billing may be done by Cocem directly to the party strictly in accordance with the direction given by ACC.  Cement will be branded as 'ACC'.  For use of ACC brand name and rendering marketing services Cocem will pay Rs. 75/- per tonne as charges.  This charge will remain firm for 5 years and will be subjected to revision thereafter on mutual terms.  

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7. Any complaints/claims arising out of quality of cement, damages, shortages, poor packing due to  negligence  on  the  part  of  Cocem  would  be debited to Cocem.  

xxxxx xxxxx

11. Cocem  shall  not  use  ACC's  Trade Marks/brand  names  in  any  form  after  the termination or expiry of this Agreement.   

2. On the basis of the aforesaid Agreement, the appellant

- assessee put forth his stand before the Assessing Officer

that his case was covered under Section 5(2) of the Kerala

General  Sales  Tax  Act,  1963  (for  brevity,  "the  Act")  and,

therefore, the sale effected by the Cochin Cement Limited

should be treated as the first sale.  The Assessing Officer,

on  the  basis  of  Intelligence  Report  and  other  materials

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brought on record, came to the conclusion that the Cochin

Cement Limited had been manufacturing the cement and

handing over the same to the assessee.  On  a  perusal  of

the impugned orders, it is noticeable that the report of the

concerned intelligent officer has met with approval up to the

revisional stage. To have a complete picture we may usefully

reproduce the finding recorded by the assessing officer in

the order of assessment:-  

"As  per  schedule  to  the  agreement,  Associated Cement  Cos.  is  charging Rs.  150/- per  ton for marketing  and  service  charges  and  only  after deducting  that  amount,  Associated Cement  Co. need  pay  the  balance  to  Cochin  Cement  Ltd., after adjusting the price of clinker.  During the course  of  inspection on 16.4.99 effected in  the premises of Cochin Cement Ltd., at Ernakulam a copy  of  the  report  regarding  cement  marketing prepared  by  Sri  S.  R.Iyer,  Senior  Dy.  General Manager, Cochin Cement Ltd, was recovered by Intelligence  Squad  No.  1,  Ernakulam  which reveals  that  cement  manufactured  by  Cochin Cement  Ltd.  is  fully  marketed  by  Associated Cement Co., in its brand name.  It is also stated that the responsibility of clinker supply and also the marketing and selling the cement produced by  Cochin  Cement  Ltd.,  lies  with  Associated Cement Co.

From the  above,  it  is  evident  that  Cochin Cement  Ltd.  is  only  a  manufacturer  of  cement and that too by using the raw material supplied by  the  Assessee  with  specified  quality  of  ACC

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standard and entire cement manufactured are to be delivered at different depots of the Assessee. Only  Assessee  is  marketing  the  cement  and Cochin  Cement  Ltd.  is  not  entitled  to  sell  out even a single bag of cement in the market over and above the programme given by the Assessee. Entire  goods  manufactured  are  delivered  at Assessee's  depots  and  is  being  marketed  by Assessee in its brand name.  And all  the sales effected  through  depots  of  the  Assessee  have alone being assessed u/s 5(2) of KGST Act newly amended.  Only  those  cement  which  has  been manufactured by Cochin Cement Ltd.  and sold by  Assessee  in  its  brand  name  revealed  and accounted  in  the  Assessee's  books  of  accounts has been brought to tax by this order.  In other words, if Cochin Cement Ltd. is selling goods to others  by  itself,  the  question  of  coming  those transaction  into  the  books  of  accounts  of  the Assessee  does  not  arise  at  all.   In  the circumstances,  the  contention  of  the  Assessee that Cochin Cement Ltd. is marketing cement to the customers by itself falls to the ground."

The said authority has further opined:-

“The question of brand name in this case arose in respect of goods manufactured by Cochin Cement Ltd., and sold by the Assessee.  It is, only for the sake of  marketing that  brand name is used by the Assessee in respect of cement manufactured by the Cochin Cement Ltd. A stranger Co., other than  Assessee,  the  brand  name  is  the  brand name allotted to Associated Cement Co.,  under the  Trade  and  Mercantile  Act  and  those  goods manufactured  by  a  Co.,  other  than  Associated Cement Co., if sold by ACC under its brand name it will very well come under the purview of newly introduced section. Therefore, the contention that Cochin Cement Ltd., is brand name holder is a very feable augment. Sub.sec 2 of  Sec. 5 reads

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“Notwithstanding anything contained in this Act in respect of goods other than tea sold in auction in the state, 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 this Act”. The impugned transaction is a typical one coming under the above provision.  The Cement sold by the  Assessee  is  one  which is  manufactured  by Cochin Cement Ltd. and from Cochin Cement Ltd Assessee  purchased  and  cement  so  purchased sold  under  its  brand name “ACC”  and claimed exemption as second sale.  But by virtue of above said provision, the Assessee’s 2nd sale is treated as first sale.”

3. Be it noted, the order of assessment has received the

stamp of approval by the higher authorities as well as by

the  High  Court.  In  this  backdrop,  we  may  proceed  to

analyse the statutory scheme.  Section 5(1) of the Act, which

is the charging Section, reads as follows:-

"Every dealer (other than a casual trade or agent of  an non-resident dealer)  whose total  turnover for a year is not less than two lakh rupees and every  casual  trader  or  agent  of  a  non-resident dealer,  whatever  be  his  total  turnover  for  the year, shall pay tax on his taxable turnover of that year."

4. Mr. S. Ganesh, learned senior counsel appearing for

the appellant, has laid immense emphasis on Section 5(2),

which reads thus:-

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"Notwithstanding anything contained in this Act in respect [of manufactured goods other than tea] which are sold under  the 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 purposes of this Act."

5. The  learned  senior  counsel  would  contend  that  the

Cochin  Cement  Limited is  the  brand name holder  of  the

present appellant and, therefore, the sale at its hand has to

be treated as first sale for the purposes of this Act.  In this

regard, we think it appropriate to refer to Section 5(2A) and

5(2B) of the Act, which read thus:-

"5(2A) Where  a  dealer  liable  to  tax  under sub-section (1), sells any goods to a trade mark or brand name holder for sale a trade mark or brand name, no such dealer shall be liable to pay tax  under  the  said  sub-section,  if  he  produces before  the  assessing  authority  a  declaration  in the  prescribed  form  from  that  trade  mark  or brand name holder.   

5(2B) Where  a  trade  mark  or  brand  name holder  consumes  the  goods  purchased  by under-section 2(A),  in the manufacture of  other goods or uses or disposes of such goods in any manner otherwise than by way of sale within the State  or  despatches  such  goods  to  any  place outside  the  State,  otherwise  than  by  way  of inter-state sale, such trade mark or brand name holder shall be liable to pay tax on the turnover relating to such purchase for the year irrespective

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of the quantum of his total turnover."     

6. On a conjoint reading of the aforesaid provisions, it is

discernible  that  the  Legislature  has  clearly  expressed  its

intention to treat the sale by the brand name holder or the

trade mark holder as the first sale.  In the case of  Cryptom

Confectioneries Pvt.  Ltd.  Vs.  State of  Kerala1,  Section

5(2A) came up for  consideration and a two-Judge Bench,

analysing  the  anatomy  of  the  provision,  has  laid  down

thus:-

"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 of 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.   Keeping  in  view  the aforesaid provision,  let  us once again trace the transaction  between  the  appellant  and  the licensee, namely, M/s. Bristo Foods Pvt. Ltd."  

7. On a scrutiny of the facts of the said case, it is

manifest  that  the  issue  that  squarely  fell  for

1

 (2014) 73 VST 498 (SC)

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consideration is whether the sale at the hands of the

appellant  therein would be treated as the  first  sale.

Dealing  with  the  stand  of  the  appellant,  this  Court

stated:-

"According to the appellant/ assessee who is  a branded name holder, M/s Bristo Foods Pvt. Ltd., has licence and is permitted to use the branded name "CRYTM".  The licensee manufactures the goods, namely, confectioneries and effect supply of sale to the brand name holder.  It is the brand name  holder,  who  effects  the  sale  of  the confectioneries which are  to be taxed as item 39 of the First Schedule to the Act within the State. Therefore, it is the brand name holder, who has to be pay tax under section 5(2) of the Act.  If for any reason M/s Bristo Foods Pvt. Ltd. has paid the  tax  while  effecting  the  supply  of  the manufactored  commodity  to  the appellant/assessee,  the  appellant/assessee  and M/s  Bristo  Foods  Pvt.  Ltd.  can  approach  the authorities for claiming the refund of the tax paid by them."   

8. On a careful appreciation of the aforesaid decision, we

find the factual matrix therein is explicitly the same as is in

the present case.  However, Mr. S. Ganesh, learned senior

counsel, would submit that in the said case, there has been

no consideration of  the  concepts like brand name holder

and  trade  mark  holder  and,  therefore,  the  said  decision

should not be treated as a precedent.  On the basis of the

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aforesaid submission,  Mr.  Ganesh contends that the said

decision  requires  reconsideration  and  this  Court  should

refer it to a larger Bench.  Mr. Ganesh further submits that

the  ratio  of  the  decision  has  to  be  understood  in  the

background of  the facts of  the case and a decision is  an

authority  for  what  is  actually  decides,  not  what  logically

follows from it. According to him, as the relevant provisions

have not been construed, it cannot be regarded as a binding

precedent.   

9. Needless  to  say,  the  proposition  canvassed  by  Mr.

Ganesh neither invites a dispute nor calls for a debate. It is

so  the  said  proposition  has  been  stated  in  Quinn  v.

Leathem2 which has  been  followed  in Ambica  Quarry

Works v. State of Gujarat and others3. But such is not

the case here. First of all, in the earlier decision Section 5(2)

was  considered  and  a  view  has  been  expressed  and,

therefore, it cannot be said that a provision has not been

referred  to  or  not  considered.   Hence,  it  is  a  binding

precedent.  

2 (1901) AC 495 3 AIR 1987 SC 1073

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10. The  second  issue,  which  has  been  ambitiously

projected  by  Mr.  Ganesh,  is  that  the  decision,  even  if  a

binding precedent, requires reconsideration as the relevant

terms employed in Section 5(2),  have not been appositely

considered.  What  is  limpid  is  that  Section  5(2)  is  an

expression of the Legislative intention that the sales at the

hands  of  the  brand name holder  and  trade  mark  holder

would  be  treated  as  the  first  sale.   On a  perusal  of  the

agreement  entered  into  between  the  parties,  it  is  not

remotely suggestive of the fact that Cochin Cement Limited

is a brand name holder or trade mark holder.  Hence, the

ambitious  submission  of  Mr.  Ganesh  has  to  melt  as  a

glacier,  and  we  say  so.  Ergo,  the  decision  in  Cryptom

Confectioneries Pvt. Ltd. does not require reconsideration.

11. In view of  the aforesaid analysis,  the  appeals,  being

devoid of merit, are dismissed. There shall be no order as to

costs.         

 …………………………..........J.                 [DIPAK MISRA]  

New Delhi ……………….......................J  July 28, 2016.  [ROHINTON FALI NARIMAN]