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Would an idli sold by popular restaurant chain Murugan idlis or a dosa sold by Saravana Bhavan be viewed as "branded" good for tax purposes? Can an "unbranded" cake sold by a bakery be viewed in the same way that a trademarked "McVeggie" burger is treated when it comes to taxation?
Chocko Choza, a bakery selling premium confectioneries, cakes etc. with an outlet in Coimbatore, is the latest to weigh in on these questions, by joining a fray of parties challenging the State tax authority's interpretation of "branded" goods under Section 2 (9) of the Tamil Nadu Value Added Tax Act, 2006 (Choco Choza v. Sales Tax Officer).
Section 2 (9) of the 2006 Act defines "branded" as any good sold under a name or a trade mark registered or pending registration or pending registration of transfer under the Trade Marks Act.
Pertinently, dealers of unbranded food or drink (provided they are not star hotels recognised by the Tourism Department) are subject to levy of a lesser tax rate i.e. 5% as per Section 7 (1) (b) of the Tamil Nadu VAT Act.
However, while assessing the tax liabilities of Chocko Choza in respect of its baked goods sold without any independent registered brand or mark, the assessing officer is stated to have treated such goods as "branded goods."
Thereby, Chocko Choza was not allowed to avail the tax benefit for unbranded items when it came to the sale of their goods, which the bakery asserts are unbranded goods.
Appearing for Chocko Choza on Monday, Senior Advocate Gopal Sankaranarayanan submited that as per the tax authority, any good sold by a restaurant or shop would be treated as branded even if the good does not have its own registered brand, name , protection or identification.
Effectively, the Bench of Chief Justice AP Sahi and Justice Senthilkumar Ramamoorthy was appraised that the State is thereby treating any dealer holding a trademark from being ineligible to sell "unbranded" goods.
Such a broad application of Section 2(9) of the Tamil Nadu VAT act would render provisions like Section 7 (1) (b) otiose, Sankaranarayanan went on to argue.
"Every single good will be a branded good then... virtually any good sold from a licensed shop or registered shop would be treated as a branded item", he pointed out.
Referring to provisions which concern goods without a brandname, Sankaranarayanan asserted that the legislature had clearly intended for there to be goods sold without a brand name. This cannot be annulled by an interpretation of the law which will deem that everything has a brand name, he argued.
He further pointed out that the Trademark Act contains provisions that require printed, visual representations of the Trademark on a good for there to be protection of a trademark in use. He explained,
“If I take the dosa out of the shop, I should be able to say that this is a Saravana Bhavan dosa as opposed to Murugan Idli dosa or an Annapoorna dosa... If it (a good) is indistinguishable, then the trademark mark will be rejected."
He added that Section 2 (9) of the Tamil Nadu Act will have to be interpreted bearing these aspects in mind.
"The imprint or the labelling is significant in interpreting what a Trademark is under this Act. When it is alluded to in the TN VAT act, it is the same grounds that must follow."
During the course of submissions today, the Bench orally mused that the provisions of both the Tamil Nadu VAT Act and the Trademarks Act should be interpreted with specific reference to the goods and not the shop selling the goods. To this, Senior Advocate Sankaranarayanan expressed his agreement.
All the same, the Court expressed some reservation over whether this is a case of an incorrect application of the law or a whether the validity of Section 2 (9) itself should be put to test.
"That will be a wrong interpretation which can be contested…but that cannot be ground to render the provision ultra vires", the Bench remarked.
"They have done this in several cases. I need to have this challenge of abundant caution. I have to challenge the vires so I am not shut out if that interpretation (adopted by the tax authority) is sustained later."
At this juncture, the court was appraised by other counsels present that there are similar cases brought before both Benches of the High Court, including by Saravana Bhavan, Annapoorna and Murugan Idli which are still pending considerations. Pleadings are complete in these cases and letters have been addressed to the Registry over the listing of these cases, the Bench was told.
"Whether Murugan idli is branded?" is the similar question being dealt with by the Madurai Bench, the Court was informed.
In the course of today's hearing a submission was made by Special Government Pleader for taxes, Mohammed Shafiq that the law applicable in these cases has been laid down by the Indian Supreme Court in the Australian Cookie Man case.
In that case, the Court had ended the tax exemption claimed for the cookies sold by Cookie Man on the claim that they were unbranded goods.
Sankaranarayanan rebutted that this case is distinguishable. The cookie is still a branded cookie out of the Cookie Man box, he argued, further stating that it is comparable to how cigarettes are sold in India. A loose or individual cigarette sold would still have the branding of the company. This is not the situation in the present case, he argued.
The High Court today decided to club the petitions challenging the validity of Section 2 (9) of the Tamil Nadu VAT Act. Apart from Chocko Choza, Annapoorna has also challenged the vires of this provision (Sree Annapoorna Sree v. The Assistant Commissioner(ST)). In other proceedings, individual tax assessment proceedings were challenged.
The first Bench opined that it could hear the challenge made to the law's validity, while the concerned Benches may deal with the other cases of merits. The Court's finding on the law would have a bearing on all these cases, it was further noted.
"We are only concerned with the vires issue, others can be dealt with on merits", the Bench said, orally adding in a lighter vein, "Somebody has dosa, somebody has idli, why should we decide on that? We will decide on the law, let the others deal with (individual cases)."
The cases concerning the challenge to Section 2 (9) of the Tamil Nadu VAT Act has, accordingly, been posted to be taken up on November 18. Pleadings by all parties may be completed in the meanwhile, the Court added.