LEGAL EYE: Brand exemption

INDIRECT TAXEX

For several years since the 1994 Budget, there have been restrictions put on the use of a brand name by small-scale firms that avail of the exemption for goods manufactured by them. It has been now laid down by an amendment of law through notifications that if a small-scale firm uses the brand name of another company, the exemption meant for small scale is not admissible.

This was introduced for economic reasons mainly to curtail the usage at that time by big firms to outsource their supplies through small-scale and together muster a very huge amount of goods for further sale without paying duty at any stage. However, this amendment brought in its wake several controversies, which have been gradually solved at the level of the Supreme Court and the Tribunal.

One of such issues is whether the exemption is admissible to a small firm which purchases the right to manufacture another product along with the brand name of the product from another company which company thereafter does not use that brand name any more. The Supreme Court ruled in the case of CCE, vs. Vikshara Trading & Invest Ltd. "� 2003 (157) ELT 4 (SC), that when there was an assignment of trade mark or name in favour of another person, the benefit of the small scale exemption cannot be denied even if the trade mark is not registered.

Once again, however, a similar matter appeared before the Tribunal in the case of Arco Whitney Ltd. vs. CCE, Pune "� 2006 (193) ELT 217 (Tri-Mumbai). The appellant was manufacturing hydraulic equipment with the brand name A/W, which is the brand name of M/s American Refrigerators Co. Ltd. The appellant purchased the manufacturing unit called Arco Whitney belonging to M/s American Refrigerators Co. as a going concern with all its assets including the goodwill, right to use the trade mark and all technical drawings and designs and know how, patents, licenses, etc.

So the appellants, therefore, claimed that the trademark belongs to them and it was no longer the trademark of another person. Once the unit Arco Whitney was sold lock, stock and barrel, the trade name also would belong to the purchaser. The purchase deed showed that the unit was sold along with its assets and properties, which included the trademark, designs, etc. The word A/W was not being used by M/s American Refrigerators Co. Ltd. any more. So the Tribunal ruled that they were not using somebody else's brand name because the brand name now belonged to them from the date of purchase.

The small-scale exemption was, therefore, admissible to them. The correct legal position is, therefore, that a brand name being purchasable, it becomes the purchaser's brand name and it does entitle the purchaser to small-scale exemption.

A similar situation arose when a small-scale farm got a trademark registered in its favour by the proper authority namely Trade Mark Registry. Revenue came to the conclusion that the registration was given wrongly and therefore the benefit of small-scale exemption could not be allowed. The matter went upto the Supreme Court in this case of CCE vs. Begen Industries Ltd. -2006 (197) ELT 305 (SC). The SC ruled that once the trademark has been registered in the name of the assessee to be the sole proprietor of the trademark for India, and that order had not been set aside, revenue couldn't deny the benefit of small-scale exemption to it.

It can be concluded from all these judgements that the denial of small-scale exemption cannot be on the ground that the brand name was with somebody else earlier. If the small-scale firm continues to be the legal owner, it is entitled to the exemption.