Custom, Excise & Service Tax Tribunal
M/S. Hero Honda Motors Ltd vs Commissioner Of Service Tax on 12 March, 2012
IN THE CUSTOMS, EXCISE AND SERVICE TAX
APPELLATE TRIBUNAL, NEW DELHI
PRINCIPAL BENCH, COURT NO. III
Service Tax Appeal No. 597 of 2007
[Arising out of Order-in-Original No. 31/ VKG/ CST/ 2007 dated 31.8.2007 passed by the Commissioner of Service Tax, New Delhi]
For approval and signature:
Hon'ble Ms. Archana Wadhwa, Member (Judicial)
Hon'ble Mr. Rakesh Kumar, Member (Technical)
1. Whether Press Reporters may be allowed to see : No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 : Yes
of the CESTAT (Procedure) Rules, 1982 for
publication in any authoritative report or not?
3. Whether Their Lordships wish to see the fair : Seen
copy of the Order?
4. Whether Order is to be circulated to the : Yes
Departmental authorities?
------------------------------------------------------------------------------------
M/s. Hero Honda Motors Ltd. Appellants
Vs.
Commissioner of Service Tax Respondent
New Delhi
Appearance:
Shri S. Ganesa, Sr.Advocate with Shri P.K. Rana, Advocate for the Appellants
Shri Sunil Kumar, SDR for the Respondent
CORAM:
Hon'ble Ms. Archana Wadhwa, Member (Judicial)
Hon'ble Mr. Rakesh Kumar, Member (Technical)
Date of Hearing : 29.9.2011
Date of decision : 12 3.2012
ORAL ORDER NO . ________________________
Per Archna Wadhwa:
Being aggrieved with the order passed by Commissioner of Service Tax New Delhi vide which he has confirmed the Service Tax of Rs.87,70,372 and Education Cess of Rs.1,75,407 against the appellant along with interest and imposition of penalties under Section 76, 77 and 78 of the Finance Act, the appellants have filed the present appeal.
2. As per facts on record, the appellant M/s. Hero Honda Motors Ltd. entered into an agreement with M/s. Bharat Petroleum Corpn. Ltd., M/s. TIDE Water Oil Co. Ltd. and M/s. Savita Chemicals Ltd. In terms of the said agreement the BPCL, Tide Water and Savita Chemicals were permitted to use the brand name of Hero Honda and Hero Honda 40T on the containers of the products manufactured by them, for the purposes of marketing and promoting their said products. Further M/s. Hero Honda has reserved their right to grant the said use of the trade mark to any other manufacturer. Similarly, the other parties of the agreement also reserved their rights to market their range of products under the brand name / trade name of other manufacturers. All the three parties with whom the appellant entered into a contract were engaged in processing, branding and compounding of oils. In terms of the said agreement the appellants were receiving royalty as per terms and conditions of the said agreement.
3. On perusal of the said agreement, so procured by the Revenue from the appellant, Revenue entertained a view that the appellant has rendered taxable services falling under the category of Intellectual Property Services. The above view was entertained by the Revenue on the following basis 6 (1) Hero Honda are the holders of Trade marks Hero Honda and Hero Honda 4T plus;
(2) The said trade marks falls within the ambit of the definition of intellectual property right under Section 65 (55)(a) of the Finance Act, 1994 (herein after referred to as the Act);
(3) Hero Honda has provided / permitted the use of enjoyment of its aforesaid intellectual property rights to the parties namely Tide Water, Savita Chemicals and Bharat Petroleum which falls under Section 65 (55)(a) of the Finance Act, 1994 vide Section 65 (105)(zzr) read with Section 65(55)(b) of the Act ibid; and (4) Such services have been provided against monetary consideration.
4. In view of the above, the appellants were issued SCN dated 31.8.2006 raising demand of Service Tax for the period October, 2004 to January, 2006. The proposal in the said show cause notice was assailed by the respondents on merits as also on limitation. However, the adjudicating authority did not find favour with the same and confirmed the demand as proposed in the notice along with imposition of penalties. Hence, the present appeal.
5. We have heard Shri S. Ganesa, Sr.Advocate appearing for the Appellants along with Shri P.K. Rana, Advocate. Shri Sunil Kumar, learned AR appears on behalf of the Revenue. The appellants have also filed a written submissions after conclusion of hearing.
6. It stands mainly contended by the applicant as under:
(i). The scope and ambit of the term Intellectual Property Right as defined by section 65 (55a) of the Finance Act has been clarified by the CBEC Circular No. 80/10/2004 S.T. dated 17.9.2004. Para 9 of this Circular makes it clear that Intellectual Property Right (IPR) within the meaning and for the purpose of section 65 (55)(a) are confined to those IPR governed by specific legislations in India. The said Circular further specifically states that IPRs like integrated circuits and undisclosed information which are not covered by any specific legislations in India would not be covered under taxable services. It is of vital importance to note that a person can certainly claim proprietary rights under common law in respect of such items like integrated circuits and undisclosed information, but as they are not covered by an Indian Legislation, the Circular clarifies that as these items are not covered by Indian law, therefore, they do not give rise to taxable services. The Circulars thus states clearly and unequivocally that Indian Law means only Indian Legislations and not the common law as such..
(ii). The Trade Marks Act, 1999 only governs and regulates registered trade marks and not unregistered trade marks which are not governed by any Indian Legislation and are, therefore, not covered by Indian law, as explained by the said CBEC Circular. Section 27(1) of this Act expressly states. No person shall be entitled to institute any proceeding to prevent or to recover damager for, the infringement of an unregistered trade mark. Unregistered trade marks therefore do not give rise to any taxable services.
(iii). A trade mark is registered only in respect of a specific class of products and not generally. The trade mark is treated as an unregistered trade mark in respect of all other classes of products, even though such other products may have some connection with the class of products for which the trade mark is registered. In the present case, the Appellants trade marks are registered only in respect of Motor Cycles and parts thereof (in clause 12) and not in respect of oils, lubricants and greases which are an altogether different class of product. Consequently, in respect of oils, lubricants and greases, the Appellants trade marks have to be considered to be unregistered trade marks, which are not IPRs within the meaning and for the purpose of section 65 (55)(a).
(iv) It is well settled position in the law of trade marks that the use of a registered trade mark by third party in respect of products for which the trade mark is not registered is not considered to be an infringement of the trade mark.
Reliance stands placed upon various decision viz. Rustom Ali Molla vs. Batat Shoes Company [AIR 1957 Cal 120] ; Hart vs. Colley [(1890) 7 R.P.C. 93]; Hargreaves vs. Freeman [(1891) 8 R.P.C. 237]; Eno vs. Dunn [ 7 R.P. C. 311 at 317] ; Angle-Indian Drug Chemical Co. vs. Swastik Oil Mills Co. Ltd. [AIR 1935 Bom 101]; Jellinels Application [(1910) 63 RPC 59]; and Nestle Products Ltd. vs. Milkmaid Corpn.and another [AIR 1974 Delhi 40].
(v). Accordingly, it stands contended that merely because oils, greases and lubricants were meant for use in motor cycles, the same does not lead to conclusion that the use of the appellants trade mark in respect of the said goods can be considered to be use of registered trade mark.
(vi) The said CBEC circular is binding on the Service Tax authorities and it is not permissible for them to raise any demand on the assessee contrary to such circular. Reference stands made to various decisions of the Honble Supreme Court.
(vii) In any case the issue involved is of interpretation of the statutory provisions of law and in the absence of any suppression or mis-statement on the part of the appellant longer period of limitation is not available to the Revenue. Reliance again stands made on various decisions of the Tribunal as also of the Honble Supreme Court.
7. As against the above submissions, the learned DR draws our attention to the definition of Intellectual Property Right as appearing in Section 65 (55A) of the Finance Act, 1994 as also to the definition of taxable service as appearing in Section 65 (105) (zzr) of the Finance Act. He submits that name Hero Honda is admittedly registered trade mark of the appellant in respect of two wheeler vehicles. Registration of the same in the name of other person is protested and under Section 9 & 11 of the Trade Marks Act of 1999. Further, Section 28 of the said Act also confers right upon the holder of the trade mark to obtain relief in respect of infringement of trade mark. He submits that if Bharat Petroleum, Tide Water and Savita Chemicals were eligible to use the said trade name on, the oil manufactured by them there was no need to enter into agreement with the appellants for using the name registered in their companies name and pay royalty for use of the said trade name. He submits that the trade mark Hero Honda indicates the connection between the two wheeler vehicle being manufactured by the appellants and the use of the same in the oils being manufactured by the other parties to the agreement. It is admittedly Intellectual Property Right of the appellant and they have allowed the use of the same to the other parties and as such have admittedly provided the services, liable to Service Tax.
7.1 As regards the limitation, he reiterates the findings of the adjudicating authority that inasmuch as the show cause notice was issued within a period of 5 years from the relevant date, the same is legal and proper. The noticee had an obligation to comply with the statutory provisions and to furnish the information as required therein which they did not do. Failure in compliance of the obligation cast upon them by the statute tentamount to suppression of facts i.e. justifying invokation of longer period of limitation.
8. After appreciating the submissions of both the sides, we find that the dispute relates to providing of services relating to Intellectual Property Right. For better appreciation and for ready reference, we reproduce the definitions as appearing in the Finance Act, 1994:
Intellectual Property Right : Section 65 (55a) of the Finance Act, 1994:
(55a) Intellectual Property right means any right to intangible property, namely, trade marks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copy right Intellectual property service : Section 65(55b) of the Finance Act, 1994:
(55b) Intellectual Property Service means, --
(a) transferring, [permanently or otherwise]*; or
(b) permitting the use or enjoyment of, any intellectual property right.
Note:[ ]* substituted by the word [temporarily] (w.e.f. 16.6.2005) by Section 88 the Finance Act, 2005) Taxable Service:
Section 65 (105)(zzr) of the Finance Act, 1994:
Taxable Service means any [service provided]*, -
to any person, by the holder of intellectual property right in relation to intellectual property service.
Note: [ ]* substituted by the words substituted by the words [service provided or to be provided ] (w.e.f. 16.6.2005) by Section 88 of the Finance Act, 2005 (18 of 2005). 8.1 As is seen from the above, Intellectual Property Right means any right to intangible property, which includes trade marks, designs, patents or any other similar intangible property which includes trade marks, under any law for the time being in force. Permitting the use or enjoyment of the said trade mark belonging to a particular person amounts to Intellectual Property services, The appellants have not disputed the fact of having entered into agreement with M/s. Bharat Petroleum Corpn. Ltd., M/s. TIDE Water Oil Co. Ltd. and M/s. Savita Chemicals Ltd. for permitting them to use the trade mark Hero Honda as also Hero Honda 4T plus on the products being manufactured by them. It is also not in dispute that the said trade marks are duly registered in the name of the appellants and as such belonging to them.
9. The appellants main contention on merits is reliance on the Boards Circular No. 80/10/04-ST dated 17.9.2004. While clarifying on the Intellectual Property services, it stands observed in the said circular that the Intellectual Property emerges from application of intellect, which may be in the form of invention, design, product, process, technology book, goodwill etc. In India, legislations are made in respect of certain Intellectual Property Rights (i.e. IPRs) such as patents, copyrights, trademarks and designs. The definition of taxable service includes only such IPRs that are prescribed under law for the time being in force. As the phrase law for the time being in force implies such laws as are applicable in India, IPRs covered under Indian law in force at present alone are chargeable to service tax and IPRs like integrated circuits or undisclosed information not covered by Indian law would not be covered under taxable services.
10. Based upon the above, it stands contended before us that the trade mark belonged to M/s. Hero Honda only in respect of vehicles manufactured by them and was not in respect of oils, lubricants and greases. As such, the said trade mark is required to be considered as unregistered trade mark, which is not a Intellectual property falling within the meaning of section 65(55a). As such, the agreement to use the same on oils being manufactured by the other parties to the agreement will not render the same as providing of intellectual property right services.
11. We have examined the decisions relied upon by the appellants in support of their plea that such use of registered trade mark of a third party in respect of different products would not result in any infringement of the Trade Marks Act. However, we find that the issue in all of them being different, the ratio of the same may not be fully applicable to the facts of the present case which deals with the confirmation of demand of Service Tax.
12. Admittedly, the agreement stand entered into by the appellants and the other parties conferring upon them the right to use the trade mark Hero Honda and Hero Honda 4T plus for the purpose of marketing and promoting their products. Hero Honda have also reserved their rights to grant use of said trade mark to any other person. Similarly, other parties are also permitted to sell their products under the trade mark by any other person. The appellants are getting royalty for use of the said trade mark by the oil companies.
13. We have also examined the various clauses of the agreement which stand reiterated in the impugned order of the Commissioner. The provisions of section 2(1)(zb) of the Trade Mark Act, 1999, define trade mark as a mark capable of being represented graphically and which is capable of distinguishing the goods or services of one person from those of others and may include shape of goods, their packaging and combination of colour. The trade mark Hero Honda owned by the appellant definitely indicates the connection between the appellants and their representative to use the same. The Registrar of the Trade Marks Act, 1999 has been empowered to reject the request of any other person to register the said trade mark in their name. Admittedly the said trade names are not registered in the name of the Companies for lubricants or oils. The provisions of clause 29 of the Trade Mark Act, 1999 deals with infringement of registered trade mark. Sub-clause (1) states the general proposition of the law in this respect and lays down that when a registered trade mark is used by a person who is not entitled to use such a trade mark under the law, it constitutes infringement. In pursuance of the relative grounds for refusal of registration specified in clause 11, the scope of this clause has been enlarged to explicitly state that a registered trade mark is infringed, if
(a) the mark is identical and is used in respect of similar goods or services; or
(b) the mark is similar to the registered trade mark and there is an identity or similarity of the goods or services covered by the trade mark; or
(c) the trade mark is identical and is used in relation to identical goods or services; and that such use is likely to cause confusion on the part of the public or is likely to be taken to have an association with the registered trade mark.
This clause further lays down that in cases falling in category ) above, there will be a legal presumption of likelihood of confusion on the part of the public.
Sub-clause (4) seeks to lay down that a registered trade mark is infringed by a person, if he uses a mark which is identical or similar to the trade mark, but on goods or services which are not similar, provided the registered trade mark has a reputation in India and the use of the mark without due cause would take unfair advantage of or is detrimental to the distinctive character or repute of the registered trade mark.
Sub-clause (5) seeks to prevent a person from adopting someone else trade mark as part of that persons trade name or business name by explicitly providing that such action shall also constitute an infringement under this Act. This provision will bring this clause in harmony with the proposed amendments to sections 20 and 22 of the Companies Act, 1956.
Sub-clause (6) lays down the circumstances when a person is considered to use a registered trade mark for the purpose of this clause. It includes inter alia affixing the mark to goods or packaging, offering or exposing the goods for sale or supply of services, importing or exporting the goods, the use of the mark as trade name or trade mark on business paper or in advertising.
Sub-clause (7) provides that where a person applies a registered trade mark under certain circumstances knowing that application of such mark was not authorised by the proprietor or licensee would be an infringing act of a registered mark.
Sub-clause (8) stipulates the circumstances when an advertising of a registered trade mark would constitute infringement. Advertising of a trade mark to take unfair advantage of, or against the honest commercial practices or which is detrimental to the distinctive character or which is against the reputation of the trade mark shall constitute an infringement.
Sub-clause (9) stipulates that where the distinctive element of a registered trade mark consists of words, the spoken use of such words as well as visual representation for promoting the sale of goods or promotion of service would constitute infringement.
14. If the argument of the learned Advocate that Hero Honda should be considered as trade mark of the oil companies is accepted, we really fail to understand as to whether there was any need for oil companies to enter into agreement with the appellant seeking their permission to allow use of their trade name. Admittedly, the goods manufactured by the oil companies are to be used in the vehicles manufactured by the appellant companies and have a strong connection with the same. The appearance of the trade mark Hero Honda and Hero Honda 4T plus on the oil companys products definitely indicates a connection between the said companies and the appellants product. If the oil companies would have used the said trade mark without entering into an agreement with the appellant, the same would have amounted to infringement of their right in terms of the sub-clause (4) of the Trade Mark Act. This explains the need to enter into an agreement with the appellant and for payment of royalty to them. As such, we do not agree with the learned advocate that their permission to use the said trade mark to the oil companies is not covered by the definition of Intellectual Property right and intellectual property services as appearing in the Finance Act.
15. However, we find that the demand stands confirmed for the period October, 2004 to January, 2006 by way of issuance of SCN dated 31.8.2006 i.e. by invoking the longer period of limitation. While dealing with the above contention of the appellant, the Commissioner has observed as under:
20. .So far as suppression of facts is concerned, the phrase implies that with-holding of information is suppression of facts.P. Ramanatha Aiyars Concise Law Dictionary [1997 Edition Reprint 2003 page 822] defines the phrase very lucidly and accurately as Where there is an obligation to speak, a failure to speak will constitute the suppression of fact but where there is no obligation to speak, silence cannot be termed suppression. The Noticee had an obligation to comply with the statutory provisions and to furnish the information as required thereunder, which they did not do. The failure in compliance of the obligation cast upon by the statute tantamount to suppression of facts. Thus, the contention of the learned Advocate has also no merits at all. A reading of the above shows that suppression has been attributed to the appellant on the sole ground that they have failed to comply with the statutory provisions. It may be observed here that if a simplicitor failure to comply with the provisions of law is the basis for invokation of longer period, we are afraid that in every case, demand can be held to be not barred by limitation inasmuch as in every case demand would be the result of non-compliance with the statutory provisions.
16. The law on invokation of extended period stands declared by the Honble Supreme Court in a number of decisions, which are well known and do not require any specific reference to them. Such invokation of longer period can be adopted by the Revenue only when there is suppression or mis-statement on the part of the assessee with an intent to evade payment of duty Such intention should be manifested from the actions, behaviour of the appellant. The Honble Supreme Court in the case of Padmini Products has held that there should be some positive act on the part of the assessee to suppress the information from the department or wilful mis-statement with intent to evade payment of duty. Admittedly, the use of such trade mark by the oil companies was being done in the open and it cannot be said that the Revenue was not aware of the use of the said brand name. We also find that the there is no positive act which stands attributed or alleged against the appellant so as to charge them with any intention of deliberately suppressing or concealing rendering of such services with an intention to evade payment of Service Tax. For applicability of proviso to Section 73 (1) of the Finance Act, mensrea is an essential element and is required to be established by the department, by tangible affirmative evidence. Mere failure on the part of the assessee, especially when the issue involved is of complicated interpretation of the provisions of law, which were relevantly new, cannot be equated with any malafide suppression or mis-statement. As such, we are of the view that the major part of the demand is barred by limitation and is accordingly, not sustainable. However, a part would be within the limitation period., the same may be re-quantified by the original adjudicating authority to whom the matter is being remanded for the said purpose.
17. As regards penalty, as we have already held that there is no suppression or mis-statement on the part of the appellant with any malafide intent, penal provision cannot be invoked against them. Accordingly, the entire penalty, imposed upon them is set aside. The appeal is disposed of in the above terms.
(Pronounced in the open court on 12 3.2012 )
( Archana Wadhwa ) Member(Judicial)
( Rakesh Kumar ) Member(Technical)
ss
2