The Deputy Commissioner Of Commercial ... vs M/S Balsara Home Products Ltd on 14 July, 2010

[Cites 5, Cited by 1]

Karnataka High Court

The Deputy Commissioner Of Commercial ... vs M/S Balsara Home Products Ltd on 14 July, 2010

Bench: N.Kumar, B.V.Nagarathna

"A1\i;::-:  --  % - '

IN THE HIGH COURT OF KARNATAKA AT BANGALORE

m;£'1:1) 'r1;~1_1s'1'm+: 1.4?" DAY or JULY. 2010 

PRESENT
TI-IE HoN'BLE MR. JUsT1c;ﬁ:._1\F   '

AND

THE I-ION'BLE MRS. JUs:r I'eJ5; B." v.V'N.AGA;RA;a'.HV1§A3

s.T.R.I>. N0._(§:i";<v:2oQV5
BE'l'WEI53N: . A H '

1. THE D1::1>U"rY.COMM.1sS1.QN1-:R:_0§%*'v. ~ 
coMM1£I2(;.1.:x_1{ 'E-'AXES, ;jVv1.«31LA1\1'§:_1:«;;' 

BAN (:2x1;C>. fi,I«: 'E? 

2. Tfifﬁ .JOiN'I'  OF

COMMVERCIAL  >{}'x'PPEALS}

BA.NC1A1;»QREV     PETYFIONERS

[By Sri. R41' USA. <30\/'1'. ,AI)VOCATI£)

1. A /s.~I3z§§sAI{AI"1oME PRODUCTS LTD
C/0._v1JAYA1,AKs1«»;M1 ROADWAYS
NC».,1_ 09 / 3, PAN'1.'A}--~1ARAPAL,YA

'' * V, ' = w.I\/IYSORE ROAD

V.  }3ANGA1,0RIZw39 [L
J I



3. M /S DABLER INDIA LII\/lI'I'113i..)
NC).8/ 3, ASA}? ALI ROAD  
NEW' DEI,-I"'II~1 10002  I-{LES}-'ON[3vE_.§\§TS,._

(By Sri. A RAEVIA, ADVOCATE}

THIS STRP IS I«'1LE1;) U/S.23{1.'jmOF'KS'0F AC%i';"}§xf3}A1NS0"F;

THE ORDER DT.20.1.04 PASSED', IN'=S"1"A=..NO;-130'?-___TO.

1309/2003 ON THE FILE OF Tm: z:AR--NVA'1'AKA.% ApP13L::;A:1'1:w._V
TRIBUNAL. BANGALORE {C}-1A..»/f1:-}.,__ ALLOWING r;*H:S,APP§;A1.;S_ 
AND SETTING ASIDE THE ORl}--1:'§R»I3ASSED:01"-E" 2-0.903 BY "

THE JCCT APPEALS). CITY I31v1S10N,"--SAN'GALoRE IN
KST.AP.NOS.8.4,5,6 AND~.7/2003:2004'-»1N DISMISSING THIS
APPEALS PREFERREI) ' AOA1N_S'§j. .f1"H}:. ORDER DT. 10.3.03
PASSEI) BY TI--1E DCCT' ' (v1G11;..;); BANGALORE FOR THE
ASSESSMENT YEARS 199942.000, ,20'00--'2~.0;0 AND 2001-02
U/S. £2~A. I2A{1~A:]AN'I) 28(6) V03 KSj;1jA0'1z. 

"I'I"::_iS STIi*_£' N 3§?:i01.11if1'gg_' on "for Iﬁearing this day,
NAGARATHNA '.21., 'u»;aV;~Yc1e-:§e:..momng;
V 0 *0gRnER
11-;NAiSi()1'1'0peti*'ii011  filed by the ].'€V€HLE(3, challenging
'A116: 0"1"<iEé:*».»_A0E7,4"E'EjC'*--Kam£1E21ka-1 App(~:11a1'e 'I'ri.buna1I who has Set

':1S5.i'L"].>L:""ﬂ1t' 0.1'(x1:t'i*_:".0:0i' the: First: Appellate A'ut.h0ri1y by holding that

 0'.{3I'OViSO~1.0'jSéC31i()ﬂ 5{3)[a} 01' the Ka1'n¢11:1k21 Sales Tax Act, 1957

4,.,,,



En! efp1*1

{"Ac1" for short) is 1101 a1t:'21cr(e(;§. This 1'e\,-'i:~3icm peiitiora peytains

to asse;~3s1'ne1'11 years 1999-2000 10 2000-2001.

2. The factts of the (Vase 1c'2gC.1.i.1'1bg 1,0 _-i.h'é".t.E1i.s 

appeai are that the 1'esp0hdcni which,  {'t)n'ip_a1ny°régi:s1_er'v;;}

undcér the Karnatalqa Saics Tax!-0\Ci..by 112m1<:'-2 M / s'vBAei.[s,.a1_je1 Iriome _ 00

P1'0duct.s. M/s.Ba1sara fhfgiene   lihévﬁowvner of
ihe brand names "I3ror7'1Vis«.r.,>..;:7';  "Samfresi1.".
"Odonii", "Oc:ic>mos "r'kcevi2ai.f¢.-rech-1-$1 gel" and the
said brand   '(migAez1di11g registration
under thgz   .48 01' the Trade and Mercrandise
Marks AC1:   Ltd.. M / s. Raun Household

C€1l'C;V'I;hV'E.. Li.cs'=., NI 'JarLu'1 Inciusé,ri.es. M/s. \/aspan

   

 fé§11*3d Balsara Exihrusicms [P] Ltd" are inclepencient.

I6-gal' c;0AI1-t"-"ﬂirts. 0°'-.']7hey have been g1*2m{.ed with nomexclusive

1ic:e11"-st? 10' ' ué.~£=. the a.fc)1"es23.id t.rade~111a1°kS by an agreement

 V.bt§'(.\{V€€}'1*}\§/S.]3a1SE1}'El Iiygietle Prod11Ct:s Lid, and the said legal

  The t.1'ac1en1211'}<; 'Babool/Szzper Bwbool" is the

.0 _>1v"(ff:__§,i.S.'T.t',I.'{:','(i i1*z.1<7§c:1'1h121r1< of ';VE/ Best.a Cos111<:E.ics Lttci. Du1*ing.g i.h<-:.

L



period 19992000. 200001 zuiad 200102 the i1:1c1epende11§ 1ega1

exlmies such as M/S Besta Ccusmetics L1,d.. M4/:30"-R:-m1}

I---10useh()1d Care }~'v'E'.. Lid". M/ \-'a1'L111 Indus'u'ies,_.-M/'$"

E11t.e1'prises; and M/5 1'3a1sar21 1§x't.ru,si01'1s .'Pi-'1:'.---.:'Lt.d';V. '--ha\ge, 

ma11ufactu1'ed goods 1iab1<:s for 5211635 1¥_'21:»;.. -*L11'1der V"Eh€:V:"b__ra:s3d

11ames/ i.radema1rks er1Lm1e1'a1e~.d '¢=.1_.bove 'a_11d s()1<i1"ﬁf1&'1F:4_Vsame in 

resp<)nc1e111 M/S Be11sa1'a I101116.w:f3}%ﬁ)(i!:1'§:LS"   xx/kiifgicrll. aft'e1'
purchasing {he sz.-11116  has A~AsoH1d the said
products in the State    has claimed
exempiion  1.'E§Ve.::V:§':v=.~V.r4:V(3;"v.cii0seller in the Sirate.
The  fc:.,!:§i*.21;1t' yezlrs came to be passed by the
Assessing'  the turnovers and g1'a.11ting

excxnggbiijmg on {lief second'. sales.

 3,0  ~'}f1;l'€§ i11vestigat.i()11 auih()rit.y of the Depar'm1e11'a" of

C<)i1:_1_'11eifciE':1,_ iiftijai latrrr i}1Spt3('.'ECC1 E1116 p1'emis<:s of the

res15011d¢:1'1t=c€b1111;)a11y's C 8: I4' a5__§cr1E emcl issued 110t,ices; daécci

 253,011.2V002 for the 21ssessr11enE'. years in qU(?'.Si.iOIl proposing E10

 arid Itnzlssscrss Ehe tL.n'1'mv'er of brancled g____§<)0cis. The said

gm.



Cjl

notices were 1't'.}'_)ll(',Cl to by the respo1'1de11t' objerriiiig to the

jm*isciic1"ior1 assume(i by the Commercial "21)c.."*.(§§i3fi£"~ei'.

'l'he1"eafiie1'. .2mot'liei' r1ot:ic.e was issued uncler Seeiioiii 34'C:.To~i7.Mt.i'1:§'

Act. In response to which. the 1'es_p.oiideniféis'ses's:ie"=i'ileci 4.1 

leitei' daieci 27.1.2003. 'I'l'1ereafi.e': E.j£ii(;w; 

notices were issued to Wl1i(_'.l1 i'ep_l'y-._V\4va.s iiled by 'l.h.€::.;1'€Sp01fld€11i.VVi

and subsequently, fresli i1ssessiii_ei:ii..:orders  wiiﬁh penalty
orders were passed by  Being aggrieved
by {he said orders' of fespondent filed
appeals beiorxﬂ:   which were
lioxvevef.  by the said orclers. the
respondeiﬁz. before the tribunal. The

t.1'ibL1iié1l by its (:1jcie:*lc.la.'=':e.d 20.l.2GO4 allowed the >.1}-pea_1s anal

se«i.,ﬁ;iside:th_e*«ije--21ssessmeni. orders and restored the original

"2isse'ssii'ier:1--i; ()iftle--i*s passed under Section 12(2) of the Act.

K-\ggi'"i__eve_ci' i;y.'i1h(3 said order. ihe revemie is in appeal.

 The Ee21.1'ned Govei'nn'1em /\dvo(*.at:e assailing the

.._.§.:_orrec?i11ess of The ii11pi.tgi'iecl order conie1'iclec.l that the

/9,

.//I' -



t.i'acte1':1zt1'1x 0w1'1e1'st»' are M/ 1-321lSa1'z»i ¥'~Iygi_eiie P1'0dt1et.5 Ltd,' Aiid

M/s.E:3e.st.:-i Cosmetic:-3 Ltd. 'I'l'1c)tig11 the ggcicads are 1f)_i;'E5'\;-*i<:«t,eat..:wi:ih"«

traciemziifk regis.=.tei*ed tinder Traide 2-mct M€1'(Th*Ei'}1.d'iZ}i1g,V.NLEEYRS 

Act, 1958 and the goods are }1"1:&'_a'I1L.1f£1,(.?A'[:?.1i:E?C'1 ._b'y t'lit71jefei1t_'

eoneertis tinder license agi*ee11.ie11t's, the 'respoirlttetfttwassesi-tee'r.

has. the right. to use other    sale
made by the to    the
first sales in the state by \"Ii:iv't.ti_e' to Section
5(3}(a} of the A:::;~«._Lj*1_1e :;1fes_;9'dtide.1tt'bvt'tiiiztshmtibt. discharged Such

liability to tetx  the state. It claimed

exempt.i'o_n or: its--".s--:1_1_e's:-A dS_;[:'i"i.(:' 3E3.('.()}1Ci seller on the strength of

the plea that the p.:'et:ec1i:_ri'g._Set1ers vi'/.., various manufacturing

(TOI1(3Ct'tts_t'11ei1tLiCEf1€VdV sL1pt'.:t have already paid sales tax at the

Vi'ii1st"*pL)i£'i'tf' ()fVV:'SE1}€ in t.he state. F' F0111 an inspection eorichtcted

  Vt_;hett'C..v;'F,_JQ.xi'1~iV:'[\L1gt1st', 2002 of the bueiness premises of the

1'esp--:;)1':de.ittgétjssesseté. it was reveaied t:ha.t. there was stiffieiem

'  "'evidenee__r$i1 record to prove that the respondent'. has 21 right to

" i,1s;e_t1'{:e. t'1*21de.11ia1'ks and 'ormict 1'1E1}1'1(' and on that, basis, Iiotiees VV 2 wei'e issued and re~2;tssessn1ent. ()i'(ters;e were H121.C1(,',. The said re» £i1$S('SSI1l(",]'11. orders; were (fhzilleiiggecl before the First Authority who rightly ciis11'1issed ihe said 211);')c3f;1:i's,v.}::$L1i"

'i'1'i.buna1 has set aside the said orders: e>i":'.r.);1e0t,1si}faim 'V\5Vii'i'}VOL1I_V V ag)1'3iyiI1g the third p1'0vis0 1.0 Secii01"i'i<'5[Ié~_](a1§iV oi';

('.2180 on hzmd. The Tribunal i":aS"~.11()i. 1.i13ders_EdQdhiddenr i scheme of tax CV&1Si()l'1 in i11.=.:lx'<'111i:A'eaS€:_V;1s ;:i'ee1e_i:11j;iib1e device has been adopied. 'I'11e.refbrie,.,i.11«1e' 'I'1~ibunai has to be set aside and E_iie_.0rde1"'0'i;-the' A'uih0rii'y and the 1'e~assess_m _I.,e2£.1'r.1;ec1_ "'COU.[1aS-{:1 .a_'ppearii1g for the assessee subr11itt.ee1'f;h':1i,, have sold the products to the assfissee 4\;\-"tV1_{; i:1.'--i.1.1i'*.="i ﬁas paid tax for me first. saie. When "1..11e "saiie2_ira.r1saetioﬁ"ishot shown to be sham and when the :;%ai€1" s:--'i_1e-.iS'i:i'<3.1, 'i'i2_ !"21V0ur of the proprietoi' of the 1I"c',1(?1€'I'11.':11'}.{. the i.1ii:*c{"V;§r<)i?i9-5fie? "Seeti01'1 5{3)[a] is not a1i'i.1"ac1ed as rightly held [by tiiez *i'.ijibL.1r1a1. 'I'herei"o1'e, he stibmiis that no case for _fi1'ii.ei=i7ere1'1(:e is made out zmci Lhai. iheife is no merit. in this * 1*<:'::\fisi(_)I1 })0iiLi€)11.

ii,/T ,

6. in the light. of the &1f(')1'€SEiid 1'aC't's and {he rival (:()nE,eni.i0n$, the q'L1es€.io1'1 01' law than awises foaj our ('.()I1Sid€1'€iEi()11 is:

'vi/'helher the third proviso to SeCi:'iQn__5{£3)(e:i} '- L. Qf'I.h<3Acf,1'.s at{.raCi:ed to I.f1e_]'c1.Qrs'Eg;"fhis V V A

7. As set out above, t11_c9"--£};.cts me not Adispugexl 'I'he_* 1'esp0ndeni~assessee M/_s. Ba1s_a_faV_ 'i"1.Q111e P1;oduc€s Ltd. ls engaged in the nlarkeiirig bf AB-211sa1';1'4"g,if'0L r1:3 .01' products under which V'--pr0(_iu.(:'L.Vs--".h_2iV<i:1g«._at1:ad<2fmark "Pr0m1'.s<:"'. "Meswak".

"Od0pic", "Odoni]j'; ""Oti:)1u1'i--1_Né'11' GL1a.rd"', "Sanii'resh"', "Odmos", "AceQj-'{ai:? C.:"e2 eind "Promise G9?' are ownersi by M / S Balsam '1*{§,zgiuea1e""Products Pvt. Ltd" The assessec-3 has also marketed "1§)(;1j:'h ui.Ta-daé1* brand rlame "Baboo1" anti "Super Babool"

n1e1t'1u!'"a1CE.L;r¢£i by M/s Besta Cosmetics Ltd., who is also ' "t'1A'21Tc1<:111e's.r1"<: owner c>ftl"1c.'.se p1'0duc:is.

8. 'I'he {I"c1d€'?1'I'1E1E'k 0w11e1' has g1'ani.ed licence to 1n211'iu1'ac*tL.:1'e Vexrious pr()ciL.1e1.s to the i'o11c>Wi1'1g L?()1'I1[)'c'11_]'i"~.',.$".-.'"

i] E\/1/siiﬁesta C(}Sf11€i.iC',S Ltd.

ii} M/s.Raun Ie*1()L1se1e1c)'i(iVC2::ire _

iii) M/s.Va=u'un Iiidiisiries I 1 AA I iv} M/ S.Va.span . V V} M / s.ie3a'13a1'a (P) These ai'oreAs_aid companies ._ar'e'gn'iamife1et;uring tooth paste. hair c:re2%111 5-j,{iC'1i'1€:()'V'1J}."1€;*1';'p1'Od'L1CiS of Hygiene under brand iiaiiiies "f51';':u,:3.i:éeT',"=.Mk:.sw.gik". "Od0pic", "Od0r1i1". "Odonil N211' GLlE1'I"C,3§V"." VV"Sanii"ivesFi"'*,...___h"'Od0s", "Ace Hair Cream" and

-.» V1 r'1*o111i.+e_e gei" A'i:.'*i'.e'1'"meiﬁufact: iihose produeés, it is not '"~.,,i,_n i.haix ihey' ha.ve sold the pr()ciuet,s to the 19 -.s3:_§'()'n_c1e.1ii'~::iesesasee.i On such sales. they have paid tax under the. xxrhieih also not in di.spL1l.e. After p1.11*e11ase of these

--V goods. 1l"'ie zisxsctssee has sold the goocis to other d€211C1"S. in the =.se:rie.s§ 01' ézaicis, the sale macie by the assezsssee: to other dealers is €§e(901Iti sale was; not taxabie. ii 3181') on record £1211. {he /'7' 1.0 assessee hacl sperm huge sums of money for the adVer!ise1'nc:n1. of the af01'es2'.1id p1'(')du(.'.i.S u11de1" V.'~_'é.'t.1'i(_)¥..£_.,S'V' *':)"1*a_1::1'¢:E 1:1ames. T110 p1"iCe at which the h2id"e-VS7c)1cVi' _Lhese V p1'0du(:.ts is high when compared \i%<i'i.11?_"tTi'1'e eL~).s{,' .S>¢}1ic:h§"----.\?Gé1$ pumhased. It in this fz1C.{1,:é1'.._b;1pkg1'0undifwas;'L::<)111.s§nded--. L tllat because of the hike fin by the assessee and the mam1,1I';ait:«€h1ie1*eL. tax liability this a1'ra11gement. is r11'a.dVe ':"t:'he".af'01'es21id brand names and assessee is to be treated a_s__Vt:11~g,.¢ be paid on the said am011m':'.--.__ IL it is necessary to look into the third 'pr_Q4Vies<,>' of the AC1 on which reliance })1;1e:red.e.. < V .

os'--' ' V Levtimof tax on sale or purchase of " 0.961.

A V ~ ( If'-eVETver'g,; dealer shall payfor each year tax Von _}.1is'lV_ iéucable I..u.rr1ovcr at the rate of [twelve " ;ge;¥'i'ceril] at {he ]3()l'I'1I'Q_]'~fI.I'Si, sale.

-PE *3? 1%" -PF ~X- -i& 9?, H. {(3) Nonwithstanding arig;thin_q contained in si.ib--seeiiori (I). the tax under this Act shall levied--

Pf'()I.'l(i£'Cl fi.i.rt.l'1er that where any g(-->ods,_i:'ial3--le . to tax under this Act are produced. or man_1glaet.ilrecl_V " ' by a d.ealer with the name or i"rdde'nj1.arlc reg_i.si':ered* under i.he Trade and Merel1andiSeAl'v/larlcs (Central. Act 43 of 1958), c3u]'"=c"_1hi'*t_t,.r_other-dealerand whicrh are not use.;:l "an; t.l1ela.tii:'er; Cléi'-l'CIi,LJ materials. component" parts orj9ael€i:_1gf'»r:1aleri.alS'~»cis defined under the e,=:planat;iun to Secrtion"5~fx*,l.,the sale of such good$'jgby" the c£ealer"'w.lio'iV!1a.é produced or njlahniifc1c:tef,,tred"31o the,«d-eal<>r"u:'ho is the brand name oratradei rnafR=._l:1old'eer.. "shall not be deemed. to be. but the siii:zse'que_r"li,'--..eale of such goods by the ,--dealer"':':_Vauintg; the «right. either as proprietor or V ""i~ot;li1ei'u_aise to the said name or the trade mark, _V :'3_l'l,l1€;3F'.'dil'€(?lly or through another, on his own iC£'c".v€.I:'('}{£VI'lE',AVOlT~()!l account: ofoihers shall be deemed to V be.i.he3--__:;ale by thefirst" dea.ler liable to tax under this Section.

llIusr)'rai"ion.-- 'A' has registered a trade mark for II'1(;l.l'I1IfC1(ifl.lU'é:' of c"erI:airi goods. He gets the said. I2 goods mamg_/Z1c("1u'cci by '8' under the _<;cu'.d f.F'C£(i~C' 1 mark. The sale by 'B' to 'A' (1_I_f'iaF"t(? saicf goods ' thefr'rs£' sale but the s(1.le,> by 'A' or by czrg} person on his acrcount is th.;:_f"irsfV I 'V .

(E3) in {he case Q1' ptU'(':,."'h(]S:£:' 'q«,.{"a_rzg q,»€f':

goods rneI1f'iom3d in column l:i'i'e._ 'I'h.ir'.d"

Schedule, all the rare aJ1d'{5;_jIy..aI: the' ﬁ)oit'I_t in the com2spoI1di:'rg e:11.ries OfCQlumns-- {4}'E;1r1dV;{3} Qf the said schcechiie, or1.V'Vi?'ie" l1'ablé""I.o'VVtax under this Act, {)4}? _Iht'..én i1m'1c)ver'] of purchases ineach ;_;ear.1felat."£3j1g.IO Suc?1»g(§ods."

A-(tai'1"<é.iTu1_ ex:;u1iin.aLi()é1 of the aforesaid provision makes it c.%vea1'» t'na*!: v"v¥f1'et.1."gQ6ds Iiabie to tax are produced or 1112111u.iéLC:£1;:.'€d b"_'--,*'_ a"dea§é:r with the mama or trade I11E}.i'l{ of any Vdtiijsf' :"an.d which are not used by the IaE.1.e1', the sale of $-ucgrh g%)c>.rj's:;_Ej_y:'i-Idle cE<:aie1* who has prociuced or n'1am21'actu1"ed £0 thtj d@;2ECa'V i}vI1<) is the brexrad m11};1e 01' trade n'1a1'k holder shali V'n<_)1.jbc c1EL%n1c'ci to the l'i1'st 82116:. It the ssubsequem: sale of T 's:;.1.1i%.1.1_g3;c)c)c1s by me tjiealer hzwing H19 1:'i_g}'T11. either as pmpric-.t'.or .V _§):f7<)i11c::'\.vise> (10 L136 the Said nan'1e 01' ':1';-ado lnzzrk. either directly 13 or E.l1rot.1gl1 2=1110tl1er._ on his own 21C(:0m1t' or on account of others shall be ciceniecl to be 't.l1e sale by the first cle.a_tli>.1_*" .1iz1§)l<> to tax under this Section. The i1lust1'at.io11 to thc.s_ai'd"

makes the position vm*_v clear. It is ohly 1.l1.0SE'"' thé r11an'L1fac:t'L,1rE-rs who utilise the l1"c1C1€€.: E1'1E't'1'k;:'i1.'{i--d'lhV€!1"frl6--l_l §:,l5v1.f3' proclucts to the p1'oprict.()i' of £1116 -€__1'z1de "m_a"1"l~:, ii,l1e'segt()11cl; sziieh by such propriettor which is to bél"vt1Ee;1i,ed as first sale, for the purpose of tax Lil'1C:.ll€'Z~l.'__..l»V"':"'.€("I"l_O1'1§-Oi-Ul;1l'€i'A(Et. In this case aclmittedly the 1)ro_pri€t'01"__()_f' the a Partnership Firm uncler t.h€.i.1iE1i£}1€ oi"~.z;11'§iLo"Lis t"r2id'e'Iv:.u=ks refered to above. The sevsii Ef:*:11iii1--£';1-2:111::e1's_are t'l1<3 seven producers of Various goods Lxsingg the a.foi'z:lsa,i'ci'--..btfaides, which they have obtmned L111dt~:1j 1i.(;:c~11ce"5.g2'é:i:111c:1t.. They I'§1£1I1lEf.':1(3l.L1I'f3 goods Uﬂdﬁl' the zifoxjosaid li'atl*:1_ marks and thereafter they are not selling those "p1fod_Li(f.t.s.4t.t) t,11£§~.l51*0p1'i<3t.o1* of the tracie mark. They are selling to a1"-gii{'l'c;*e:'1t-.limired Comp;';my. "l'he1'el"o1'L':. when there are t.h1'cc "lsjgal <:11l:i.iies eatxid not two legal cémities as c()r1Ec111p1z1i.cd tincicr 'fglio._p;f--oviso as well as the illust1'z1E.i011. the z1E'()1'esaiCl pr()visi.or:

. not a.t.§rac.:'t.cd to the IE.-1(::t.s of this ('£180. /9? , .14 E0. Witfhoui, dis5p'u1.in;.}; the 'df(')I'('S'did f'c1('.1l,1d} position it was comended on behz«1i.f of 1.116 l'€'.VL'.1'"iU{_' tliai. {he C01ir£;h2is io lift {he veil and a1pp1'eci:,1ie the L1iic1is§)1.iiec.i 1'a(:i.s. may be a licence. 'c'1g1'CL'E11(?I1T. beiween the 0\vi1_c1* t£'E1(''1€r'_ ' mark and the iiiai1uI'aCiu1'e1's, ihe mai1Lil"ac-,Lu'rcdi'pijﬁifiugifs sold to the assesses, who is a«::ii'rig 113.1' and oiibéhaif o4!"ihc%', pmp1'ie3ior of the trade mark. i't'i4i.iué"i.1.11e as's_esEiee;= who "Spends V mo1'1<3y for &1d\'€1"f.iSG11'i€l1iF"NhiC7.'1y.HéIiL~l.fE'S""1'Q the Vb't:1'i"efit of the mainufactuirrr as well as the-1;j1'r:spi5i<s'io1_i,. nthe assesses: who is mzikiiig experidiiure i1'1C1.1I'1'€d by {he c0n1:ﬁan:}*.', is set off and the assessee is gaining aclifétiiieigfi: S rgtﬂticiiig the iiabiiity to pay tax. he; SL'1}l)V'l'1VIU;.-777-...ii.«f the facts are p1'0per1y appreciated in iiié'i-ig1iii.._}i>€Ifsiigittiive, ii. is 21 C1621!' case of evasion of the tax and 'L.}'iC'.C'(j{'iV1.'vE.' 1:10!" pci.'mii' sucii an act. In support. of his '. (?()111.(;'."1'i1.i(i)'vl'fi' :'e1ied on 21 Coiistiiiiiiori 1'-Bench judgment. of "the "..:}.'\i)(§}s';._C(_)i.i1"L in the case of McDowell & Company Limited vs Clqhiritercial Tax Officer [1985 STC V0.59 277] and in 35 pariieiiiar relied on i11ejL1dg§§me1'1i of Chismappa Reddy.J. to the f011mv1'r1g__§ effeei :-

"We think ihai. time has eontefor us vi' ' from the Wesi'minsi'er [.1936] AC 1 I' en1_phar;i.cally as the Bri.i:ish Cei1ris'"Itrive« (1.9:-:_;>'-a._ng1 lo ciissoeiaie ourselves from Shah, J.. and similar-..__ obs'e.r_valions'"ii elsewhere. The evil eor1sc'ali'1eriee?s Qf'Vi.a;<'a:.;c>id'a11ee are marlifola'. Firsi. ihere isi'si.:«hsiar'z-»lAial loss Q1" II?iVl,lCli1 needed public r'eiJerrl1.?e?, 'f?(1li.ll(:'l.llC1l'l})l"ill a. welf'are state like __ours. S€I'l.OI.iS disi.1.irbaij;ee'~ca1.iseel ie the 'eeéiﬁeriijj Q1" the couriiry by"ihe..r}1fli'r1a:fi':p"'Qf'-r110il}*i'iia£i3ls Qf black money, c;li'rec'i'l_i; .iiriflaiion. 'Then there is "the large iiidderli iloss'? itjvllihel"Cai"iirn1inii.y (as poinied out. by A. Masiierl"Wl'1e'ai:Craji' 18 Modern Law Review 209) 'l?.bg__LA:soi71e ll:1e...l;>esi brains in ihe coimiry being _ ir_ivoli:--ea:*..Ifri ihe perpetual war waged. between the Ctflfl his expert: ieam Q1' advisers, ll lCi1v,i_"L;"€;?::;7:f5';:C1J'iCl acCoi.mi'ar1i's on one side and I he i.ax-- . gai.h.erer and his perhaps not so slcilfiil. advisers on iheloiher side. Then again there is the "sense Qf iryusiice and ir1.eq1ialiI_.y ivhieh. iax avoidance arouses in the breasi.s Q1" those who are ienuzilling 5% 16 or unable to prolii by it". Last. but not the leasi is __ the ethics {io be precise, the lack Qf ti.) transferring ihe burden of tax liability shoulders of t.he gitideless. good citizens j"r():*n.'tl'1Q.3¢"i. Q/" the "art_fit.l dodgers". It: may, inecleed, «bl-el'iii.j'lrEc:i.l'lVt, _]or lesser mortals to attain the lstatellojf. nu:-ir'iolA q_,'f."_l\'/Ir; Justice Plolmes. who said; "Taxes__are what we pay' . * or civilized socieli. I like tonai tiaﬁées. With t:n._eI'n .1"

l J .__lJ _J __ ._ 1 buy civilization." But. SLlI'E3ly~:.VV":'{:f>isnl'1iQl"l..tll"T"l(f.JbI'vi1.l"L£3 judiciary in india ;__t'oo_ iftsvievays froniv the L 2 principle of Westrninsier'i-[39:36 and the alluring logic; of tax"av:iidan.ce._ We fl.OlL.? live in a welfare s._i.aie¥>i.vl1os'e finar1ci'al._ need-5;' if' backed by the laiii}"r}i;five"3t;o bewjespecled and met. We must recognise t:hal_bel1ind taxation laws as t1tt.tch*n1o:'al hsan<:tio.n"_.a.s behind any other welfare ;le'":.slatior'1»,_an(l ii is a pretence to say that

- Avaveidanee oj'ltaXat:'t'.or'i is not Ltnelhical and that ii"

-hsiands on no less moral plane than honest " pa"y.=n»:?r'1t.~oftaxation. In our vieiu. ihe proper way to cc)_r'v;:s:ri..t'e a t.axi.n._q st.at.ute. while considering a device to a.1.:oia' tax, is not to ask whether the A proi.:i.sions should be consirited literally or liberally.

"nor iuhet"l1.er the t"ransaet.ion is not unreal and not prohibited by the statute. but. Li:het.her the J,/ff"

V A bVe'iited.i.c7t'ton." (E 17 trci:'zsacrit'<m is a ct.et..it'Ce to avoid tame and i.t.'f'iCi]'I(EI7"'.. the transactiori is sttch thai the judicial pr'oc:ess:"««.<_'~i_ may accord its approvat to it."

£1. Reliance was aiso plaice:-V51 <)1i'the: ill-Id;§';lf_I'.v1I';'~"I_1J'., C)f'V the Apex Court in Wood Polymer Liitiiteti vs Limited [(1970) 40 COM §vi'i.s;:_1%is. i§»='a§"'hé1d underzw "It is r1eii.her'j'aifAnor.desitab--?te...t:o*expect: the Legtsiai;1u'e_'io.__ ir'1tei*oe'r'ie't aiidﬁtaire Qf every device "ien'Ie"'io €:_u;ioici:_4taxationf It is up to the coitiii' iifatce':stIocit~t¢o' cietiefrrittie the mature of the rie,u.: 'and legal devices to avoid tax arict.=:fonst.der VLt;'.h'L'f.i'.1.'<E'-?:"'U"JI'€ sititation created by the A. devices" cotLid.."be'"'reiat'ed io the existing legislation

59.i.iii'.tt.I the A' "emerging" techniques of 'V [.31il'€?TI'j~f(;'t€!['i.()i'I was done in Ramsay [1982] AC 300, rf'3'Ei:i:*i3?.I;d [I982]. Simon's TC 30 and Dawson VA [1 if 'XXII ER 530 to expose the devicesfor what t:'heg feaiiy are arid to refuse to give judicial r E8

12. LE11iI11a1!"ely {he alppeal in the semi dis1'11issee:1 by 2-1 u1'121ni11'10us nriirag. E'{e.1_ving on 1'-i1i's p.as':§:1'ge'"'i1. was Colltended mat' time has (é.()1'11e..--10"d.epz1ﬂ z1V141'fi-:t'}"1eV' C_0L11"*_s V have to find out whether the 1F£;1I'1S€{C1i(3T_1V 'is 1'ea,11'y_a 'cic~;\%_i'i~:je7*,--":(> avoid tax and whet}'1er the 11'ai1s;i"(,~i1i()11 is" such tV}7fiE1T.';jv['V§"1~f3.._.}.1idiCiE11~. ' process may accord its .Ek])}3I"(?V?1i: '1.Q *i1 .A the said question arose for e0nsii:ie'fa--t.i<j--r}' Court. in the ease of Union a_'f Azadi Bachao Andolan aqc! 111x07]. Learned senior Counsel Tupon the said judgnlent.

{.0 COI11'.:Vt";n(f1._ .Chinnappa Reddy J has been watered 'I112 decision, aI'1er referring to the e11t.i1'e;I"c:.:1'£'ene1 '(sf eas(:s' upm-tr; date inemdixlg afo'resaid 'CQ1'i§ii1.L1I£'j':i(?I"1! 'E-3er1c:11 judgment. as well as the opinion expressed 'ir.1 v1.11_.1e1:jL.1ﬁ-gi1'1ent by ..}L1s1..ic:e Ci1i1mapp21 Raddy. the Apex C.o11r_1. heid i.mde1': ~ "I46. Wﬂh r(3spc(.'!. 1here3_]"ore, we are mzable * . _ .-'i'c> a.gree u.>iI,h. the 1,.vic:u..> i'i1a.t' Duke Qf U1/est':n'u'nsIer is (icaxri. or that its ghost has been c=xor(?isea' in ﬁr 39 [:L'ngia.:1cl.. The House Qf Lords does not seem t.o___ think so. and we agree with respec:t.. In our I/'l'€'f'viV..l/'V;'._.r'. the _principle in Dulce of W~'simir":si.er is very alive and lCi.LTlClI'1§} in the country Qf its far as this (,'()lU'il.!'y is (?()I1C(3T7l£':C,lA,M {he o;);¢et»-..§i:_;m}:;; Qfshah. J. in CIT 1). Raman (Ire L1£1'i'yl7'Fi:i1,luL".I1hiilﬂléilil/2'3i'i'li'V_gAllV'V even today Thereafter, the Apex Ccli'i1.afTli' rel'e1"t'et:1ll"ta-I ﬂit, Ha1'1ot}1erl C0nst.itL1i.i01.1 Bench jL1dg_::me_11E =:3l:"llll.lte'-lﬁipvex.gC0L11"l'li11VAVl.he Case of Mathuram Agrawal vs State ,.lf'i_radesh [(1999] 8 SCC 667] \mrher;ei'1i««g:it;Z' \iras=__hegld;}§1t 'Pe{'re;,"1..2.___;T3fsiinder : -- * "T--the'legislai:'ure in a t'axa.t.ion si:al:tite is from the language of the A. p.rc>i,>isi'ans pa,%'i.ictllaflg where the language is plain art':atnlaigumts. in a icL>ci.ng AC1. ii is not possible 'V :9' ass.iir*;1e any li"llCi'1llOI1 or govermhg purpose Qf"

more than what. is stated in the plain ll It. is not' the ecrortomic results sought: to be,0.biciine(.l by ma,ki.ng the provisions which is rei"ei.>ani in int.erpret.ing a fiscal st'ai'u.ie. Equally ii'1I;;>err'r1issi5)le is an i.rIterpretation. which does not follou.a_['rom Ihe pi.ai.n.. i.u1c'm1bigu.ous la.t1gr.tage of the 2/7- 20 sialuie. Words cannot' be added {.0 or s1zbsI'iI'1.L:ec1_ so as {O give (.1 n'1t3(U'Iir'1g to the sicziutc u..=?'11'ch ur-.iVll'-._ ~. ..<;r3rL.se the spirit' anti. z'nI(~3r'11.icm.Qfihe legisla.i'1.1.res.~"'---- .' V. L' At I-'ar21.].53 {he Apex Court»~~}3.I_';)c:e<:fié€i"vfg; hQ':E'dV "

under : ~ "153. The Cons1iii:z{:'f':3z3 I*3'crik;-'hi observations in Bank Qf"VL4L'C? 1:.ef2'_.;'r1a(it qumllng uJiH'1 agjpfbazgl bE$$z?:}'Uq(i.or1s'Vtj}' ﬁorcl Russell of KI'HOI.U(-R14' iii IRC. V 'Vi/fest'rninst'er and the obsx-:r;2a£i.Qn5"Qj'f:I,<)Vrd"Sih'36n.§f§. :;fi1 . Russell v. Scott".

U1V'uj11ia1i.e'1y, itﬁi'011'(,1.;it{-stdgal para 154 as under: -- j'"£. f.%'1a:is ;'ppear:; to us Ihai. no!" only is {'Ih.<'-3: p'ri;'1cipl'§3'"i'ri'"I)ulce Of We'3sI.minsI"er alive and

-England., but it. also seems to have

--_'ciéqQiired.;;;j'z:i.d.icial P)er1erJIiC(.i.or1 Qf the C()T'ISUi.1tf.iOFICll f3g::i'IcI;1 ?' in India. not'u,:it:hsi.and.i.r1g the temporary 'i:Lzfi;uler'1Ce Cf'(.'.C1f,e'd. in the wake QfM<:D0weII. //5"

2':

With re.fe1'<3u.('c to ihe afolezaaid 0bse1'va1"i0:'1s it fgva.s'}1_e}d as under at. pz1.1'z1g§r21ph 14': as under : --

"I41 It does not agapeczrillhuz .I:1'1.e>--'_:re.f;:z'ex learned Judges of the C(5ﬂjISZ.fiirtAi«€)r'1ht'Ll._' c0nm'buZ"ed 1:0 {his r'adz'ea'E.4_1"hir1ki'n.gh.' Speak}'.:zg:1v'féJr the mcy'0rii'y. Ranganath Miehi'a.J. .F.1e'v!.*e1:"e_>.r1.hhV£:Vbt'<:,i'3V)h S says i.r'1.McDowell: .

"Tax planning' h.:.c':i_t;h'E3e3' provided 1'! is within il14e_';'far7'1etfi5dr1c:Q['v{a;;:..__Ceilozhtiljle devices canuoi _pc:f;r'i,h_,QfTV€825ph1.r1hVira._g"erhs5.'.--~'1'.1 is wrong £0 €I"LCOt.L!::'.C'l'g8:'u"'_I:.')'IV.'v.""'é'I1féF;i:fJ£;"( belief that it: is h1f§T"tOLvL1""Cxlb:.'(§.v UI€3."vV"_IHQVC1].jI71(3T1i. Qf tax by r'eVS:3rhiir1g' II. is the obligation Qf e1;er'y*._{:ih1'.:'.f/,er5t _t.c51 the taxes honestly without Eh; light: of the aforesaid c]arii'i(:ai.i011 by the S11'p__reIne3_ C0£_1:'hi,. we have to find out whal is the approach. Vyvhich'~;gm:e1'1"1s fiscral }<3gi5121t,i011 in this c<)1,m£1'y pa:'t.i.cu]211"1y in '*."E.31V@ C"0.1"1t€XE. of tax C',VdSi()I} zmd tax av()iciz-;11'1(te. 3 //f« 14, This question arose for <:(i1'1sidc1'z1iion No.4 of 2000 (STATE or KARNATAKA VS. M};-s.

INTERNATIONAL LTD.,) which was' l.i&'ii_l_i'1V petition. After rcferiirxg to {he law'i1i'_"Eng1ziiid'; this Country, We have eiiisxverérrgiilaze said quesimn '£;lﬁ§"vL1£}f§€TZ"

33. From~.i'l1,e is clear than there is' .incorisi}si4e*ricJ:'or deviation in the approach to theVlinierpreiiaitionl'ofihe taxation law in Lf?rig'land, gignierica in India. It is now iueii citizen iseniiiled to arrange his a[f.Tr;z.i':r=s nor.'--.i00'*ai--!'raci iaxes imposed by the lSi:ai__e_.. do] so within the law. Every man order his affairs in such a manner = iliai: lax attaching under the appropria'iel:/'iciis is less than it: otherwise would be. . ls~:.icceedlsWi.n ordering them so as to secure ihe 3 0. his ingenuity is to be respected and he ' caiilao_i:'lAl3e compelled to pay an increased tax. He r;--:iay= '"legit.imai.ely claim the aduariiage of any e_:pz'ess terms or of any omissions that he canfind V in his fowour in taxing si'a.iui".es. His legal right". so io dispose ofiiis capital and income as to aiiraci upon 52,;

23 himself i he leasi" am.oi.m.i. of lax is f1,.i.lly r'ec:ogr'iized., The law does nor oblige a trader to nia~i'=c:--:f_;i.l'j1_¢' ma2a'mum prqfil ihai he can our. of h.i:~;.l_ 'iradihg transactions. The legal rigli_z',..,o_f' a . sdecrease the a.moi.u'ii of ii.al1di ()ll'l£;'_T[_lJf§$i;' .'u,:t)'i-zld'v.i3e a his taxes, or aliogeiherio civoi_d"i.l1em. l')§_:Alrnearis l' which the lain permits, -c__lCtn_r1oi l5ei__cioiibi::ed';.._:"The:

basic proposition i.mderlinii'zg: this ia.3<'ai'ioh law is that: any tax pagier-i_is «_érit'i_ille>d._ to order his affairs in such 4 ilo his liability to tax is aslow as'pt)5;s'ible..i_{f i1ax:~ jjager is in a posiiiorf i'0Al:;1ji~i::arr.'[;f--.Aihroiigli .ia"'l.l'rra;:-1saci:'ior1 in two (lll€I'}13llClll"l,.'"('4,-'~V'll.h§«;ljSi"'~:,'§)lilé lliimiclh will result in zlliabiliiy oiherlof which will not, is at liberiy to ,lal_.i'er and to do so effectively in 4ih.__e" absehce " any specific tax avoidance 5 ' '''T_OlJ'lSl'OR _'l"'he_faCi. that the molive_jor a iiransrmiori may be to aluloidltax does not. invalidate ii unless a parfgicirillar._enacI.meni. so provides. Every person is « e'nlli_l;led.i:"lo so arrange his affairs as to avoid iiaJ<'a.lir3ri bllll the arrangemeni should. be real and *~gei;Iuine and not a sham. or make--believe. A A I'axpa_i;er may resort to a device to diveri the income before ii: accrues or arises lI'O him.

l§73i'ci:1'i.aer1e.ss o" the device de)ends not ll.)Ol"t .. . I 24 Considerations of moralit_u. but on the ()p€F€lll0'I1.VQf:_>'~. the }'ncome~t'ax Act. Colourable devices can~i~1ol_jbe' , A' part of tax planning. A t:cL'<~saving n'Iot'iuat'io_n dc:.=.es' ' not _justify t.he taxing aut'h.ori_t_ies_ or the"t}o*t,i_rteS."in'A. nulltfying or disregarding a :taxpayevr's':_ot.he--rwé.<5'e__ proper and bona fide 7(?hOlC6"'ClTI'"tQI1g CoL"_:rS'es" of-é ' action. Legislative in j1.u1ct'ion=.i_n twan.g st.att.{_t.e's§Vrnay"

not, except' on peril of penalty. violat._ed. but it may laug/'ally be e4it"Cittn1_§enVl'ed.; _V'£'ax_plar1r1ingA may be legitimate prouioleol it is tit>;"tl1t;:1il'tIi_e. fraiwlettaork of law. The _a'rtt:entionfo_']"* llegfglalllﬁfg a taxation st"at:u.te" f:_roAx_n"t:he"language of the provietons"parlti'3Ltrla'rlyA LuhVesrel"t.Ahe language is plain anal Lt.tiCéL'?'}.bigL'ntOtLs4. a taxing Act it. is not possible togassuine Vang' i'ni.e'rz,l"io.r.1 or governing purpose of the uset.jat"t.t;t'ellnore tjhafr what; is stated in the plain {'l'iféT.?9l£@{r;'»._ ' V 13?}; In so_/Jar as the observations ofJusiice V.ACFr:lr't~r1ap"pa"Redcly.J., that time has come for us to dep~a_rtj'..frorn the Westminster [1936] AC 1 principle asprnphatically as the British Courts have done ' 4_ and to dissociate ourselves from the observations of Shah. J.. and. similar observations made elsewhere is answered by the Apex Court in the /2, ,»**'',W* 25 Case of Union of India --vs- Azadi Bachao Andolan [AIR 2004 so 1 1071 as under para and 154:

""146. With respect, r.h.erefc)re;.':'we-are unable to agree w1'i.I'1 I'h(;'WVL)'['€t.L/' that"{).{_z;k:e"'of'.V Wesrrnmster is dead. or t.h_a{ ;::;s'--._ g?41os.("'I1..asLW been exercised t'r1VEngla.11__d.'-_ The I-loL'1se~. qfj * Lords does not: to imnic .soV,..va'n,_d'*v--we' agree with. respect. Iun=o'ur_ uuie1u.'*!.iV1:e' principle in Duke offWesri'rriin'sie--r1'is»'Vv.ery mVLV1'ch"ﬂaliI)e and kicking in me 'birth. And as far as thjis' "*Cf:).V[IriEiy'K_ coni:erned., the oI:;'serg;.ai.I.onE: Qfshaﬁ; U. Raman are irery Inalcft reiepant even today".

' '; appears to us that noi principie in Duke of Westntinster alive"ond_vic:'.cking In Englan.d. but it also .jse_ems to have acquired _jadic:'.al benediction Cor1s1,iI,uu'onal Bench in India.

«"gs:fnolwH:hs1"anding the temporary turbulence "' 'created in the wake of McDowell."

35. In the ﬁght" of the aforesaid discussions and the observations of the Apex Court, 2 E"

ernphatlcally in Azadi Bach.ao And.olan's case. --*;ts*, long as the arrangernent of the assessee to au'o:'df-,_'"

payment of tax do not contravene any s--t.1attltfo--.a;---- '7' provision and is tuithln the four (.'OI'IT(?I7§,-'_.,Qf"~!CU;;!.;.if cannot be found fault witlzf T.7?"?'_ '-trczns.Ct'(,'ttot1s"5 rejerred. to are neither sham ()}1t.tn_r_'ea.l. Thottgtt 'LL?F;;""'. A T Could see that: these l'f?'I;6"('-.'._ cornj;an'ies t,:r'e'flo<at'ed§ u.:tt.h the intention of avoldtfng payn'1en't" as long as the said aet'.Qi.s LUt11"Iiri..l:l'lé:fiarI'i£3 loork law and is not a S.7I(1f?'1lll'C1ItlSaé§fit)I:l.['--Vll'1{s"berltgflli of the law or the Aloopholes"Vln,t;l1e_llaw"iL>otlldV----ek1t,.lre to the benefits {_>;"*..tl1"_'e how this loophole"l/1§1s._b¢en .egq5lo_itte'd to'it:l1_lr1 the four corners of law," "the Pd:flia;ne~.ttt' has promptly now amended law ,t3lt.tg;V.'r"Cjirtlg..tVhe_lgophole. Therefore. by any _jIldiVC£'§_ll"f{1l,(s"i'pI;£3.l'a'l'f(5l.t we cannot read it into the 5 'section LU?_1l'VC?1'LU0;'5 not intended. by the Parltarnent ,:,a§:"---U'1£3t.l,lIT1e "e'n'ac:t.'tng this provision. Therefore. the V' '~ ardex-'passed. by the Tribunal is in consonance wt't'h. V.t.he""f.a1.u.l.Q;"'"the land. The substantial. question of law tdlsed in this appeal is answered against' the £ //7"

revenue and tnfavour Qf the 27 15, The 0rdc%1' of the '.I'1'ib'u1'12-11 iI':'1pL1g11('_"d in 1'}7};.iVS"3f_€7\T,i_Si()I1 pe€'.i1io11 is upheld and 1'..h€>. carders of the o11he1' _1s..€.1__x«'c'>"a1%_iVi:h§)1%E£_:i€s are set aside and the revision petmon _i:s*'~vrii:s111'i's.sed. Assessing Office1' is dimmed to 1'e¥=.d0 Eheflassés.smer'11L'=-wi't;};r3at applying proviso {.0 Sectioii' ,_5[3)[éi}_V ()f accordingiy. _ ' A '-- S'*»/ 27113:; 'A, 2 b'

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Karnataka High Court

The Deputy Commissioner Of Commercial ... vs M/S Balsara Home Products Ltd on 14 July, 2010

Bench: N.Kumar, B.V.Nagarathna