Case Note & Summary
The case concerned an appeal by the Commercial Tax Officer and others against the judgment of the West Bengal Taxation Tribunal in favour of Emkay Investments Pvt. Ltd., a newly set up small scale industrial unit manufacturing plywood. The respondent claimed exemption from sales tax under Rule 3(66a) of the West Bengal Sales Tax Rules, 1941, which grants exemption to newly set up small scale industries for a specified period. The sales tax authorities denied the eligibility certificate on the ground that the respondent used the brand name 'Merinoply' belonging to M/s. Marinoply and Chemicals Limited, an existing industrial unit, on a portion of its products. Explanation clause (vi) to Rule 3(66a) provides that a newly set up small scale industry means an industrial unit which does not use the trade mark or brand name of any product of an existing industrial unit. The Tribunal, by a majority of 2:1, found that the brand name was not applied to all products but only to a certain portion, yet it allowed the respondent's appeal in full and declared the respondent entitled to exemption in respect of all products. Before the Supreme Court, the revenue contended that the use of any existing unit's brand name disqualified the respondent from claiming any exemption, while the respondent's position, accepted by the Tribunal, was that the brand name was used only on some products and therefore the exemption should not be entirely lost. The Supreme Court examined the language of Explanation clause (vi) and held that it was clear and unambiguous: the benefit of exemption is available only to a newly set up small scale industry which does not use the trade mark or brand name of any product of an existing industrial unit. Therefore, the respondent could not claim exemption for goods bearing the existing unit's mark. However, the Court considered whether a literal reading would be reasonable, which would mean that even if a manufacturer uses the existing unit's brand name on a small portion of its production, it would be totally deprived of the exemption. Having regard to the object and purpose of the rule, the Court held that the respondent shall not be entitled to the benefit of exemption in respect of the goods for which the trade mark or brand name of an existing industrial unit is used, but insofar as other products for which the brand name is not used are concerned, it will be entitled to claim the benefit. The burden of clearly establishing that in respect of certain goods, the trade mark or brand name of an existing industrial unit is not being used was placed squarely upon the manufacturer. Accordingly, the appeal was allowed and the order of the Tribunal was set aside, with no order as to costs.
Headnote
A) Sales Tax Exemption - Newly Set Up Small Scale Industry - Eligibility Criteria - West Bengal Sales Tax Rules, 1941, Rule 3(66a) and Explanation clause (vi) - Explanation clause (vi) clearly and unambiguously excludes from exemption any newly set up small scale industry that uses the trade mark or brand name of any product of an existing industrial unit; the respondent, using the brand name 'Merinoply' of an existing unit, could not claim exemption in respect of goods bearing that mark. Held that clause (vi) is clear and unambiguous and disentitles the respondent from claiming exemption for such branded goods (Paras 1-3). B) Statutory Interpretation - Purposive Construction - Apportionment of Exemption - West Bengal Sales Tax Rules, 1941, Rule 3(66a) - Literal reading of Explanation clause (vi) would totally deprive a manufacturer of exemption even if brand name is used on a small portion of products; considering the object and purpose of the rule, the disqualification should apply only to goods for which the existing unit's brand name is used, while other products remain eligible. Held that the respondent is entitled to exemption for products not using the existing unit's brand name, and the order of the Tribunal granting full exemption is set aside (Paras 3-4). C) Evidence - Burden of Proof - Manufacturer's Obligation to Prove Non-use of Existing Unit's Mark - West Bengal Sales Tax Rules, 1941, Rule 3(66a) - Once a manufacturer is shown to use an existing unit's trade mark or brand name on some goods, the burden of clearly establishing that in respect of certain other goods no such mark is used rests squarely upon the manufacturer. Held that the respondent must bear this burden to claim exemption for unbranded products (Para 4).
Issue of Consideration
Whether a newly set up small scale industry using the trade mark or brand name of an existing industrial unit only in respect of a portion of its products is entirely disentitled to sales tax exemption under Rule 3(66a) of the West Bengal Sales Tax Rules, 1941, or whether exemption can be claimed for products not using such mark.
Final Decision
Appeal allowed. Order of West Bengal Taxation Tribunal set aside. The Supreme Court held that respondent is not entitled to sales tax exemption in respect of goods for which trade mark or brand name of an existing industrial unit is used, but is entitled to exemption for other products where brand name not used. Burden of proving non-use lies on manufacturer. No costs.
Law Points
- Rule 3(66a) of West Bengal Sales Tax Rules
- 1941
- Explanation clause (vi) disqualifies newly set up small scale industry using trade mark or brand name of existing industrial unit
- literal interpretation would deprive exemption for small portion
- purposive construction limits disqualification to goods bearing existing unit's mark
- burden on manufacturer to prove non-use of existing unit's mark for certain goods
