The Hon’ble Karnataka High Court in the matter of State of Karnataka, Bangalore Vs. United Breweries Ltd.(UBL) [STRP Nos. 384/2014 & 01-03/2015] has held that no VAT is leviable on ‘brand franchisee fee’ in case of manufacture of beer as the manufacturer (CBUs) do not get effective control of the brand name for full commercial exploitation, consequently, cannot be considered as ‘sale’ of intangible goods by UBL  which would be subject to Sales Tax under KST Act. Further, for the amount received by UBL as ‘brand franchisee fee’ from CBUs, UBL is paying Service Tax as the same is covered as Intellectual Property Service under Section 65 (55)(b) of the Finance Act, 1994.

Further, in case of ‘Kingfisher’ packaged drinking water, the question was regarding the levy of VAT on the amount collected by UBL as royalty from the licensed dealers, engaged in the business of manufacturing packaged drinking water as consideration for transfer of right to use brand name/trade-mark –‘kingfisher’. In this regard, the Hon’ble High Court has held that the trade-mark is transferred to the licensed dealers, with a right to use the trade mark and exploit the same for commercial use, which was on payment of royalty to UBL, the same would amount to transfer of right to use intangible goods, which would thus be subject to tax under KST Act.

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To get full text of the judgment, please click on the link below:

http://judgmenthck.kar.nic.in/judgmentsdsp/bitstream/123456789/84469/1/STRP384-14-01-10-2015.pdf