Holding

The exemption under Rule 3(66a) is unavailable for goods that bear the trademark or brand name of an existing industrial unit, but is available for other goods produced by the new industry.

Summary

EMKAY Investments Pvt Ltd, a newly set up small‑scale plywood manufacturer, claimed exemption from sales tax under Rule 3(66a) of the West Bengal Sales Tax Rules, 1941. The company used the brand name “Merinoply,” which belonged to another firm, Marinoply and Chemicals Ltd. The tax authorities denied the exemption, invoking Explanation clause (vi) that bars the benefit for units using the trademark of an existing industrial unit. The West Bengal Taxation Tribunal, by a 2:1 majority, held that the brand was used only for a portion of the products but nevertheless granted exemption for all the company’s goods. On appeal, the Supreme Court held that the exemption cannot be claimed for goods bearing the existing unit’s trademark, but can be claimed for the remaining goods, placing the burden of proof on the manufacturer. Consequently, the Tribunal’s order was set aside and the appeal was allowed in part.

Issues considered

Whether a newly set up small‑scale industry that uses the trademark or brand name of an existing industrial unit is entitled to the sales‑tax exemption under Rule 3(66a) for all its products.
Whether the Explanation to Rule 3(66a) should be interpreted literally to deny the exemption for the entire unit even if the trademark is used only on a portion of its output.

Subjects

sales tax exemptionnewly set up small scale industrytrademarkbrand nameWest Bengal Sales Tax RulesRule 3(66a)Explanation clauseburden of proof

Judgment

l
A COMMERCIAL TAX OFFICER AND ORS.
v.
EMKAY INVESTMENTS PVT. LTD.

FEBRUARY 23, 1996

H [B.P. JEEVAN REDDY AND K.S. PARIPOORNAN, JJ.)

West Bengal Sales Tai Rules, 1941:

Rule 3(66a)-New industly exempt from payment of sales-ttD."-ln
C respect of a p01tion of its products, the manufacturer using the brand name
of another company-Sales tax auth01ities holding that the manufacturer not
entitled to the exemption-Tribunal's finding that it applied only to a certain
p01tion of the products-But the Tlibunal decl01ing that the manufacturer
entitled to exemption in respect of all its products--On appeal, held, the
manufacturer not entitled to the benefit of the exemption for which trade mark
D or brand name of an existing industrial unit is used-Howeve1; in respect of
its other produ_cts it is entitled to claim the benefit.

CIVIL AFf>ELLATE JURISDICTION : Civil Appeal No. 3848 of
1996.

E From the Judgment and Order dated 8.10.93 of the West Bengal
Taxation Tribunal in Case No. RN-103 of 1992,

H.N. Salve and J.R. Das for the Appellants.

P.P. Tripathi for the Respondents.
F
The following Order of the Court was delivered :

Heard counsel for the parties.

Leave granted.
G
This appeal is preferred against the judgment of the West Bengal
Taxation Tribunal. The respondent is a new unit engaged in the manufac-
ture of plywood. It is entitled to exemption from p_C)yment of sales tax, being
a new industry as contemplated by Rule 3(66a) of the West Bengal Sales
H Tax Rules, 1941. It, however, appears that in respect of a portion of its
1026 .
1
COMML.TAXOFFICERv. EMKAYINVESTMENTSPVT.LID. 1027

products, it is using the brand name "M/s. Merinoply" which brand name A
belongs to another company called "M/s. Marinoply and Chemicals
Limited".

Relying upon the Explanation to Rule 3(66a), the sales tax authorities
denied the certificate enabling the respondent to claim exemption from B
sales tax. Their case was that since the respondent is using the brand name
of another unit, which is not entitled to the said exemption, the respondent
is disentitled from claiming any exemption. However, when the matter
reached the Tribunal, it held in favour of the respon'tlent by a majority of
2:1. It found that the Marinoply brand name is not applied to all the
products manufactured by the respondent but only to a certain portion of C
its products. Notwithstanding this finding, it allowed the respondent's
appeal in full and declared it to be entitled to exemption in respect of all
the products manufactured by it. Rule 3(66) insofar as it is relevant reads
thus:
D
"Rule 3.

(66a)(i) Sales by a newly set up small scale industry of goods or
class of goods, other than those included in Schedule X appended
to this clause, manufactured by it during the period of three years,
ff the. said industry is situated within the area of the Calcutta E
Metropolitan Planning Area as described in the first Schedule to
the West Bengal Town and Country (Planning and Development)
Act, 1979 (West Bengal Act XIII of 1979) or five years, if it is
situated elsewhere in West Bengal, since the date of its first sale
of such manufactured goods : F
Provided that the dealer claiming the benefit of this clause will
be so eligible only if he keeps separate accounts in respect of such
newly set up small scale industry, issues serially numbered
cash/credit memos for sales of goods manufactured in such in- G
dustry, keeps voucher and other documents for purposes of plant
and machinery for establishment of such industry and maintains
other records to prove that sales claimed exempt under this clause
were of goods manufactured in such industry set up by him.

Provided further that the dealer claiming the benefit of. this H .
1028 SUPREME COURT REPORTS (1996) 2 S.C.R.

A clause will be eligible, if he possesses a valid certificate of eligibility
in Form No. XXXVIA granted by the appropriate Assistant Com-
missioner in this behalf, for such period as mentioned in the said
certificate :

Provided also that.. ............ section 4AA of that Act.
B
Explanation : For the purpose of this clause 'newly set up small
scale industry' means a new industrial unit, -

(i) ............................................ .
(ii) ........................................... .
c (iii) .......................................... .
(iv) ........................................... .
(v) ............................................ .

(a) ...................................... .
D (b) ...................................... .

(vi) which does not use the trade mark of the brand name of any.
product of an existing industrial unit,

(vu") ....................................."
E
(Extract from the Paper Book)

Clause (vi) of the Explanation is very clear and unambiguous. It says
that the said benefit of exemption from sales tax is available only to such
F newly set up small scale industry which does not use the trade mark or the
brand name of any product of an existing industrial unit. In this view of the
matter, the respondent-industry cannot claim the benefit of exemption. But
the question is whether it would be reasonable to read the said Explanation
literally which would mean that if a manufacturer uses the brand name or
trade mark of an existing industrial unit even.in respect of a small portion
G of its production, it would be totally deprived .of the be!lefit of the said
·exemption. We are of the opinion that having regard to the object and
purpose underlying the said Rule, it would he reasonable to say that the·
respondent shall not be entitled to the benefit of the said exemption in
respect of the goods, for which the trade mark or brand name of an existing
H industrial writ is used. But insofar as other products for which the brand
L
COMML. TAX OFFICER v. EMKAY INVESTMENTS PVT. LID. 1029

name is not used are concerned, it will be entitled to claim the benefit of A
the aforesaid sub-rule. The burden of clearly establishing that in respect of
certain of its goods manufactured by it, the trade mark or brand name of
an existing industrial unit is not being used, shall be squarely upon the
manufacturer.

The appeal is allowed accordingly and the Order of the Tribunal is B
set aside. No costs.

G.N. Appeal allowed.