Sale of Trade Mark of Indian Brand ‘Crocin’ to UK Entity Qualifies as Export under CST Act, No Sales Tax Payable: Bombay HC [Read Order]

The Division Bench comprising Justice M.S. Sonak and Justice Advait M. Sethna in a Sales Tax Reference filed by M/s Duphar Interfran Ltd., challenging the Maharashtra Sales Tax Tribunal’s decision which had treated the transaction as a local sale liable to tax at 4% ruled that the State of Maharashtra was barred from levying sales tax on such a transaction under Article 286 of the Constitution.

The background of the matter is that an issue arose from a Brand Acquisition Agreement dated 18 January 1996, under which Duphar Interfran Ltd., an Indian pharmaceutical company, sold the trademark ‘Crocin’ to SKB Play PLC, a company incorporated in the United Kingdom.

The agreement was executed in London, and pursuant to the transaction, the UK entity applied to the Registrar of Trade Marks in Mumbai for recording the assignment.

The Sales Tax Department held that the assignment constituted a local sale within Maharashtra, taxable under Schedule Entry C-I-26 of the Bombay Sales Tax Act, 1959. The Tribunal upheld this view, primarily on the ground that the trademark was registered in India and that the consideration was received in Indiancurrency.

Further, the High Court examined whether the transaction amounted to a sale within the State or a sale in the course of export.

The Court noted that a trademark is an intangible and incorporeal property, and for such assets, the determination of situs cannot be based on physical location or place of registration.

The Bench noted the internationally accepted legal principle of “mobilia sequuntur personam”, meaning that movable property follows the person.

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The court, applying this principle, held that the situs of an intangible asset like a trademark follows the location of its owner. Since the assignee of the trademark ‘Crocin’ was a UK-based company, the trademark must be deemed to have moved outside India upon assignment.

The Court rejected the State’s argument that registration of the trademark in India fixed its situs permanently within Maharashtra. It clarified that registration only provides statutory protection against infringement and does not determine ownership or situs for taxation purposes.

Additionally, the court observed that ownership of the trademark passed immediately upon execution of the assignment agreement and was not dependent on subsequent registration.

Therefore, the High Court held that the term “goods” under Sections 3, 4 and 5 of the CST Act includes intangible goods, and there is no justification to give a narrower meaning to “goods” under Section 5 dealing with export.

Consequently, the assignment of the trademark to a foreign entity amounted to a sale occasioning export, squarely covered by Section 5(1) of the CST Act.

The Bench further noted that post the Sixth Constitutional Amendment, the prohibition under Article 286 extends not only to tangible goods but also to intangible goods, barring State taxation on such export transactions.

Therefore, the High Court held that the sale of the trademark ‘Crocin’ did not constitute a sale within the State of Maharashtra, but a sale in the course of export outside India. As a result, no sales tax was payable, and the Tribunal’s view was set aside.

Mr. Ishaan V. Patkar, a/w Mr. Vinit V. Raje i/by Jindagi Shah appeared for the applicant.

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