Trademark & GST

TRADEMARK AND GST: 'Clearing the Air'

In present scenario, the goodwill attached to the brands is a vital guiding factor for the consumers to decide on the purchase of the brand products. The role of trademarks in the modern society is dynamic and also the creativity which goes into the development of brands is substantial. There is a basic difference between Trademark and Brand, as it is rightly portrayed ‘All Brands cannot be a Trademark while all trademarks can certainly be a Brand’. Although the company’s trademark and its brand describe different things in a different context, it often happens that both are confused with each other. A company’s brand only exists intangibly, in the minds of the public as is seen through the eyes of a marketer. It’s comprehensible that trademark and brand are closely linked and can’t be parted. Enhancing the Brand will lead to enhancement of credibility and ease of purchase where IP assets have an economic lifespan which can be independently identifiable and transferrable.


The principle notification no. 1/2017- CT (R) dt. 28th June,2017 was passed introducing the concept of goods bearing brand name and their taxability. During such situation, it became grim for various traders to decide whether to save taxes or to preserve the rights attached to its brand name, those traders started applying for the deregistration of their brands mere reason being the registered brand name was taxable under GST. Concurrently, these suppliers were enjoying the goodwill of their brand in the market. To tackle this situation and finding a solution to the concern that the deregistering of trademarks may lead to fake products in the market, also to enhance the taxability of brands registered under other acts amendment vide notification no. 27/2017- CT (R) dt. 22nd September, 2017 was introduced under which certain conditions were prescribed for taxability of goods Hence from 22nd September 2017 onwards, where goods, as prescribed in the schedule, put up in unit container and bearing a registered brand name or even if brand name is not registered but on which an actionable claim or enforceable right in a court of law is available (other than those where any actionable claim or any enforceable right in respect of such brand name has been voluntarily foregone*) are taxable at the rate specified.


According to the phrase ‘registered brand name’ which means brand name or trade name, which can be a name or a mark such as a monogram, symbol, label, signature or any invented word or writing which is used with respect to such specified goods to indicate or to determine a connection during the course of trade between the specified goods and some individuals using the mark or name with or without indication of the identity of that individual, and which has been registered under [as per section 2(1)m and section 2(1)(zb)] the Trademarks Act, 1999.


(To demonstrate, food stuffs- if goods are in unit container and bear a registered brand name- 5% rate GST will levy wherein in other cases, it is exempted.)


In the eyes of law, registered brand name owns legal benefits under respective laws. The trademark once registered prevents others from using it so that consumers are not confused about the product and its goodwill/reputation can be taken care off. However, unregistered brand name does not possess legal benefits but still it can be protected by means of common law and is taxable at specified rates upon which an actionable claim or enforceable right in a court of law is available. Although to succeed in such action, it is essential to establish that unregistered brand names has comparable goodwill or reputation in connection with the product, service or business with which it is used.


In case of Tarai Foods Ltd. v Commissioner 2006 (198) E.L.T. 323 (S.C.), the Supreme court held that the words brand name suggests a mark, design, symbol, or title, which differentiates itself from other manufacturers which, when uses a particular product would generate a connection between the product and the manufacturer. The seller’s identity cannot always be likened to a brand name therefore, a clear difference must be established between the name of the company or manufacturer and a brand name.


In case of Grasim Industries Ltd. [2005 (183) E.L.T. 123 (SC)], the Hon’ble Supreme Court was concerned with whether the use of words ‘A subsidiary of Grasim Industries Ltd.’ by manufacturer i.e. subsidiary company of Grasim Industries Ltd. (goods bearing a brand name or trade name of another person), can be construed as a ‘brand name’ or not, where it was held that even the name of some other company, also if it was used to indicate a connection between the product and the company would be a sufficient clause to constitute a brand name. Later, in case of Aditya Birla Retail Limited against the Advance Ruling No. GST-ARA-13/2017/B, the Hon’ble AAAR, Maharashtra held that merely by removing their registered brand name logos from the packing of some of their product and keeping the surrounding environment intact to take advantage of the said brands not render such goods unbranded and the benefits of exemption notification from GST would not be available to such goods. Thus, use of those words on packing which depicts connection with brand name certainly amounts to branding.


Hence, to conclude, in the author’s view, mere declaration mentioning the name and registered address of the supplier as the manufacturer, as per the statutory requirement, cannot be considered as “bearing a brand name or trade name” and hence shall be eligible for exemption under GST. In some situations, where an affixation may be impossible, such goods shall be considered as branded goods, as long as its environment conveys that it is branded. Even a use of part of a brand name or trade name could be considered as goods bearing a brand name so long as it indicates a connection in the course of trade between such goods and some person using such brand name.


Despite this existing muddle regarding branded goods, to an extent, one thing is explicit that using a reputed brand will attract taxes, but it is equally vital to know that the consumer’s gain confidence regarding the product quality on the branded products. Thus, the intention of law for providing the level playing field to all its partakers in the market is crystal clear.