ACC LTD.versusSTATE OF KERALA

                         [2016] 4 S.C.R. 87


                             ACC LTD.                                    A
                                 v.
                       STATE OF KERALA
               (Civil Appeal Nos. 2678-2679of2010)
                           JULY28,2016                                   B

  (DIPAK MISRA AND ROHINTON FALi NARIMAN, JJ.)
       Kera/a General Sales Tax Act, 1963 - s.5(2) - Appellant-
assessee entered into agreement with Cochin Cement Ltd. (CCL) in
terms of which CCL was to manufacture cement using rmv materials
supplied by appellant and such cement was to be marketed by
                                                                         c
appellant in its own brand name - Plea of appellant that its
agreement with CCL was covered .under s.5(2) and sale effected by
CCL was first sale whereas appellants sale was second sale, therefore
appellant was entitled for exemption - Held: s.5(2) is an expression
of the legislative intention that sales at the hands of the brand name   D
holder and trade mark holder would be treated as the- first sale -
On perusal of the agreement entered into between the parties, it is
not remotely suggestive of the fact that CCL is a brand name holder
or trade mark holder - Sale at the hands of the appellant would
therefore be treated as the first sale.
                                                                         E
      Cryptom Confectioneries Pvt. Ltd. v. State of Kera/a
      (2014) 73 VST 498 (SC) - relied on
      Quinn v. Leathem ( 1901) AC 495; Ambica Quarry Works
      v. State of Gujarat and others AIR 1987 SC 1073 : 1987
      (1) SCR 562 - referred to                                          F
                       Case Law Reference
   (2014) 73 VST 498 (SC)             relied on              Para6
   (1901) AC 495                      referred to            Para9
   1987 (1) SCR 562                   referred to            Para 9      G
    CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2678-
2679 of20 l O.
     From the Judgment and Order dated 31.03.2009 of the High Coul1
ofKerala at Ernakulam in Sales Tax Revision Petition Nos. 76 and 81 of
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                                 87
88              SUPREME COURT REPORTS                        (2016] 4 S.C.R.



A    2008
                                  WITH
            C. A. NO. 5980-5981 OF 2010.
          S. Ganesh, Sr. Adv., U. A. Rana, Ms. Mrinal Elkar Mazumdar,
     Himanshu Mehta, For Mis. Gagrat & Co., Advs. for the Appellant.
B         C. K. Sasi, Jogy Scaria, R. Sathish, P. V. Dinesh, Advs. for the
     Respondent.
            The Judgment of the Court was delivered by
           DIPAK MISRA, J. I. The appellant entered into an agreement
     on 08.04.1993 with Cochin Cement Limited - a company registered under
     the Companies Act, 1956. The relevant clauses of the agreement are as
     follows:-
            "I. ACC shall sell to Cocem Cement Clinker Ex its Wadi Cement
            Works on regular basis at the supply rate of 300 T per day so as
            to enable Cocem to produce Ordinary Portland Cement or any
D           other type of cement as per the marketing need from time to
            time. The price of clinker will be linked to the price of cement in
            the Kerala market and will be reviewed every six months on this
            basis. The formula for such price adjustments will be as detailed
            in Annexure 'A' attached to and forming pait of this Agreement.
            For the sake of easier operation of the contract it is agreed that a
E
            specific quantify of clinker supplied by ACC for any six months
            period will have a co-relation with the price at which the cement
            will be handed over to ACC for sale during the said period of six
            months. Any shortfall on either side in the matter of supply of
            clinker from ACC and supply of cement by Cocem would have to
F           be made good at the already agreed rate priot'to finalisation of
            price for the subsequent period.
                               xxx.xx                    XX.'\XX

            3. Cocem shall entrust to ACC all matters pe1taining to quality
            assurances in respect of cement produced by Cocem. ACC shall
G           arrange to depute its personnel to the factory of Cocem with a
             view to ·ensure that quality of cement produced is as per the
             internal norms/standard of ACC. Fees lo be paid by Cocem to
             ACC for this service shall be mutually agreed upon by the pa1ties
            separately.

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     ACC LTD. v. STATE OF. KERALA [DIPAK MISRA, J.]                          89


      4. Cement produced by Cocem under ACC's brand same shall               A
      only be marketed by ACC and shall not complete with cement
      directly supplied to the Kerala market by ACC.
      5. Clinker ground into cement shall be purchased by ACC at a
      mutually agreed price which will include the cost that ACC may
      incur in organising marketing and sale of cement manufactured          B
      by Cocem. Cocem will sup.ply cement to different parties strictly
      as per the programme given by ACC. In respect of direct
      consumers of cement the billing may be done by Cocem directly
      to the party strictly in accordance with the direction given by ACC.
      Cement will be branded as 'ACC'. For use of ACC brand name
      and rendering marketing services Cocem will pay Rs. 75/- per           c
      tonne as charges. This charge will remain firm for 5 years and
      will be subjected to revision thereafter on mutual terms.
                         xxxxx                    xxxxx
      7. Any complaints/claims arising out of quality of cement, damages,
      shortages, poor packing due to negligence on the part ofCocem          D
      would be debited to Cocem.
                         xxxxx                    xxxxx
      11. Cocem shall not use ACC's Trade Marks/brand names in any
      form after the termination or expiry of this Agreement.
       2. On the basis of the aforesaid Agreement, the appellant- assessee   E
put forth his stand before the Assessing Officer that his case was covered
under Section 5(2) of the Kerala General Sales Tax Act, 1963 (for brevity,
"the Act") and, therefore, the sale effected by the Cochin Cement Limited
should be treated as the first sale. The Assessing Officer, on the basis
of Intelligence Report and other materials brought on record, came to        F
the conclusion that the Cochin Cement Limited had been manufacturing
the cement and handing over the same to the assessee. On a perusal
of the impugned orders, it is noticeable that the report of the concerned
intelligent officer has met with approval up to the revisional stage. To
have a complete picturewe may usefully reproduce the finding recorded
by the assessing officer in the order of assessment:-                        G
      " As per schedule to the agreement, Associated Cement Cos. is
      charging Rs. 150/- per ton for marketing and service charges and
      only after deducting that amount, Associated Cement Co. need
      pay the balance to Cochin Cement Ltd., after adjusting the price
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90             SUPREME COURT REPORTS                        [2016) 4 S.C.R.



A          ofclinker. During the course of inspection on 16.4.99 effected in
           the premises of Cochin Cement Ltd., at Ernakulam a copy of the
           report regarding cement marketing prepared by Sri S. R.Iyer,
           Senior Dy. General Manager, Cochin Cement Ltd, was recovered
           by Intelligence Squad No. 1, Ernakulam which reveals that cement
           manufactured by Cochin Cement Ltd. is fully marketed by
B
           Associated Cement Co., in its brand name. It is also stated that
           the responsibility of clinker supply and also the marketing and
           selling the cement produced by Cochin Cement Ltd., lies with
           Associated Cement Co.
           From the above, it is evident that Cochin Cement Ltd. is only a
c          manufacturer of cement and that too by using the raw material
           supplied by the Assessee with specified quality of ACC standard
           and entire cement manufactured are to be delivered at different
           depots of the Assessee. Only Assessee is marketing the cement
           and Cochin Cement Ltd. is not entitled to sell out even a single
D          bag of cement in the market over and above the programme given
           by the Assessee. Entire goods manufactured are delivered at
           Assessee's depots and is being marketed by Assessee in its brand
           name. And all the sales effected through depots of the Assessee
           have alone being assessed u/s 5(2) ofKGST Act newly amended.
           Only those cement which has been manufactured by Cochin
E          Cement Ltd. and sold by Assessee in its brand name revealed
           and accounted in the Assessee's books of accounts has been
           brought to tax by this order. In other words, if Cochin Cement
           Ltd. is selling goods to others by itself, the question of coming
           those transaction into the books of accounts of the Assessee does
           not arise at all. In the circumstances, the contention of the
F
           As~essee that Cochin Cement Ltd. is marketing cement to the
           customers by itself falls to the ground."
     The said authority has further opined:-
           "The question of brand name in th is case arose in respect of goods
G          manufactured by Cochin Cement Ltd., and sold by the Assessee.
           It is, only for the sake of marketing that brand name is used by the
           Assessee in respect of cement manufactured by the Cochin
           Cement Ltd. A stranger Co., other than Assessee, the brand name
           is the brand name allotted to Associated Cement Co., under the
           Trade and Mercantile Act and those goods manufactured by a
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     ACC LTD. v. STATE OF KERALA [DIPAK MISRA, J.]                             91



      Co., other than Associated Cement Co., if sold by ACC under its          A
      brand name it will very well come under the purview of newly
      introduced section. Therefore, the contention that Cochin Cement
      Ltd., is brand name holder is a very feable augment. Sub.sec 2 of
      Sec. 5 reads "Notwithstanding anything contained in this Act in
      respect of goods other than tea sold in auction in the state, which
                                                                               8
      are sold under a trade mark or brand name, the sale by the brand
      name holder or the trade mark holder within the state shall be the
      first sale for the purpose of this Act". The impugned transaction
      is a typical one coming under the above provision. The Cement
      sold by the Assessee is one which is manufactured by Cochin
      Cement Ltd. and from Cochin Cement Ltd Assessee purchased                c
      and cement so purchased sold under its brand name "ACC" and
      claimed exemption as second sale. But by virtue of above said
      provision, the Assessee's 2n" sale is treated as first sale."
      3. Be it noted, the order of assessment has received the stamp of
approval by the higher authorities as well as by the High Comi. In this        D
backdrop, we may proceed to analyse the statutory scheme. Section
5(1) of the Act, which is the charging Section, reads as follows:-
      "Every dealer (other than a casual trade or agent of an non-resident
      dealer) whose total turnover for a year is not less than two lakh
      rupees and every casual trader or agent of a non-resident dealer,        E
      whatever be his total turnover for the year, shall pay tax on his
      taxable turnover of that year."
      4. Mr. S. Ganesh, learned senior counsel appearing for the
appellant, has laid immense emphasis on Section 5(2), which reads thus:-
      "Notwithstanding anything contained in this Act in respect [of            F
      manufactured goods other than tea] which are sold under the
      trade mark or brand name, the sale by the brand name holder or
      the trade mark holder within the state shall be the first sale for the
      purposes of this Act."
      5. The learned senior counsel would contend that the Cochin              G
Cement Limited is the brand name holder of the present appellant and,
therefore, the sale at its hand has to be treated as first sale for the
purposes of this Act. In this reEard, we think it appropriate to refer to
Section 5(2A) and 5(28) of the Act, which read thus:-
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92                SUPREME COURT REPORTS                        [2016] 4 S.C .R.



A             "5(2A) Where a dealer liable to tax under sub-section (1 ), sells
              any goods to a trade mark or brand name holder for sale a trade
              mark or brand name, no such dealer shall be liable to pay tax
              under the said sub-section, if he produces before the assessing.
              authority a declaration in the prescribed form from that trade mark
              or brand name holder.
B
              5(2B)      Where a trade mark or brand name holder consumes
              the goods purchased by under-section 2(A), in the manufacture
              of other goods or uses or disposes of such goods in any manner
              otherwise than by way of sale within the State or despatches
              such goods to any place outside the State, otherwise than by way
c             of inter-state sale, such trade mark or brand name holder shall be
              liable to pay tax on the turnover relating to such purchase for the
              year irrespective of the quantum of his total turnover."
            6. On a conjoint reading of the aforesaid provisions, it is discernible
     that the Legislature has clearly expressed its intention to treat the sale
D    by the brand name holder or the trade mark holder as the first sale. In
     the case of Cryptom Confectioneries Pvt. Ltd. Vs. State of Kem/a 1,
     Section 5(2A) came up for consideration and a two-Judge Bench,
     analysing the anatomy of the provision, has laid down thus:-          ·
              "The aforesaid sub-section commences with a non obstante clause
E             i.e., irrespective of Section 5(1) of the Act or any other provision
              under the Act. The said sub-section speaks of a sale made by a ·
              brand name holder of the trade mark holder within the State. The
              Legislature deems that such a sale by the brand name holder or
              the trade mark holder shall be the first sale within the State. In
F             our opinion this is the only possible construction that can be given
              to sub-section (2) of section 5 of the Act. Keeping in view the
              aforesaid provision, let us once again trace the transaction between
              the appellant and the licensee, namely, Mis. Bristo Foods Pvt.
              Ltd."
G           7. On a scrutiny of the facts of the said case, it is manifest that
     the issue that squarely fell for consideration is whether the sale at the
     hands of the appellailt therein would be treated as the first sale. Dealing
     with the stand of the appellant, this Court stated:-
              "According to the appellant/ assessee who is a branded n.ame
H    I   (2014 )73 VST 498 (SC)
       ACC LTD. v. STATE OF KERALA [DIPAK MISRA, J.]                              93


        holder, Mis Bristo Foods Pvt. Ltd., has licence and is permitted to       A
        use the branded name "CRYTM". The licensee manufactures
        the goods, namely, confectioneries and effect supply of sale to
        the brand name holder. It is the brand name holder, who effects
        the sale of the confectioneries which are to be taxed as item 39
        of the First Schedule to the Act within the State. Therefore, it is
                                                                                  B
        the brand name holder, who has to be pay tax under section 5(2)
        of the Act. If for any reason Mis Bristo Foods Pvt. Ltd. has paid
        the tax while effecting the supply of the manufactored commodity
        to the appellant/assessee, the appellant/assessee and Mis Bristo
        Foods Pvt. Ltd. can approach the authorities for claiming the refund
        of the tax paid by them."                                                 c
       8. On a careful appreciation of the aforesaid decision, we find
the factual matrix therein is explicitly the same as is in the present case.
However, Mr. S. Ganesh, learned senior counsel, would submit that in
the said case, there has been no consideration of the concepts like brand
name holder and trade mark holder and, therefore, the said decision               D
should not be treated as a precedent. On the basis of the aforesaid
submission, Mr. Ganesh contends that the said decision requires
reconsideration and this Court should refer it to a larger Bench. Mr.
Ganesh further submits thatthe ratio of the decision has to be understood
in the background of the facts of the case and a decision is an authority
for what is actually decides, not what logically follows from it. According       E
to him, as the relevant provisions have not been construed, it cannot be
regarded as a binding precedent.
      9. Needless to say, the proposition canvassed by Mr. Ganesh
neither invites a dispute nor calls for a debate. It is so the said proposition
has been stated in Quinn v. Leathern" which has been followed inAmbica            F
Quarry Wo~ks v. State of Gujarat and others'. But such is not the
case here. First orall, in the earlier decision Section 5(2) was considered
and a view has been expressed and, therefore, it cannot be said that a
provision has not been referred to or not considered. Hence, it is a
binding precedent.                                                                .G
      I 0. The second issue, which has been ambitiously projected by
Mr. Ganesh, is that the decision, even if a binding precedent, requires
reconsideration as the relevant tenns employed in Section 5(2), have not
2
    (1901) AC 495
3   AIR 1987 SC 1073 .                                                            H
94               SUPREME COURT REPORTS                       (2016] 4 S.C.R.



A    been appositely considered. What is limpid is that Section 5(2) is an
     expression of the Legislative intention that the sales at the hands of the
     brand name holder and trade mark holder would be treated as the first
     sale. On a perusal of the agreement entered into between the parties, it
     is not remotely suggestive of the fact that Cochin Cement Limited is a
     brand name holder or trade mark holder. Hence, the ambitious submission
B
     of Mr. Ganesh has to melt as a glacier, and we say so. Ergo, the decision
     in Cryptom Confectioneries Pvt. Ltd. does not require reconsideration.
            11. In view of the aforesaid analysis, the appeals, being devoid of
     merit, are dismissed. There shall be no order as to costs.
C    AnkitGyan                                                Appeals dismissed.