The Supreme Court has rejected a plea of consumer goods major Whirlpool India seeking exemption from payment of sales tax on products that were made by its outsourcing partner but sold under the Whirlpool brand name.
Whirlpool, which had entered into an agreement with Applicomp India for manufacturing its electrical appliances under its trade name, contended it could not be asked to pay sales tax on the finished products. Instead, the company argued, tax should be collected from Applicomp.
However, a Bench comprising Justice S B Sinha and Justice Markandey Katju said since the product was sold by the company through its dealers under its trademark, it cannot escape the liability of paying sales tax.
"The incidence of tax on the first sale will be on the Whirlpool and not on Applicomp," the Bench said, while upholding the Karnataka High Court verdict.
Maintaining that Applicomp was neither a registered user nor a licensee of the trademark 'Whirlpool', the Bench said it was not selling the goods as either the trademark holder or as one having any rights as a proprietor of the trademark.
"Any sale by Applicomp to Whirlpool does not give the benefit of any reduction in tax to it," the court said.
It said sales made by Applicomp to Whirlpool were not sales to the exclusive marketing agent, distributor, wholeseller or any other dealer but were only sales of manufactured branded goods to the brand owner.
"It is the sale of such goods by the dealer having the right either as a proprietor or otherwise which has to be deemed to be the first sale liable to tax," it said.