In her 2nd post for our SpicyIP Fellowship applicant series, Arundathi Venkataraman brings us an interesting post that seeks to draw attention to a recent decision of the Madras High Court in which several interesting arguments pertaining to service tax, copyright and trademark were made. Arundathi is a 4th year student at NLU, Jodhpur. Her previous post is available here: GI for Yoga? (De)Merits and Consequences. [The deadline for submission of entries for our Fellowship application has now passed. We shall be going over the submissions received thus far and will announce the winners soon].
Are Copyrights in Logos considered Trademarks for the Purpose of Taxation?
By: Arundathi Venkataraman
This post seeks to draw attention to the judgment of the Madras High Court in TT Krishnamachari & Co. v. UOI and Commissioner of Service Tax delivered on November 17, 2014. While the case in its core part dealt with the maintainability of a writ petition, the facts indicate that a ruling by the Authority will have significant impact on IPR-tax jurisprudence. The High Court’s decision can be found here.
The petitioner had registered its logo “ttk” as an artistic work under the Copyright Act. Thereafter, it entered into agreements with its group companies which were permitted to use the artistic work on their packages in exchange for royalty. The CST found that the petitioner was liable to pay Service Tax on the transaction of transfer of right to use the copyright and on the royalty received as stipulated in the Finance Act, 1994. The petitioner refused any such liability and stated that S.65(55a) of the Finance Act excludes copyright from IP services. Having reference to the Registration Certificate given by the Registrar of Copyright, the petitioner argued that such registration of the logo was sufficient to exclude it from the purview of Service Tax. To counter, the CST and the UOI argued that the definition of copyright as in the Copyright Act cannot be incorporated to interpret the provisions of the Finance Act; instead, the object of the Finance Act must be taken into consideration for the interpretation. It was then submitted that the artistic work goes along with the brand name, and that the logo used in the goods has a nexus with the goods, and that the registration does not fall under the categories mentioned in S.14 of the Copyright Act. It was additionally contended that when a brand name is used by a person to whom it does not belong, it is intended to indicate that the goods manufactured by such a person has a connection with the owner of the brand name leading to an indication of quality of the product. In other words, such a use was not used as a traditional copyright; instead it was used by the group companies to exploit mileage of the goodwill arising from such use.
On these grounds, and with reference to S.65(55a) of the Finance Act, the CST held that prima facie, the logo was used as a trademark and not as an artistic work by the group companies mandating the levy of Service Tax. The Court ruled that the issues in merit arising from these facts could not be adjudicated upon in an exercise of its writ jurisdiction, and for this reason, among others, the Court dismissed the petition as not maintainable.
It is fairly obvious that these arguments cause several questions to surface and the post makes no attempt to deal with all of them. The issue regarding taxing copyright licensing has been discussed quite a bit [For instance, here and here]. However, an interesting argument that the CST brought in this case is that a copyright which is registered under the Copyright Act can actually be a Trademark because of the manner or intention of its use. Such statements beg scrutiny. There are two possibilities if this argument of the CST is accepted – First, it could imply that the right in the logo is a Trademark right only for the purposes of taxation; Second- it could imply that the registration of the logo as a Copyright by itself is wrong. If the former of these is true, then what is the correctness of having separate protection or characteristics for a logo depending on the context? Additionally, what would implications of such a finding by the CESTAT be? Can the finding of the existence of a trademark be used in other instances? If that were to be the case, then it would lead to a situation of dual protection for the logo, which puts the law in a precarious and vulnerable position. If the second of the two possibilities of accepting the CST’s arguments is found to be true – then between the CST and the Copyright Registrar, which finding/ ruling/ registration would prevail? It would be quite unfortunate if the ruling of a tax authority prevailed over that of the Registrar of Copyrights in a matter concerning the characterization of a right. In sum, the argument lacks clarity. Admittedly, it seems quite easy to be critical of this argument. However, its reasoning is not clearly laid out in the judgment; perhaps there is more to it that may make the argument credible.
While one can analyze the issues in the facts as they are, the ruling of the Tribunal, or the Supreme Court (in the case of an appeal), would be extremely important to the IPR landscape in India with specific emphasis on the taxability. It would be fairly interesting to see how this case turns over time.