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Classification Of Goods And Services – Parallels Between Trade Marks Law And Taxation Principles – Trademark



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The introduction of the Goods and Services Tax (GST) has been a
very ambitious step for the taxation ecosystem in India. While the
pros and cons have been debated ever since GST was introduced in
the middle of the night on July 01, 2017 through a historic
midnight session of both the houses of the Parliament, the
classification of goods under the Central Excise Tariff Act, 1985
has a fascinating relationship with the classification of goods and
services under the Trade Marks Act, 1999.

If similarities between goods were to be assessed as per the
principles under trade marks law, it would be dependant upon many
factors some of which are the nature and consumption pattern of end
consumers, similarity or dissimilarity between trade channels,
impulse vs. sophisticated purchasing by the customers, difference
in pricing, informed customer vs. average customer and the like.
However, the classification for GST purposes goes into a different
detailing and in fact, draws parallels with parameters which
ordinarily would be given a slightly different treatment under
trade marks principles.

Very recently, according to the Madhya Pradesh Authority on
Advance Ruling (AAR), the keyword “confectionary” was
evaluated to understand whether it could include Indian sweetmeats
and hence, be taxable at the slab of 12% or 18%, which is the usual
slab for confectionary. The authority assessed that the term
“confectionary” is derived from the word
“confection” which means mixing things, which
terminology could have a wide applicability and covers many
products whereas a sweetmeat is neither confectionary nor a product
of natural milk constituents. Eventually, the AAR ruled the GST
slab at 5% for sweetmeats.

Irrespective, under the provisions of trade marks law, there
would be high chances of confusion for a similar brand for
confectionary and sweetmeats. 

In fact, recently, the Himachal Pradesh High Court held that
rusk (a light, dry biscuit or piece of twice-baked bread,
especially one prepared for use as baby food) is actually bread
minus the moisture and is exempt from Value Added Tax (VAT). On the
contrary, the Meghalaya High Court had earlier held that rusk was
different from bread and hence, there would be no tax exemption
from VAT. VAT has been subsumed in GST and hence, is critical. The
issue now stands to be decided by the Supreme Court but assuming an
assessment were to be made to assess similarity in goods as per
trade marks provisions, it would be a foregone conclusion that rusk
and bread would be considered to be similar goods.

The Supreme Court (the apex court in the country) went through a
similar evaluation in ShreeBaidyanath Ayurved
Bhavan vs. Collector Of Central Excise
, AIR 1996 SC
2829. Baidyanath claimed that the Dant Manjan Lai (herbal
toothpaste) manufactured by them would qualify for exemption from
payment of excise duty being an ayurvedic medicine and being a
scientific medicine. Baidyanath claimed that the primary ingredient
in the product is red earth to the extent of 70% which has a
cooling quality. The Customs Tribunal rejected this claim
indicating that the red earth is largely used as a filler or a
colouring agent and is not described as medicine in the common
parlance. The Supreme Court upheld the order of the Tribunal and
disallowed Baidyanath from claiming such tax exemption.

However, if trade mark principles were to be considered and an
assessment on confusion and deception had to be made, in all
probability, these would be considered as goods of similar
description.

This judgment was recently relied upon in the matter of
Commissioner of Central Excise vs. Madhan Agro
Industries (I) Private Limited
, 2018. The dispute was
regarding classification of coconut oil in packaging of different
sizes as also inscription on the product between “edible
oil” vs. “hair oil”, both of which products are
classified separately and also have different tax percentages.

The assessee’s product did not have any inscription
indicating that the product was being used as hair oil and they
were claiming a tax bracket applicable on coconut oil. The assessee
even pleaded that in the absence of any proof that the product was
to be used on hair and simply because the packaging was smaller,
they could not fall under the tax bracket for hair oil. The Supreme
Court made an observation that the issue of registered trade mark
and classification for the purpose of levy of tax are unrelated to
each other and that registration of a trade mark under any
particular class cannot be determinative of the classification of
the product for tax purposes. The Court held in the favour of the
assessee since the product packaging did not specifically mention
that the oil was to be used specifically as hair oil. The Court
made an additional observation that the assessee had, in addition
to securing registrations for hair oil, also had registrations for
edible oil. As this was a divided judgment, the Judges decided to
put up the issue before the Chief Justice of India.

Comparison under trade mark provisions at times entails drawing
parallels from other legislations to understand the scope of goods
and their technical characteristic, however, many times, the
possibility of confusion may be so high that goods may still be
considered similar.

In another interesting judgment of Alpine Industries
vs Collector Of Central Excise
, 2003, the question
before the court was whether Alpine’s product under the trade
name “Lip Salve” is a “preparation for care of
skin” or a “medicament”. Both these products are
classified separately under the Central Excise Tariff Act as also
under the Trade Marks Act. Alpine, of course, claim exemption and
claimed that its product was a “medicament”.

Various precedents under trade marks law do give precedence to
the fact that if the nature of the product is sophisticated, the
test of average person’s assessment can be done away with.
However, classification under the Central Excise Tariff Act
indicates that products have to be understood basis their popular
meaning. The Court relied on the assessment made by the Tribunal by
indicating that it is a matter of common knowledge that chapping of
lips occurs because of dryness in the air and cold weather and is
not necessarily limited to places with high altitudes as Alpine had
mentioned in its literature that product is supplied to soldiers
posted in high altitude areas and that the product was manufactured
in accordance with Defence Services Specifications. The Court also
relied on the Baidyanath judgment and specifically indicated that
‘ordinarily a medicine is prescribed by a medical
practitioner and it is used for a limited time and not every day
unless it is so prescribed to deal with a specific disease like
diabetes.” The Court outrightly applied the “Commercial
Parlance Theory” and classified the product as a
“preparation for care of skin” and not as a
medicament.

This is interesting as this creates a demarcation between
cosmetic products falling under class 03 as opposed to medicinal
products which fall under class 05 as per the trade marks
classification, which, on many occasions have been considered as
overlapping classes. 

An analysis of the above again raises the point that while
products could be categorised very differently for taxation
purposes, under the trade mark principles, parallels between
sweetmeats and confectionary could be very easily drawn especially
in a country like India, where at a sweetmeat shop, it is not
uncommon to buy bakery products or chocolates too.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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