Trademark statute principles not relevant for fiscal legislation purposes

In Meghraj Biscuits Industries Limited v Commissioner of Central Excise (Civil Application 8739-8741/2001, March 14 2007), the Supreme Court of India has held that the provisions in the trademarks statute stipulating that once a trademark is registered the registration has retrospective effect back to the date of the application may not be relevant when assessing issues under fiscal legislation.

Certain excise benefits/exemptions are available to small businesses and manufacturers that (i) use their own brands, or (ii) sell unbranded products and do not use the brand of another entity. The object of the benefits/exemptions is to encourage small businesses that otherwise do not have the advantage of an established brand or a brand of a large business. In this case, the appellant, Meghraj Biscuits Industries Limited (MBI), used the mark MEGHRAJ and its corporate name Meghraj Biscuits Industries Limited, and claimed excise benefits/exemptions on the basis that MEGHRAJ was its own brand and not the brand of another entity. The revenue authorities however came across a trademark licence agreement dated November 22 1989 entered into by Kay Aar Biscuits (P) Ltd (being an affiliate of MBI) and a third party called Rich Food Products (P) Ltd. In this agreement, there were recitals to the effect that Kay Aar was the owner of the mark MEGHRAJ and that Rich Foods was entitled to use this mark under licence from Kay Aar.

MBI commenced using the mark MEGHRAJ in 1991 and there was no objection from Kay Aar or any other person against its use. MBI claimed that it was using the mark MEGHRAJ as a proprietor thereof and claimed the excise benefits/exemptions available to small businesses. The revenue authorities disallowed its claim for such benefits/exemptions in respect of a certain period during 1994 on the basis that MBI was not the owner of the mark MEGHRAJ and the real owner was its affiliate company Kay Aar. The revenue authorities justified the rejection on the basis of the trademark licence agreement. In its arguments, MBI noted that it applied to register the mark MEGHRAJ in 1991, but it matured to registration only in 2000 during the pendency of the appeal proceedings in the present case.

The Supreme Court rejected MBI's contentions and upheld the revenue authorities' disallowance of the excise benefits/exemptions. Its reasoning was as follows:

• By virtue of the trademark licence agreement entered into in 1989 by Kay Aar which stipulated that it was the owner of the mark, MBI was disentitled to contend that MEGHRAJ was owned by it and did not belong to its affiliate during the relevant period (ie, 1994).
  
  
• One of the contentions of MBI was that Kay Aar had discontinued business since March 1 1993. Hence, even if it could be said that the mark MEGHRAJ originally belonged to Kay Aar, the mark stood abandoned by Kay Aar in 1994. Thus, according to MBI, it was not using a mark belonging to another entity in 1994. The Supreme Court rejected this argument and held that mere discontinuation of business did not lead to a presumption of abandonment and it was up to MBI to establish abandonment by adducing further evidence, which it had failed to do.
  
  
• Backed by its claim that it had applied to register MEGHRAJ in 1991 and obtained its registration in the year 2000, MBI argued that, pursuant to the trademarks statute, it should be deemed to be the proprietor of the mark MEGHRAJ since 1991. Hence, the excise benefits/exemptions could not be disallowed for the year 1994 on the basis that it was not using its own mark but was using the mark of another entity. The Supreme Court rejected this argument and held that the provisions of the trademarks statute whereby registration/proprietorship relates back to the date of the application cannot be implanted into an examination of the fiscal legislation pertaining to excise benefits/exemptions. The reason being that the objectives of the two statutes are wholly different. While the object of the trademarks statute is to protect the owners of trademarks and consumers from being misled, the object of the grant of excise benefits/exemptions to small businesses is to encourage their development in the absence of an established brand.
  

Mustafa Safiyuddin, DSK Legal, Mumbai