The
Goods and Service tax regime covered different aspects of trade and commerce
under its ambit and the intellectual property regime is no exception to it. Through
a notification issued on June 28, 2017, the Central Government fixed a 5 per
cent Goods and Services Tax (GST) rate on food items packaged in unit
containers and bearing registered brand names.[1] On
July 5, 2017, the Ministry of Finance issued a clarification addressing the confusion
about the phrase “registered brand names”.
It stated that,
“Unless the brand name or trade
name is actually on the Register of Trade Marks and is in force under the Trade
Marks Act, 1999, CGST rate of 5% will not be applicable on the supply of such
goods”[2]
Further,
with respect to the term “packaged”,
the Finance Ministry clarified that goods such as chhena, paneer, natural
honey, wheat, rice, pulses and cereal flours are not taxed under GST. However,
if these items are packaged in ‘unit container’ that carries a registered brand
name, it will attract 5% GST.[3] The
ostensible rationale behind introducing the additional tax is to level the
playing field between the high profit margin companies that benefit from their brand’s
established goodwill and the companies that sell non–branded goods in the
market. However, due to a plethora of loopholes in the tax policy, the intended
objective seems far from getting realized. This step is posing more of a
problem than a solution. This exemption in a way is pulling down the culture of
trademark protection which it is conscientiously trying to nurture.
One
of the crucial factors that governs the choice of the companies, irrespective
of their operating size, is the high price elasticity of the basic food items
covered under the provision. Due to this, the choice between maintaining a
registered trademark and have the consumers incur 5% addition cost, or getting
the trademark registered is obvious.
The
small traders are suffering. According to Confederation of All India Traders
(CAIT) ‘About 50 corporate houses are
producing food grain, pulses and other agro commodities aggregating to nearly
15 per cent of the total market under their respective registered brand name
whereas rest of the 85 per cent is being produced by SMEs out of which about 40
per cent SMEs are conducting their business operations with registered trade
mark.’ Thus, most of the SMEs have registered their brands in order to fall
in the category of good quality product. Therefore, even the government target
group is not getting the benefit of the decision as envisioned. This is just
going to boost adulteration in market wherein even after giving good quality
produce the poor farmers are going to earn way less than what they deserve.
Even
the big established players of the market have been seen taking undue advantage
of the provision to maintain their hold in the market. Although the provision
was originally envisaged to incentivize the small traders, many established
companies that dominates the rice market in India remains exempted from paying the
GST since the brand name is unregistered under the Trade Marks Act, 1999. These
practices not only dilute the intended benefit for the small traders but also
expose the companies to the risk of enforcing their unregistered trademarks and
protecting their goodwill.
While
the common law remedy of passing off is available for the protection of
unregistered trademarks against unscrupulous activities, there is evidently a
higher degree of protection for the registered trademarks guaranteed under the Trade
Mark Act. The stringent tests of passing off, for instance, increase the burden
of proof on the Plaintiff which often becomes tedious to qualify and hence results
in the denial of justice. Apart from establishing deceptive similarity of the
two marks, the Plaintiff is also required to prove that deception causes
confusion among the public and there is likelihood of injury to the Plaintiff’s
goodwill. The degree to which the Plaintiff’s business has actually been
damaged by passing off is requisite to decide the quantum of damages. Contrastingly, the Trade Marks Act provides
for actual damages to be paid where these can be shown, or, alternatively, for
a "reasonable royalty" to be paid. Clearly, evaluating the
actual impact of unlawful use of business’ goodwill is a challenging job.
Furthermore,
jurisdictional requirements for filing a suit can also be to the detriment of
the Plaintiff in the case of passing off. In a case against passing off, the
suit is required to be filed in the jurisdiction where the Defendant is
residing, working for gain or carrying out its business or where the cause of
action has arisen. This may put the Plaintiff in a position of disadvantage as
he/she may lack familiarity with the Defendant’s place of business and local Courts.
Apart from the comparative ease in enforcement of the trademarks, other
advantages like free assignability of the trade marks from one party to another
also incentivize the proprietors to realize the full potential of their brand
name in the market.
From
the consumers’ perspective, the GST policy is expected to increase the presence
of the counterfeit products in the market. There will be a higher chance of a
consumer getting misled about the origin and quality of the products in the
absence of trademark. It would not only affect the goodwill of the established
brand names but can also pose a health hazard due to lower quality and hygiene
standard of the counterfeit goods.
[1] http://www.cbec.gov.in/resources//htdocs-cbec/gst/CGST%20rates%20for%20Goods%20under%20different%20Notifications%20%20as%20amended%20from%20time%20to%20time.pdf
[2] http://pib.nic.in/newsite/PrintRelease.aspx?relid=167146
[3] https://www.financialexpress.com/economy/cgst-wont-apply-on-items-not-registered-under-trademark-law/751422/
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