JUDICIAL UPDATE
CA. Pramod Lingden
CA. Lingden is a Member of ICAN
He can be reached at: ca.pramodlingden@gmail.com
Case I: Patent, Design & Trademark Act, 2022
Supreme Court Decision Date: 2082/01/07
Supreme Court Case No.: 080-CI-1102
Parties: Surya Nepal Pvt Ltd, Kathmandu (Appellant) v. Shakti Industries, Sunsari et al.(Respondents)
Registration of a word as a trademark does not prohibit others from using it in any context
Abstract:
• The appellant has registered trademark containing the word “Shikhar” for cigarettes. However, the respondent industry has used the phrase “New Shahi Shikhar,” which is distinct, and the structure and design of the logo are also different. Therefore, there does not appear to be a legal basis to conclude that the respondent industry has made an identical copy of the appellant’s registered trademark.
• It does not appear that the appellant has obtained any exclusive ownership or monopoly over the word “Shikhar” such that only it may use the word for its desired goods or products and that no other person may use the word “Shikhar” for any goods or products. Nor does the prevailing law or international practice appear to provide that the registration of such a word confers absolute exclusive rights over the word itself so as to prohibit all others from using it in any context.
Background of the Case:
The respondent, Shakti Industries, submitted an application to the Department of Industry on 2069/04/16 seeking registration of the trademark “New Shahi Shikhar” for use on “gutkha”. For the purpose of inviting claims and objections regarding the proposed registration of the said trademark, a notice was published in the Industrial Property Bulletin issued by the Department on 2069/07/01.
Thereafter, Swastik Fragrance Pvt Ltd, Vishal Chemical Industry, and Surya Nepal Pvt Ltd filed complaints stating, inter alia, that the proposed trademark “New Shahi Shikhar” applied for registration was identical and deceptively similar to the label of the trademark already registered with the Department in their names. Therefore, they requested that the application for registration of the proposed trademark be rejected subject to the proviso clause of Sec 18(1) of the Act to avoid adverse effect on the goodwill of their already registered trademarks.
However, upon consideration and receipt of clarification from the respondent industry on their objections, the Department of Industry decided on 2069/11/28 that the claims made by the complainants could not be sustained. Accordingly, on 2069/12/04, the Department issued to the respondent industry a trademark registration certificate for the trademark “New Shahi Shikhar” along with its logo.
Subsequently, the appellant filed an appeal before the then Appellate Court Patan (now High Court). However, the Appellate Court upheld the decision of the Department of Industry, stating, inter alia, that the word “Shikhar” is a common and independent word, and that no person may claim exclusive ownership over it.
So, dissatisfied with the then Appellate Court’s decision, the appellant appealed to the Supreme Court seeking annulment of the judgment.
Arguments of Parties:
(a) Appellant (Surya Nepal Pvt Ltd):
The appellant argued that its trademark “Shikhar” has been registered and is in use for nearly two decades, and has become a wellknown & established trademark. Given that the “Shikhar” trademark has acquired reputation, the registration of the respondent industry’s trademark “New Shahi Shikhar” appears to be in bad faith and contrary to the provisions of the Paris Convention, consumer protection laws in addition to the Patent, Design &Trademark Act, 2022. Despite clear evidence that the opposing party has copied the trademark already registered in the appellant company’s name, that the goods under the trademark are also tobaccorelated products, and that the disputed trademarks have reproduced the label exactly, the decision of the Department of Industry to issue trademark registration certificate to the respondent industry and the judgement of the Appellate Court to support the Department’s decision, holding that the disputed trademarks are different, runs contrary to the prevailing laws, conventions and precedents established by the Hon’ble Supreme Court.
(b) Respondent (Shakti Industries):
Respondent industry argued that the its trademark is distinct from the trademark registered by the appellant. The appellant’s registered trademark is permitted to use on cigarettes, whereas its trademark is intended to use on gutkha. Cigarettes are consumed by smoking, while gutkha is consumed by chewing. In this way, its trademark applies to a different category of goods than that of the appellant. Since the goods on which the respective trademarks are used provide their own distinct identities, there is no likelihood of confusion among consumers as well. Although both gutkha and cigarettes fall under Class 34 of the Nice Classification, their packaging designs are different, the methods of consumption differ, and the nature of the goods is also different (cigarettes in sticks and gutkha in powdered form). Furthermore, the label, wrapper design, and layout of its trademark for gutkha differ from the wrapper and design used by the appellant for cigarettes. Therefore, there is no legal basis to prevent the registration of its trademark.
Supreme Court Judgment:
The Supreme Court upheld the decision of the then Appellate Court Patan (Now High Court Patan) and quashed the appeal of the appellant stating that:
• It appears that Section 2(h) of the Patent, Design & Trademark Act, 2022 provides that “trademark” means any picture, word, sign, or a combination of such picture, word and sign used by any firm, company, or person in relation to the goods produced or services provided by them so as to distinguish such goods or services from those of others. Further, Section 16(1) of the idem Act provides that any person may register the trademark of his or her business or trade with the Department of Industry in accordance with Section 18 and obtain the rights relating to such trademark under the idem Act. In addition, Section 18B of the Act stipulates that no trademark shall be used as a registered trademark unless it has been registered with the Department. In this case, the appellant has registered thirteen trademarks containing the word “Shikhar” for cigarettes. However, the respondent has used the phrase “New Shahi Shikhar,” which is distinct, and the structure and design of the logo are also different. Therefore, there does not appear to be a legal basis to conclude that the respondent industry has made an identical copy of the appellant’s registered trademark.
• With respect to trademark classification, according to the World Intellectual Property Organization publication known as the Nice Classification, Class 34 lists thirty-seven items under three groups: tobacco, smokers’ articles, and matches. Among these, gutkha falls under the “tobacco” group, while cigarettes fall under the “smokers’ articles” group. Under Class 34 of the Nice Classification, Item No. 340012 includes chewing tobacco, and Item No. 340020 includes cigarettes. Therefore, the products of appellant and respondent do not fall under the same group and item of the Nice Classification.
• Considering the matter of whether consumers are likely to be confused by comparing the product bearing the name “Shikhar” used by the appellant with the product bearing the name “New Shahi Shikhar” intended to be used by the respondent, it appears that the appellant’s product is “Cigarette”, whereas the respondent’s product is “Pan Masala”, which are distinct products. Cigarettes are consumed by smoking, whereas pan masala is consumed by chewing. Cigarettes are commonly packaged in boxes or packs containing sticks, whereas pan masala is commonly packaged in pouches or sachets. The substances used in their manufacture, their structure, nature, and composition are entirely different. Due to their inherent characteristics, identity, and utility, these two products, cigarettes and pan masala, are clearly distinguishable. Furthermore, it appears that the manufacturer’s name on the products bearing the “Shikhar” brand is “Surya Nepal Pvt Ltd”, whereas the products bearing the “New Shahi Shikhar” brand mention the manufacturer as “Shakti Industries Pvt Ltd”.Therefore, it does not appear that the New Shahi Shikhar pan masala and gutkha products are identical to, or likely to mislead consumers in relation to, the Shikhar cigarette products.
• In the present case, the appellant has used the word “Shikhar.” However, it does not appear that the appellant has obtained any exclusive ownership or monopoly over the word “Shikhar” such that only it may use the word for its desired goods or products and that no other person may use the word “Shikhar” for any goods or products. Nor does the prevailing law or international practice appear to provide that the registration of such a word confers absolute exclusive rights over the word itself so as to prohibit all others from using it in any context.On the basis of the facts and reasons discussed above, the factual submissions presented by the appellant and the respondent, the provisions of the Paris Convention for the Protection of Industrial Property, the legal provisions of the Patent, Design & Trademark Act, 2022, and the precedents established by this Court, the claim and objection of the appellant cannot be upheld. Accordingly, the decision of the Department of Industry Nepal is affirmed. Therefore, the judgment rendered by the then Appellate Court Patan on 25 Poush 2070 is found to be proper and is upheld.
Case-II: Income Tax Act, 2058
Supreme Court Decision Date: 2082/01/08
Supreme Court Case No.: 075-RB-0017
Parties: Large Taxpayer Office, Lalitpur (Appellant) v. Jagadamba Synthetics Pvt Ltd, Kathmandu (Respondents)
Expenses cannot be claimed solely on the basis of the purchase invoices
Abstract:
Although the taxpayer appears to have conducted transactions with various suppliers and made payments by cheque, the cheques were cashed by individuals who have no known association with the suppliers. Subsequently, the same amounts were deposited back into the taxpayer’s bank account. Consequently, it cannot be affirmed that the purchase invoices were issued for genuine transactions. Therefore, in the absence of the actual procurement of goods or services, expenses cannot be claimed solely on the basis of the purchase invoices.
Background of the Case:
The taxpayer, Jagadamba Synthetics Pvt Ltd, filed its self-assessed return for F/Y 2064/65 on 29Poush 2065 under Section 96 of the Income Tax Act, 2058, declaring a loss of NPR 3,90,90166.
During the income tax assessment of F/Y 2064/65, the Large Taxpayer Office (LTO), Lalitpur, found that some disallowed expenses had been claimed for deduction. Accordingly, on 23 Chaitra 2068, the LTO revised the taxable income to NPR 85,47,739 and issued a notice under Section 101(6) of the idem Act.
The LTO alleged the taxpayer for claiming deduction of goods purchase expenses based on fake invoices under Section 15 of the Act. Therefore, it, disallowed the corresponding deduction of the non-supported purchase expenses.
The taxpayer submitted objection clarifications to LTO on 7 Baisakh 2069. However, the LTOdecided to maintain its assessment order with revised taxable income of NPR 85,47,739 on 10Baisakh 2069. The dissatisfied taxpayer then applied for an Administrative Review before the Inland Revenue Department (IRD) on 5 Ashadh 2069. On 5 Bhadra 2069, the IRD upheld the IRO’s decision. Subsequently, the taxpayer appealed to the Revenue Tribunal Kathmandu. On 10Ashadh 2072, the Tribunal quashed the decisions of LTO and IRD.
Thereafter, the LTO appealed to the Supreme Court under Section 8(b) and (d) of the Revenue Tribunal Act, 2031, seeking annulment of the Tribunal’s decision.
Arguments of the Parties:
(a) Appellant (LTO):
• The invoices submitted by the taxpayer were not genuine as the goods of those invoices were not actually received.
• By claiming expense deductions using invoices for goods not received, the taxpayer has deliberately acted in a planned manner with the intent to commit tax evasion, undermining the fundamental spirit and purpose of both Income Tax and Value Added Tax laws.
• No consideration or benefit appears to have been received by the suppliers from such transactions claimed in the Income Tax Return.
• To claim the benefit of expense deduction, the actual purchase of goods or services shall be verifiable.
• Although the taxpayer made payments for the goods through banking channels, the payments were not received by the suppliers. The amounts paid by cheque were cashed by individuals having no known connection with the suppliers, and the same amounts were subsequently deposited back into the taxpayer’s bank account.
• Therefore, as the invoices in question cannot be considered as genuinely issued, the decision of the Revenue Tribunal Kathmandu to quash the initial tax assessment is erroneous under Section 15 of the Income Tax Act, 2058.
(b) Respondent (Taxpayer):
• The company made payments for goods purchased from various suppliers through banking channels, but the receipts from concerned suppliers are not collected yet. The company processed the purchased goods into finished products, sold and distributed them issuing invoices, and paid the applicable Value Added Tax (VAT) to the Government of Nepal. All these transactions have been recorded in the company’s income accounts.
• Therefore, the Tribunal’s decision to quash the initial tax assessment of LTO and departmental review decision of IRD is valid under Section 15 of the Income Tax Act, 2058.
Supreme Court Judgment:
The Supreme Court upheld the LTO’s appeal, quashed the Revenue Tribunal Kathmandu’s decision, and held:
• To claim the benefit of expense deduction, the actual purchase of goods or services shall be verifiable. In the present case, while calculating taxable income, the taxpayer claimed expense deductions under Section 15 of the Income Tax Act, 2058. Upon scrutiny by the LTO, it was found that there is no evidence of actual receipt of the goods corresponding to the invoices claimed.
• Although the taxpayer appears to have conducted transactions with various suppliers and made payments via cheque, these payments were not received by the suppliers. Furthermore, the cheques were cashed by individuals having no known association with the suppliers, and the same amounts were subsequently deposited back into the taxpayer’s bank account, as confirmed by its bank statements. Consequently, it cannot be asserted that the invoices were issued for genuine transactions.
• Therefore, under the Income Tax Act, 20258, for accounting and claiming expense deductions, there shall be actual procurement of goods or services. Expenses cannot be deducted solely on the basis of invoices issued without the actual receipt of the underlying goods or services. In the absence of genuine transactions, items shown as purchased through invoices cannot be deemed to have been received, and the related expense deduction cannot be allowed.
