Mumbai: The adjudicating authority on goods and services tax has dropped a major portion of the GST sought from Mahindra & Mahindra for allowing its group companies to use its brand name and logo, but upheld a part of the demand, in an order that could set a legal precedent in similar cases.
The quasi-judicial body held that where the subsidiary or associate that uses the brand name pays GST and gets the input tax credit (ITC), the parent company is not liable to pay GST on the value beyond what it declared. The ITC can be set off against the group company's future tax liability, which effectively means no net benefit for the government.
But if the group company doesn't pay any GST, or is not eligible for full ITC, like in the real estate sector, use of the brand name and logo attracts the levy based on an industry benchmarking, according to the ruling. On such licensing deals, the authority accepted the GST department's decision to consider 0.25% of the group company's revenue as the royalty to the parent - considering Tata Sons as a benchmark - and levy tax on it.
The GST department had demanded nearly ₹147 crore from the company in a showcause notice issued in August last year. Considering Mahindra's appeal, the adjudicating authority dropped ₹115.82 crore from that demand, but asked the company to pay ₹31 crore plus a penalty of ₹31.35 crore.
The company was charging all its group firms a nominal fee of ₹1 lakh a year for using the "Mahindra" brand and logo. While the department has the option of appealing against the authority's order before the Commissioner of Appeals, the company too can move the same body against the partial demand and penalty.
"The order will act as a precedent across industries, especially for big corporate houses or conglomerates wherein the brand names are used across group entities both domestic and worldwide," said a senior government official.
In August last year, when the GST department issued the notice to Mahindra, corporate houses had raised concerns over the interpretation of the tax liability related to brand usage.
The issue before the authority was whether GST was applicable on the supply of service by way of permitting the use or enjoyment of brand name, logo or tagline by group companies without any fee.
Under the GST law, any transaction between related parties, even if made without consideration, is regarded as a taxable supply. The department argued that the brand name, logo and tagline were the sole properties of Mahindra & Mahindra.
The quasi-judicial body held that where the subsidiary or associate that uses the brand name pays GST and gets the input tax credit (ITC), the parent company is not liable to pay GST on the value beyond what it declared. The ITC can be set off against the group company's future tax liability, which effectively means no net benefit for the government.
But if the group company doesn't pay any GST, or is not eligible for full ITC, like in the real estate sector, use of the brand name and logo attracts the levy based on an industry benchmarking, according to the ruling. On such licensing deals, the authority accepted the GST department's decision to consider 0.25% of the group company's revenue as the royalty to the parent - considering Tata Sons as a benchmark - and levy tax on it.
The GST department had demanded nearly ₹147 crore from the company in a showcause notice issued in August last year. Considering Mahindra's appeal, the adjudicating authority dropped ₹115.82 crore from that demand, but asked the company to pay ₹31 crore plus a penalty of ₹31.35 crore.
The company was charging all its group firms a nominal fee of ₹1 lakh a year for using the "Mahindra" brand and logo. While the department has the option of appealing against the authority's order before the Commissioner of Appeals, the company too can move the same body against the partial demand and penalty.
"The order will act as a precedent across industries, especially for big corporate houses or conglomerates wherein the brand names are used across group entities both domestic and worldwide," said a senior government official.
In August last year, when the GST department issued the notice to Mahindra, corporate houses had raised concerns over the interpretation of the tax liability related to brand usage.
The issue before the authority was whether GST was applicable on the supply of service by way of permitting the use or enjoyment of brand name, logo or tagline by group companies without any fee.
Under the GST law, any transaction between related parties, even if made without consideration, is regarded as a taxable supply. The department argued that the brand name, logo and tagline were the sole properties of Mahindra & Mahindra.
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