Major Companies Challange Tax Notices on IPR Transfers Under Pre-GST Regime

31 Aug 2023 , 12:52 PM

Colgate Palmolive, Domino’s Pizza, McDonald’s India, Castrol, Saint-Gobain, L’Oreal, Whirlpool, and Mastek. These notices demand tax payments under the pre-Goods and Services Tax (GST) regime. Companies are taking legal action, filing petitions in various high courts and the Supreme Court of India, arguing against being taxed on the same item as both ‘goods’ and ‘services’.

The notices pertain to Value-Added Tax (VAT) on intellectual property rights (IPRs) transfers, seeking around Rs 30,000 crore in taxes for the period between FY11 and FY15. Almost 200 companies have received these tax notices over the past six months. The companies are contesting these demands through legal channels, arguing against VAT on IPR transfers.

Goods and Services Tax (GST) replaced VAT and other indirect taxes in India on July 1, 2016. Some companies receiving VAT notices claim they’ve already paid service tax on these transactions. State authorities categorize IPRs as ‘goods’ and apply VAT. Companies report receiving VAT notices from different state authorities.

States seem to be seeking additional revenue from past issues, according to statements by one of the appellants. Under GST, there’s clear guidance on IPR taxation. A ‘supply of services’ or ‘supply of goods’ IPR transfer attracts an 18 percent GST rate. The senior official from the Central Board of Indirect Taxes and Customs (CBIC) acknowledges pre-GST period demands but mentions waiting for court guidelines. Legal experts note that items can’t be classified as both ‘goods’ and ‘services’ and then taxed twice.

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