Approximately 200 companies, including well-known names such as Colgate Palmolive, Domino’s Pizza, McDonald’s India, Castrol, Saint-Gobain, L’Oreal, Whirlpool, and Mastek, have received notices from state tax authorities.
These notices pertain to taxes owed prior to the introduction of the Goods and Services Tax (GST) in India.
200 Major Companies Receive Notices From State Tax Authorities
In response, these companies have initiated legal actions, filing petitions in various high courts and even the Supreme Court of India.
Their argument centers on the issue of being taxed for the same item as both ‘goods’ and ‘services,’ as reported by a newspaper.
State tax authorities have imposed Value-Added Tax (VAT) on the transfer of intellectual property rights (IPRs) and are seeking around Rs 30,000 crore in taxes for the period spanning from FY11 to FY15, according to insiders cited by the Economic Times. These tax notices have been served to approximately 200 companies in the past six months. Currently, these companies are vehemently contesting these demands through the legal system, vehemently opposing the imposition of VAT on IPR transfers.
Companies Claim That Service Tax Has Already Been Paid
Certain companies that have received VAT notices claim that they have already paid service tax on these transactions. The state authorities are classifying IPRs as “goods” and subjecting them to VAT. Various state authorities, including those in Maharashtra, Uttar Pradesh, Madhya Pradesh, Tamil Nadu, and Gujarat, have reportedly issued these VAT notices, as detailed in the report.
Under the GST regime, there are explicit guidelines concerning the taxation of IPR. If the transfer of IPR is categorized as either a “supply of services” or a “supply of goods,” it is subject to an 18 percent GST rate. This categorization aims to eliminate ambiguity and provide consistent tax treatment for IPR transactions under GST.
A senior official from the Central Board of Indirect Taxes and Customs (CBIC) noted, “This is a pre-GST period demand raised by state tax authorities, and we are aware of the complexities involved. However, now that the matter is before the courts, we will await guidance from the court.”
Nonetheless, legal experts have emphasized that items cannot be classified as both “goods” and “services” and subsequently subjected to double taxation.
