Colgate Palmolive, Domino's Pizza among others facing Rs 30,000 crore VAT demand on IPR transfer

The GST, which replaced VAT and several other indirect taxes, was implemented in India on July 1, 2016.

State tax authorities have issued notices to approximately 200 companies, including Colgate Palmolive, Domino’s Pizza, McDonald’s India, Castrol, Saint-Gobain, L’Oreal, Whirlpool, and Mastek, seeking tax under the pre-goods and services tax (GST) regime. These companies have taken legal action and filed petitions in various high courts and even the Supreme Court of India, arguing that they cannot be taxed on the same item as both ‘goods’ and ‘services’, a newspaper report has said.

The states have imposed Value-Added Tax (VAT) on the transfer of intellectual property rights (IPRs) and are seeking approximately Rs 30,000 crore in taxes for the period spanning FY11 to FY15, people with knowledge of the matter told the Economic Times. These tax notices have been issued to around 200 companies in the last six months. Currently, the companies are contesting these demands via legal channels, arguing against the imposition of VAT on IPR transfers.

Moneycontrol couldn't verify the report independently.

The GST, which replaced VAT and several other indirect taxes, was implemented in India on July 1, 2016.

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Some of the companies that received VAT notices said that they had already paid service tax on these transactions. The state authorities are categorising IPRs as "goods" and imposing a VAT. Businesses have reported receiving these VAT notices from various state authorities, including Maharashtra, Uttar Pradesh, Madhya Pradesh, Tamil Nadu, and Gujarat, the report said.

“The states are aware of the post-GST position regarding the taxation of IPR. However, they want to augment the revenue from the past issues,” the financial daily quoted one of the appellants as saying.

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Under the GST regime, there is clear guidance regarding the taxation of IPR. If the transfer of IPR is classified as either a "supply of services" or a "supply of goods," it attracts an 18 percent GST rate. This classification is intended to remove ambiguity and provide a standardised tax treatment for IPR transactions under GST.

“This is the pre-GST period demand raised by the state tax authorities and we are aware of the complications. However, as the matter has now reached court, we will wait for the guideline by the court,” a senior official of the Central Board of Indirect Taxes and Customs (CBIC) told the publication.

Legal experts, however, pointed out that items cannot be classified as both “goods” and “services” and then subjected to taxation twice.