A brand is now a commodity. At least that’s the essence of a Bombay High Court ruling in the case of Tata Sons.
The court has upheld the Tax Department’s decision to collect sales tax from the Tatas for the royalty it charges from Group subsidiaries for using the Tata brand name.
The group firms pay 0.25 per cent of their revenues for using the Tata brand name. TCS, for example, paid ₹118 crore as brand fees to Tata Sons in 2013-14. The court has ruled that the company is liable to pay sales tax on brand assignment to Group companies from 1998-99 onwards. This could lead to an outflow of ₹300 crore, according to one industry estimate.
When contacted Tata Sons spokesperson said, “we are aware of the order and are studying it”. Sourav Uboweja, CEO of consultancy firm, Brands of Desire, said, “This will set a bad precedent because a brand is not a good but an asset. So there should be no question of sales tax arising.”
Taxation of intangibles under indirect tax laws has always been subject to litigation. Provision of service attracts service tax whereas sale attracts VAT. “The underlying issue has been whether the temporary transfer of intangible asset is a ‘service’ or a ‘deemed sale’ to attract sales tax. In the case of Malabar Gold Private Ltd, the Karnataka High Court held that Service Tax is applicable on such transactions whereas the Madras High Court in case of Vitan Departmental Store decided otherwise,” said sales tax expert Pritam Mahure.