Value-added tax: VAT now? Companies face tax demand worth Rs 30,000 crore

2023-08-31 00:20:55

State tax authorities have sent notices to around 200 companies, including Colgate Palmolive, L’Oreal, Castrol, Saint-Gobain, Whirlpool, Mastek, Domino’s Pizza, and McDonald’s India, seeking tax under the pre-goods and services tax (GST) regime. These companies have moved various high courts and even the Supreme Court arguing that they cannot be taxed on the same item both as ‘goods’ and ‘services’.

The states have levied value-added tax (VAT) on the transfer of intellectual property rights (IPRs), seeking regarding ₹30,000 crore in taxes for the FY11-FY15 period, people aware of details told ET. The notices were sent in the last six months.

GST, which replaced VAT and several other indirect taxes, was rolled out on July 1, 2016.

Some of those who were served these VAT notices said they had already paid service tax on these transactions.

The various state authorities are treating these IPRs as “goods” and levying VAT.

Businesses say many, including Maharashtra, Uttar Pradesh, Madhya Pradesh, Tamil Nadu, and Gujarat, have sent these notices.”The states are aware of the post-GST position regarding the taxation of IPR,” one of the appellants told ET. “However, they want to augment the revenue from the past issues.”Under the GST regime, 18% GST is applicable on permanent transfer of IPR if treated as a “supply of services” or “supply of goods”, ensuring there is no ambiguity on the issue.

The matter is pending before the apex court.

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

‘Area of concern’
Legal experts said items cannot be treated as both goods and services and taxed twice.

“The controversy with respect to dual applicability of VAT and service tax is a great area of concern for various businesses where especially the transaction is with respect to franchisee services,” said Abhishek A Rastogi, founder of Rastogi Chambers, who is arguing for the taxpayers once morest the applicability of both the taxes before the Supreme Court and Bombay High Court.

“While the taxpayers have already discharged service tax, the VAT authorities intend to recover VAT on the same transaction, thereby leading to the moot point whether the same transaction might be taxed both as goods and services,” Rastogi said.

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