Unresolved Mystery of Service Tax or VAT on Trademark Assignment

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Unresolved Mystery of Service Tax or VAT on Trademark Assignment

We are very well aware of the existence of so many taxes in India, which hardly spare any transaction from taxation. Therefore, while counting some uncommon transactions, we came across Trademark Assignments. On the face of it, it seems that trademark assignment should not be covered under indirect taxes but before reaching any conclusion remark, first we have to understand the tax event under service tax or VAT.

Service Tax & Value Added Taxes

It is a well-settled principle that service tax and VAT can be levied on the same transaction; otherwise, it creates a contrary position and defeats the basic purpose of these two laws. But some transactions find a place under VAT and Service tax laws, and trademark assignment or transfer of the right to use is such a transaction.

VAT Applicability as per the Government Norms

VAT is applicable on goods. So, first, we must understand what is good as per law, not the general definition. The definition under the VAT laws across all the states has been borrowed from the sale of goods act which says goods means every kind of moveable property. A trademark is simply a right that you can transfer to any person. Trademark is an intangible asset categorised as goods by the High Court Bombay in the case of Commissioner of Sales Tax vs Duke and Sons Pvt Ltd 1999 112 STC 371 (BOM).

Service Tax Applicability on Trademark Assignment

Service tax is an indirect tax that is charged on services. So, let's first understand whether the transfer of the right to use Trademark is a service. When I carefully analysed the transaction on which service tax is charged, I found one entry which states that a temporary transfer of or use of Intellectual property is a service. From this angle, it seems that if you transfer some rights of the Trademark for a short time, then service tax shall be applicable. So, the existence of such ambiguity is really difficult to ascertain which tax should apply to Trademark assignment.

Trademark Assignment Tax: An Unsettled Law?

After analysing so many judgements, I reached the conclusion that the transfer of the right to use the Trademark, whether it comes under VAT laws or Service Tax Laws, is still an unsettled law till now. The changeability of VAT or Service Tax depends on each case's facts. Therefore, this could be a grey area where you must seek professional advice to know the applicability of laws.

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