Service Tax Applicability on Trade Mark/License Fee & Foreign Collaboration Payment by H&M GBC

The Authority for Advance Rulings determined that both the Trade Mark/License Fee and foreign collaboration agreement payment, along with the Sales and Business Support Fee paid by the applicant to H&M GBC, were subject to Service Tax under the Finance Act, 1994. The ruling clarified that these payments fell under declared services and were liable to Service Tax under the reverse charge mechanism, aligning with both the applicant's and Revenue's positions on the taxability of these fees.

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Issues involved:
1. Liability of Trade Mark/License Fee and foreign collaboration agreement payment to Service Tax under the Finance Act, 1994.
2. Liability of Sales and Business Support Fee to Service Tax under the Finance Act, 1994.

Analysis:

Issue 1: Liability of Trade Mark/License Fee and foreign collaboration agreement payment to Service Tax under the Finance Act, 1994

The applicant, a wholly owned subsidiary, sought an advance ruling on the taxability of Trade Mark/License Fee and foreign collaboration agreement payment made to H&M GBC under the Finance Act, 1994. The applicant entered into agreements with H&M GBC for exploiting the "H&M" brand in India. The Trademark License Agreement allowed the applicant to use the trademark rights for distribution and retailing, with a license fee of 1% of total sales to be paid to H&M GBC. The Authority determined that the services received by the applicant, including the intellectual property rights, fell under declared services and were subject to Service Tax under reverse charge mechanism. The ruling concluded that both the Trade Mark/License Fee and the payment under the foreign collaboration agreement were liable to Service Tax as per the Finance Act, 1994.

Issue 2: Liability of Sales and Business Support Fee to Service Tax under the Finance Act, 1994

The applicant also sought clarification on the taxability of the Sales and Business Support Fee paid to H&M GBC under the Finance Act, 1994. The Sales and Business Support Agreement covered services such as business planning, strategies, and operational support, for which the applicant made variable annual payments to H&M GBC. The Authority determined that these services constituted taxable services under Section 65B (44) of the Finance Act, 1994. As per Section 68(2) read with Notification No.30/2012-ST, services provided by a person in a non-taxable territory and received by a person in a taxable territory attracted Service Tax under reverse charge mechanism. The ruling established that the Sales and Business Support Fee paid by the applicant to H&M GBC was also liable to Service Tax as per the Finance Act, 1994.

In conclusion, the Authority for Advance Rulings held that both the Trade Mark/License Fee and the foreign collaboration agreement payment, as well as the Sales and Business Support Fee paid by the applicant to H&M GBC, were liable to Service Tax under the provisions of the Finance Act, 1994. The ruling aligned with the applicant's and the Revenue's views, emphasizing the taxability of these fees and payments under the specified legal framework.

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