Applicability of VAT on Payments of Royalty To Foreign Holding Company

[Asked by Guest]

Dear All,

Greetings of the day.

we are a company Situated in State of Tamailnadu,

We paid Royalty to our Foreign parent company for their technical Know how support and also paid service tax for Availing of Services.

now The Tamilnadu Vat dept.sent one Notice to pay vat on The Royalty amount paid to our parent company.

is Vat applicable on payment of Royalty? in the State of Tamilnadu?

please Provide Your Views .

thanks in advance .

AI Summary

VAT on royalty: state turnover tax may apply to payments for right to use intellectual property despite service tax payment.
The core issue is whether VAT applies to royalty paid to a foreign parent for technical know how and trademark use. A cited High Court ruling treats consideration for the right to use a trademark as a taxable transfer of a right to use a movable asset, supporting state turnover taxation. Advisers note purchase tax/VAT may be payable but any VAT paid could be available as input tax credit when the technology is used in manufacturing; the payer contests whether prior payment of service tax under reverse charge negates VAT liability and asks whether royalty is a good or service.