GST on usage of trademark by India Co

[Abhijeet Mane]

Dear Experts,

One India Company has entered into a distribution agreement with their holding company located in the USA; as per the agreement, the India Company is liable to import and supply goods in India. Per the agreement, the India Company is allowed to use any registered or unregistered trademarks owned by the holding company; no royalty is paid by the India Company.

Can you please let us know the GST liability with some relevant legal references or case law?

[KASTURI SETHI]

Have you perused serial no.4 of Schedule-I (Section 7) of CGST Act ?

[KASTURI SETHI]

The service of usage of trademark is taxable. Pl. go through an extract of FAQ.

Extract of FAQ released by CBIC

If OIL Company has its business establishment outside India, whether service provided by holding company to its outside establishment/subsidiary will be treated as export of service since both are separate person in GST and whether any service received from outside establishment will be import of service?

Explanation 1 to Section 8(2) of the IGST Act, 2017 specifies that an establishment in India and any other establishment outside India of a person, shall be treated as establishments of distinct persons. Section 2(6) of the IGST Act, 2017 defines export of services and clause (v) clearly excludes the supply of service from a person in India to its establishment outside India, to be an export of service. Thus the service provided by Indian Holding Company to its establishment outside India cannot be treated to be an export of service. Section 2(11) of the IGST Act, 2017defines Import of services as the supply of services from a supplier located outside India to a recipient located in India, where the place of supply of service is in India. Notification 10/2017-Integrated Tax (Rate) specifies that any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient shall be taxable under Reverse Charge Mechanism (RCM) and GST will be required to be paid by the person located in the taxable territory. Accordingly, any service received by Indian Holding Company from its establishment outside India will be an import of service and taxable under RCM.

[Shilpi Jain]

Is the usage of the trademark a condition of the contract? In that case a view can be taken that there is no liability.

Contract clauses play a very important role. Do consult a tax professional to get more insights

[Amit Agrawal]

If usage of trademarks by Indian Co. are directly & exclusively limited to distribution business undertaken in agreement with holding Co. and these trademarks are that of 'goods imported and distributed in India', then, there is no supply between Indian & Holding co. towards usage of trademarks.

And this proposition has nothing to do with the fact that there is no consideration involved. In other words, serial no.4 of Schedule-I (Section 7) of CGST Act does not come into play here.

Finally, terms of contract / agreement between Indian & Holding Co. will play a vital role while defending non-liability to pay GST under RCM by Indian co. against usage of trademarks of holding Co.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

"the India Company is allowed to use any registered or unregistered trademarks owned by the holding company"--- This part of query indicates that trademark is not restricted to 'distribution' only but to be used ultimately by way of supply to the consumers/retailers/wholesalers.

The factum of non-payment of royalty by the India Co. to the holding company is not going to help in legally escaping from GST.

AI Summary

Debate on GST Implications for Indian Firm Using US Parent's Trademarks; Possible Reverse Charge Mechanism Under CGST Act An Indian company entered a distribution agreement with its US-based holding company, allowing the use of trademarks without paying royalties. The discussion revolves around the Goods and Services Tax (GST) implications of this arrangement. One expert suggests that the use of trademarks constitutes a taxable service under the Central Goods and Services Tax (CGST) Act, while another argues that if the trademarks are used solely for distribution, there may be no GST liability. The importance of contract terms and the potential application of the Reverse Charge Mechanism (RCM) are highlighted, with varying opinions on GST liability.