GST applicability on Brand/ logo usage by group companies

[Pankaj Agarwal]

I. As per SCHEDULE-1 (Section-7) ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION:

2. Supply of goods or services or both between related persons or between distinct persons as specified in Section 25, when made in the course or furtherance of business :

II. To allow the use of brand name/ usage of logo to another person (related party/ distinct person) is supply of service.

Query:

1. Whether GST is applicable on use of brand name/ logo by distinct person/ related party?

2. How to decide the valuation (as market value is not readily available)?

(further in case, the receipient (distinct person/ related party) is not eligible to take ITC (builder) then the 2nd proviso to rule 28 will not useful.)

3. Whether, in case no valuation can be decided, the valuation mechanism fails and hence no gst?

Regards

[Padmanathan KV]

Sir,

In my humble opinion, this will be covered under Para 3 (Sl No 3) of Circular 199/11/2023-GST dtd 17-07-2023.

In respect of internally generated services provided by the HO to BOs, the cost of salary of employees of the HO, involved in providing the said services to the BOs, is not mandatorily required to be included while computing the taxable value of the supply of such services, even in cases where full input tax credit is not available to the concerned BO. 

I think the issue in query is very similar, and broadly the above clarification should apply.

[Pankaj Agarwal]

The specific query/ issue is related to :

1. Whether GST is applicable on use of brand name/ logo by distinct person/ related party?

(related party means the group company)

2. How to decide the valuation (as market value is not readily available)?

(further in case, the receipient (distinct person/ related party) is not eligible to take ITC (builder) then the 2nd proviso to rule 28 will not useful.)

3. Whether, in case no valuation can be decided, the valuation mechanism fails and hence no gst?

Regards

[Padmanathan KV]

Whether this brand name/ logo is owned by a particular distinct person? or by the entire organisation as a whole?

[Pankaj Agarwal]

The Logo/ Brand name is owned by say ABC Pvt. Ltd. having office at Mumbai and used by the entire ABC group companies (separate 10 firms/ companies) across India.

And

The Logo/ Brand name is owned by say ABC Pvt. Ltd. having office Mumbai and used by the all branches of ABC Pvt Ltd (10 branches in other states).

[Shilpi Jain]

The definition of service being defined so widely under GST. The service could be of permitting to use the brand name. 

Is the brand name registered? If yes, then in whose name. 

All this also will indicate that allowing the other entities to use the same brand would be in the nature of service.

If there is no open market value and also if cost is not available then one can take a stand that there is no valuation and thereby levy fails.

[Shilpi Jain]

Similar was the issue with corporate guarantee. There was no valuation available to tax it. Hence, recent rule was introduced to bring in the valuation to enable the government to tax it.

In the same manner - stand that no valuation exists and thereby there can be no levy can be taken for brand name usage.

[Pankaj Agarwal]

Hello Shilpi Jain madam, Padmanathan Kollengode sir

1. The Logo is registered logo in the name of ABC Pvt Ltd having office at Mumbai

2. Cost of registration is the cost available as on date. And henceforth after registering logo, all branding is done by ABC Pvt Ltd having office at Mumbai.

(just want to highlight the news in Business Standard "Banks receive GST notices for use of brand name by branches, subsidiaries")

Now in such case whether GST can be levied and what shall be the valuation where:

1. The registered Logo/ Brand name is owned by say ABC Pvt. Ltd. having office at Mumbai and used by the entire ABC group companies (separate 10 firms/ companies) across India.

and

2. The registered Logo/ Brand name is owned by say ABC Pvt. Ltd. having office Mumbai and used by all the branches of ABC Pvt Ltd (10 branches in other states).

Is it possible to charge some amount for usage of the registered logo/ brand name (but then that value will be arbitrary) and charge gst on the same, to conclude the issue]

Please guide me.

Regards

[Ganeshan Kalyani]

If the recipient company / branch offices are able to take credit then consider any value for the purpose of invoicing. This will save you from non-compliance. If credit is not eligible then open market value to be considered. Now, if you cannot determine the open market value then approach your jurisdictional GST department as per section 60 of CGST Act, 2017 and request for the valuation. 

AI Summary

GST Applies to Brand Name Use by Group Companies; Valuation Challenges When Market Value is Unavailable; Consider Registration Costs. The discussion focuses on the applicability of GST on the use of brand names or logos by group companies, particularly when used by related or distinct entities. The primary questions are whether GST applies to such usage, how to determine the valuation when market value is unavailable, and what happens if valuation mechanisms fail. Responses suggest that GST should apply as the use of a brand name is considered a service. If valuation is unclear, some suggest using registration costs or seeking guidance from the GST department. The discussion also references a similar issue with corporate guarantees.