Unresolved Mystery of Service Tax or VAT on Trademark Assignment
We all are very well aware of the existence of so many taxes in India which hardly spare any transaction from taxation. Therefore, while counting some of the uncommon transactions we came across trademark assignment. On the face of it, it seems that trademark assignment should not cover under indirect taxes but before reaching any conclusion remark, first we have to understand find out the tax event under service tax or VAT.
It is a well settled principle that both service tax and VAT can be levied on the same transaction; otherwise, it creates the contrary position and defeats the very basic purpose of these two laws. But there are some transactions which find a place under both VAT and Service tax laws, and trademark assignment or transfer of the right to use is such transaction.
Levy of VAT:
VAT is applicable on goods. So, first we have to 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.
Trademark is simply a right, which you can transfer to any person. Trademark being 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).
Levy of Service Tax:
Service tax is an indirect tax which is charged on services. So, let’s first understand the transfer of the right to use Trademark is a service or not. When I carefully analysed the transaction on which service tax is charged then I found one entry which states that a temporary transfer of or uses of Intellectual property right is a service. From this angle, it seems that if you transfer some rights of the trademark for a short period of time then service tax shall be applicable. So, existence of such ambiguity is really difficult to ascertain which tax should be applicable on Trademark assignment
After analysing so many judgements, I somewhere reached to the conclusion that transfer of the right to use the trademark whether come under VAT laws or Service Tax Law is still an unsettled law till now. Chargeability of VAT or Service Tax totally depends on the fact of each case.
Therefore, this could be a grey area where you must seek professional advice to know the applicability of laws.