 "SC stays Rs 300-cr tax demand from Tata Sons")
The Supreme Court has issued a stay order on the Maharashtra government’s demand for Rs 300 crore in sales tax payment from Tata Sons.
The holding company of the $109-billion Tata Group had moved the SC in September against the demand. The sales tax department has three weeks to respond.
In January, the Bombay High Court had upheld the department's decision to collect tax from Tata Sons for the royalty it charges from group entites for using the Tata brand name. The HC had said the company was liable to pay sales tax on brand assignment to group companies from 1998-99 onwards. This is estimated to be about Rs 300 crore.
“We will not be able to comment," said a Tata Sons spokesperson.
Following the HC order, KPMG said in a note: “The issue of taxability of transaction of transfer of right to use has always been a matter of litigation. The decision of the HC has re-ignited the controversial issue of transfer of right to use."
Started in 1996 under the Tata Brand Equity and Business Promotion (TBEBP) scheme, group companies using the Tata brand have to pay 0.25 per cent of annual revenue or five per cent of the profit before tax (whichever is less). If there's a loss, a company need not pay the fee. Tata Sons earned Rs 453 crore as brand subscription fee or royalty in 2013-14. The figure for 2014-15 is not yet available.
“Royalty on licensing of a name or any other commercial or intellectual property is a service, not a sale of goods. Therefore, it should not attract VAT (value added tax) or sales tax," said Vivek Mishra, leader, indirect tax, at PwC India.
The concept of a brand subscription fee has since been adopted by many other business houses. Wadia Group companies, including Britannia and GoAir, started paying royalty since 2011-12, though they do not really use the Wadia name.
Investors had protested last year when JSW Steel had to pay Rs 125 crore to the group holding company, JSW Investment, controlled by promoter Sajjan Jindal’s wife, Sangita. Godrej is another group contemplating royalty on all its group companies. Currently, only Godrej Properties pays royalty.
The TBEBP scheme was introduced by former chairman Ratan Tata. He had assured the money would be used for strengthening the Tata brand, not for other purposes. According to Brand Finance, a UK-based consultancy, the Tata brand is worth Rs 1.3 lakh crore now, up from Rs 3,700 crore in 1997.
