In a ruling that could set an example for corporate houses about the Goods and Services Tax (GST) payable for the use of a brand name by group entities, the adjudicating authority (AA) under GST recently clarified that GST would apply if a group company is not eligible for full input tax credit (ITC). Additionally, if the recipient is eligible for full ITC, the demand for GST is liable to be cut down.

The authority was reviewing the Show Cause Notice (SCN) issued to Mahindra and Mahindra Ltd. (M&M), demanding Rs. 146 crore by GST for using its brand name by its subsidiaries. After Mahindra appealed, the adjudicating authority reduced the demand by Rs. 115.82 crore. However, it still directed the company to pay Rs. 31 crore along with a penalty of Rs. 31.35 crore.

The company was charging all its group companies a fee of Rs 1 lakh per annum for using the brand and logo of Mahindra. While the department can appeal against the authority’s order before the Commissioner of Appeals, the company also has the option to challenge the partial demand and penalty imposed on them before the same body.

As per a senior government official, the order will work as a precedent across industries, especially large corporate firms or conglomerates, where brand names are used across various group entities both in India and globally.

When the GST department sent the notice to Mahindra in August last year, many corporate firms expressed their concerns about how the tax liability for using a brand name was being interpreted.

As per the GST laws, any transaction that took place between the related parties, even without making consideration, is treated as a taxable supply. The department said that the brand name, logo, and tagline were exclusive properties of Mahindra & Mahindra.

At first, the company wasn’t charging any fee for allowing its group companies to use the brand name. However, after a GST investigation, it started charging Rs. 1 lakh per year. The department argued that this fee was introduced to avoid paying GST on the actual value of using the brand.