In a development that could potentially howl within Corporate India. Mahindra & Mahindra (M&M) has received a notice from the Goods and Services Tax (GST) office regarding the use of the ‘Mahindra’ brand name by different group companies.
The show cause notice raises the question of why M&M should not be liable for GST on the services provided to its subsidiaries by allowing them to use the flagship brand and logo, covering the period from 2017 to 2023. However, a spokesperson for Mahindra refused to say anything on the notice issued by the indirect tax department.
Tax officials argue that GST should be levied on the royalty or fees that group entities are expected to pay to the head company. However, this stance has been met with scepticism from corporate circles and senior tax professionals, who view the demand as unreasonable. A tax expert questioned how one could assign a value to a brand and specify the appropriate fees that subsidiaries in various industries should pay.
If the GST department maintains its position, numerous business entities may face similar notices and tax claims. GST is ultimately paid by consumers and collected by businesses, which then remit it to the government. For example, if the royalty amount is set at Rs 10 crore, it will fall into the 18% GST category and it would amount to Rs 1.8 crore, resulting in the parent company receiving Rs 11.8 crore from the parent company and paying Rs 1.8 crore to the government.
At this point, it remains unclear whether the division is measuring the limits and scope of the law, as GST-conducted under a relatively new statute allows for varied interpretations. Under GST law, tax applies to “related party transactions” even when no financial consideration is exchanged. Earlier this year, several builders in Mumbai received similar notices for allowing their brand and trade names to be used by subsidiaries, joint businesses, and special purpose vehicles (SPVs) involved in various projects.
In sectors like real estate and infrastructure sectors, projects are often organized under separate entities or SPVs that operate under the parent company’s brand. In contrast to real estate, where multiple SPVs may engage in similar activities, the associated companies of a group typically operate in distinct industries.
Unlike corporate guarantees, which have tax rules, there are no clear guidelines for taxing brand usage fees. For corporate guarantees—often provided by the parent company to help subsidiaries secure better credit ratings—the tax is charged at 18% on 1% of the total guarantee amount. For instance, if a corporate guarantee totals Rs 100 crore, the parent company would owe Rs 18 lakh in GST.
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This situation raises significant concerns for corporate entities regarding the implications of the GST department’s interpretation of tax liability related to brand usage.
