by Mr. Vikash Agarwal
🔗Background of the case
– The case involved a franchise agreement involving royalty payments.
– Issue before the court was off such franchisee rights were subject to VAT or service tax
🔗Some HCs held trademark rights subject to VAT
– It was held that transferring the right to use a trademark doesn’t require physically handing over the trademark or giving control or possession to the transferee.
– Instead, authorizing the transferee to use the trademark in the required manner is sufficient.
🔗Franchise Agreement is a service
– Hon’ble HC emphasized that a franchise agreement grants only a **non-exclusive right**.
– Since the franchisor retains control and can license the same rights to multiple franchisees, it doesn’t constitute a full transfer of the right to use goods.
– This distinction is crucial for determining the nature and extent of tax liability.
🔗Hon’ble SCs Precedence
This ruling seems aligned with the principles laid down by the Hon’ble SC wherein it was held that a transaction can be subject to VAT if there is an actual transfer of the right to use the goods and not just a license to use them.
The ruling further discusses the contrasting features between assignment and licensing of rights.
Reference STR 30/2023
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