VAT is payable on transfer of right to use

The division bench of the Kerala High Court, in Malabar Gold Private Limited versus commercial tax officer, Commissioner of Central Excise and Customs and ors (2013-TIOL-512-HC-KERALA-ST) has overruled the judgement delivered by the single judge and held that the transaction of letting the franchise use the trademark owned by the franchiser without the right to transfer or sub-let the trademark to a third party cannot be considered as "transfer of right to use". Accordingly, the royalty amount received by the franchisor for letting the franchise to use its trademark cannot be held liable to value added tax (VAT) and the same would only be liable to service tax under the category of "franchise services".

Source : Business Standard