Mahindra & Mahindra gets GST Notice for use of “Mahindra” brand name by Group Companies
Mahindra & Mahindra major Indian company, recently received notice from the Goods and Services Tax (GST) department. The notice says Mahindra should pay GST for allowing group companies to use the ‘Mahindra’ brand name and logo. This notice covers years from 2017 to 2023.
GST department argues that Mahindra should be paying tax on royalties or fees that other companies in the group should pay for using a brand name. However, this has caused concern among many in the business world. Some experts find it strange. It’s difficult to put a price on a brand and decide how much each company should pay.
If tax authorities continue with this approach, other large companies might also receive similar notices and have to pay taxes they weren’t expecting.
GST is tax paid by consumers and then given to the government by businesses. For example, if a group company is supposed to pay Rs.10 crore as royalty, GST on this amount at 18% would be Rs.1.8 crore. So group company would pay Rs.11.8 crore to the parent company which then pays Rs.1.8 crore to the government.
It is still unclear whether the GST department is just testing this idea since GST is a relatively new law and can be interpreted in different ways. Previously some builders in Mumbai received similar notices for letting subsidiaries and joint ventures use brand names.
In the real estate business, it is common for separate entities known as Special Purpose Vehicles (SPVs) to handle different projects. They still use the parent company’s brand name. In contrast, companies in diversified groups like Mahindra are involved in various businesses. This makes the situation more complex.
Unlike corporate guarantees, where clear rules exist there aren’t specific guidelines for brand fees. For corporate guarantees, GST is charged at 18% on 1% of the total guarantee amount. For example, if a corporate guarantee is Rs.100 crore, the parent company would have to pay Rs.18 lakh as GST.
This notice to Mahindra could lead to broader implications for many large companies across India.
