VAT to be levied on transfer of right to use of intangible goods-even if transferred to multiple users
Recently, on 13th July 2015 based on the Bombay High Court judgment in the case of Tata Sons Ltd, Writ Petition No.2818 of 2012 decided on 20.01.2015., a trade circular no. 11 of 2015 has been issued, wherein it has been clarified that VAT is leviable on transfer of right to use intangible goods like trademark, technical know-how and copyright even if transferred to multiple users.
The Bombay High Court, upon a perusal of the provisions and the agreement observed that in case of intangible goods the right to use them is capable of being transferred and if transferred it is subject to tax. The Act does not given any indication that right to use the incorporeal goods should be should be exclusively transferred in favour of the transferee.
The Hon’ble Bombay High Court also distinguished the remarks of the Apex Court in the case of BSNL. In the said case, the observation of one of the three judges bench was that in order to attract levy under transfer of right to use goods, the transfer has to be to the exclusion of the transferor and once the right to use the goods is transferred the owner again cannot transfer the right to others. This observation has led to the conclusion that there cannot be transfer of right to use trade mark, copy rights and technical know how and other intangibles to multiple users.
However, the High Court in the Tata Sons case, has put to rest the controversy and has comprehensively held that even when there is transfer of right to use goods to multiple users it would attract tax under the MVAT Act. The law is therefore now settled that VAT can be levied on transfer of right to use goods of intangible nature i.e. trade mark, technical know-how, copy right and other intangibles etc. even if it is transferred to multiple users.