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Subway Drags Taxman to Court Over GST On Intellectual Property Right

American fast food chain subway has dragged the indirect tax department to court over allegedly forcing it to pay differential goods and Services tax (GST) on services before issuing any notices.

In its writ petition filed in the Punjab and Haryana high court, subway system India said the tax department had issued multiple summons to top management over the taxability of intellectual property rights.

The company also said that the tax department kept issuing summons without following the due process, which could “traumatize “anyone. The Milford Connecticut-headquartered fast food company said these summons was issued in spite explaining tyro the tax authorities that an advance riling application was pending.

Hearing subways petition the high court held that appropriate time must be given to subway to present the case.

Subway has been asked to submit all facts following which the authorities will pass a speaking order to decide in the issue.

Legal experts said this would mean that tax authorities would not be able to make any recovery till the matter is adjudicated.

The dispute emanates from the controversy over the taxability of intellectual property right and royalties.

Multinational including fast food chains, hotels, and tech companies that operate through franchisee models in India have come under the taxman’s lens,

The tax department is questioning the nature of the agreement and wants to levy an 18% GST on ant income or royalty received by the multinationals.

Most multinationals pay about 12 % GST on the amount as they claim that they are not transferring the brand name or allowing the India entity to use the brand name for perpetuity. Multinationals claim that there is a difference between ‘right to use, a brand name and so GST rates on royalty receipts too should differ. The tax department claims that this is just nomenclature aimed at tax arbitrage.     

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