Vat and service tax on royalty invoices

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

25 November 2014 Dear Experts,

We are getting royalty for allowing usage of our name/trademark.

We raise royalty invoices for recovering royalty.

Now, please clarify: Which tax should we charge in the invoices: Gujarat VAT or Service Tax or both? I think, only one tax should be applicable.

Thanks in advance.

Annu Agarwal

Annu Agarwal (Expert)
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25 November 2014 As per my view,if you are getting royalty for ony using your trademark /name AND the franchisee does not has the right to transfer or sub-let the trademark to a third party cannot be considered as "transfer of right to use".Therefore only service tax shall be charged on such royalty income.

Please refer the case of Kerala High Court, in Malabar Gold Private Limited versus commercial tax officer, Commissioner of Central Excise and Customs (2013-TIOL-512-HC-KERALA-ST)

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Rupesh Jain

Rupesh Jain (Expert)
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26 November 2014 only service tax applicable.

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Querist : Anonymous

Querist : Anonymous (Querist)

27 November 2014 Dear Experts, thank you so much.

I would like to add the following details in our case:

In our case, the transferee has the right to sub-let our trademark. So: (1) We recover royalty from transferee and (2) Our transferee recovers royalty from the company to who our transferee sub-lets the use of our trademark.

So, under such circumstances, let us please know which tax (VAT/Service tax/Both) would be applicable.

Regards.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2025 Thanks for the additional details! Here's how the tax treatment generally works for **royalty on trademarks**, especially when the transferee has the right to sub-let:

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### 1. **Tax on Royalty Received by You (Licensor):**

* If you **allow use of your trademark and the transferee has the right to sub-license or sub-let** that trademark, then **this royalty is considered as “transfer of right to use” of goods** under the VAT law.
* Therefore, **VAT is applicable on this royalty** in Gujarat.
* Additionally, **service tax will also apply** on the royalty income under the category of "intellectual property services" or "right to use goods".
* This means **both VAT and Service Tax can be applicable** here, and it depends on the state VAT laws and service tax provisions.

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### 2. **Tax on Royalty Charged by Your Transferee to the Sub-Licensed Party:**

* Your transferee charging royalty to sub-licensees will similarly be liable to charge VAT and Service Tax on those royalty invoices.

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### Important points:

* **VAT on transfer of right to use goods (like trademarks) is applicable in some states including Gujarat** under the VAT Act.
* **Service tax on royalties is also applicable as per service tax rules** (before GST regime).
* So, both taxes could be applicable, and careful compliance is needed to avoid double taxation.
* Often, businesses consult a tax expert to properly structure and claim credit to avoid cascading taxes.

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### Summary for your case:

| Situation | Tax Applicability |
| ------------------------------------ | ----------------------------------- |
| Your royalty invoice to transferee | VAT + Service Tax (both applicable) |
| Transferee’s royalty to sub-licensee | VAT + Service Tax (both applicable) |

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**Note:** Since GST replaced VAT and Service Tax later on, under GST these may fall under IGST or CGST/SGST rules depending on transaction nature.

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If you want, I can help draft a note or give you references to specific notifications or case laws for Gujarat VAT and service tax on royalty. Would you like that?

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