The GST adjudicating authority has dropped a ₹115.82 crore tax demand against Mahindra & Mahindra Ltd (M&M). The Mahindra GST case was about the company charging its group entities a nominal fee to use the “Mahindra” brand and logo.
The authority’s decision comes after a detailed review of a Show Cause Notice (SCN) issued by the GST department in August 2023. The total demand raised was ₹146 crore. After the hearing, the authority upheld only ₹31 crore of the demand. It also confirmed a penalty of ₹31.35 crore.
This ruling may act as a precedent for how companies handle brand licensing between group firms. It brings clarity on when GST is applicable in such cases.
Group Firms with Full ITC Not Liable for GST
The authority said GST will not apply where a group company pays GST and can claim full input tax credit (ITC). In those cases, the amount mentioned in the invoice can be treated as the fair market value of the service.
The order stated:
“All licensing of trademarks by the noticee to its group entities is for business purpose, thereby enabling each group entity to qualify for full ITC. Therefore… value of ₹1 lakh adopted by the noticee is found to be acceptable as open market value in all those cases.”
In simple terms, this means Mahindra & Mahindra’s fee of ₹1 lakh per year was valid for group entities that were eligible for full ITC.
GST Applicable Where ITC Not Available
However, the authority agreed with the department’s view in cases where group companies are not eligible for full ITC. This includes sectors like real estate. In such cases, the brand use attracts GST.
The authority accepted the department’s method of using benchmarks to determine value. It approved the use of a 0.25% royalty rate, based on how Tata Sons charges its group companies.
Why the Mahindra GST Dispute Arose
The Mahindra GST dispute began when the department issued a Show Cause Notice over the brand usage fee charged to its group companies.
Initially, Mahindra & Mahindra did not charge its subsidiaries any fee for using the brand name. The GST department viewed this as a taxable service. Under GST law, even if no payment is made, a transaction between related parties is taxable.
After a GST investigation, Mahindra started charging ₹1 lakh per year. The department claimed this fee was too low and not at market value. It accused the company of undercharging to avoid GST.
To assess the actual value, the department used the Tata Sons model. It applied a 0.25% royalty rate on the group company’s turnover.
Mahindra’s Defence
Mahindra argued that the GST law does not have a clear rule for valuing brand use. The company said it set the ₹1 lakh fee using its best judgment. It also argued that if the recipient pays GST and claims full ITC, there is no loss to the government.
The authority accepted this argument. It said that in such cases, there is no need to assess the transaction beyond the declared value.
But for companies that cannot claim full ITC, the authority upheld the department’s benchmarking method. It ruled that Mahindra must pay GST and a penalty for those cases.
Scope for Appeal
Both the GST department and Mahindra & Mahindra can appeal the order. The department may challenge the dropped ₹115 crore demand. Mahindra may contest the ₹31 crore tax and the penalty.
The Mahindra GST case will now move to the Commissioner (Appeals) if either party files an appeal.
Broader Impact on Industry
A senior government official said the ruling will likely impact many large corporate groups. “The order will act as a precedent across industries, especially for big corporate houses where the brand names are used across group entities,” the official said.
Many groups operate with shared branding across subsidiaries. The GST treatment of such internal licensing has been unclear. This case helps clarify the rules.
Key Takeaways for Businesses
This ruling highlights the importance of ITC eligibility in GST matters. If the group company using the brand can claim full ITC, the parent firm’s declared value may be accepted. But if the recipient cannot claim ITC fully, GST applies on a notional royalty value.
The case also shows the need for proper documentation. Companies must clearly show that their pricing is based on sound business judgment. They should also be ready to explain why the fee charged is fair.
The GST authority’s order brings partial relief to Mahindra & Mahindra. It also offers much-needed clarity on how GST applies to brand licensing between related companies.
For companies dealing with similar intra-group transactions, proper tax planning and documentation are now more important than ever.
Vakilsearch can help your business stay compliant with GST rules. Our experts assist with GST assessments, tax structuring, and representation before tax authorities.
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