GST Implication On Intellectual Property

1. Once upon a time . . .

Before the Goods and Services Tax (GST) regime, the Union government exclusively used to levy tax on transactions relating to Intellectual Property (IP) rights if such were classified as services¹ (under Service Tax, Chapter V, Finance Act, 1994), while the State governments used to levy tax on IP rights if the transaction involving such were classified as sale/deemed² sale of goods³ (under State Sales Tax/State Value Added Tax or Central Sales Tax which was collected and retained by the originating State). The aforesaid indirect tax system required interpretation on the classification of the transaction. This often led to double taxation when the same transaction was subjected to both sales tax and service tax due to the industry being cautious so as to avoid penalties of avoiding tax.