In a landmark judgment, the Allahabad High Court has clarified the taxation regime applicable to franchise agreements.
The case revolved around Pan Parag India Limited, a well-known manufacturer of pan masala and related products, which had entered into several franchise agreements. The commercial tax authorities contended that the fees received by Pan Parag from these agreements should be subject to VAT, treating them as sales of goods.
However, the court distinguished between the sale of goods and the provision of services, highlighting that franchise agreements typically involve the transfer of the right to use intellectual property, brand, and business model, rather than the sale of tangible goods. The bench, presided over by Justice Surya Prakash Kesarwani, emphasized that such transactions fall under the category of service contracts and are not subject to VAT under the prevailing laws.
The judgment underscored the necessity of a clear demarcation between goods and services in taxation matters, aligning with the broader objective of reducing litigation and ensuring fair tax administration. The court’s decision is expected to have far-reaching implications for businesses operating under franchise models, providing clarity and potentially reducing their tax liabilities.
This verdict also emphasizes the need for legislative clarity in the evolving landscape of commercial taxation, especially in light of the Goods and Services Tax (GST) regime, which aims to simplify and unify the taxation process for goods and services across India.
Keywords: Allahabad High Court, Franchise Agreements, Pan Parag India Limited, Taxation, VAT, Goods and Services Tax (GST)
Case title – Commissioner Commercial Tax vs Pan Parag India Limited.
Name – Supriya, course – B.A.LL.B, S.S khanna Girls’ Degree College, UoA, Intern under legal Vidhiya.
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