GST on Branded Products and its Implication on Indian Trademark Regime
Written By: Ashka Vora and Saumya Verma
After years of debates, India’s biggest tax reform GST has finally come into force in July 2017. It has often been pronounced into a phrase called “One Country, One Tax”. It’s a single taxation regime which has replaced existing taxes like CENVAT, octroi, excise duties, etc. GST has been defined as an integrated goods and services tax levied under Goods and Services Tax Act, 2017. It is an indirect and multistage tax that will be levied on every stage of value addition and will replace previous taxes. If the experts are to be believed, this reform can have game-changing implications on Indian economy. Like every field of our economy, trademark regime is also affected by this new change in the taxation system.Trademark is basically a mark that distinguishes the goods and services of one proprietor from that of other and hence it is always recommended to register the trademark to protect the brand value and goodwill. However, the new GST regime is seeming to create some hurdles for the trademarks Act to fulfil its purpose. The GST imposes 5% tax on the branded food grain, pulses and other agro commodities.
5% GST on brands has been imposed on the basis of two parameters:
(a) that the goods be packaged in unit containers, and
(b) that they are branded with registered trademarks.
Those without a registered brand name will not be charged this tax. Naturally the traders, especially the small traders with registered trademark are not happy with this move. With this 5% tax, the cost of their product will be higher than their competitors with unregistered brand. For instance, exempting staple food like wheat and unbranded wheat from GST is a welcome move. But simultaneously, it will make the wheat and its products protected under the brands costlier. It is estimated that the traders spend about 10 to 15% of additional cost on the maintenance of quality of a business earned out under registered trademark as the products under registered trademarks usually have to go through Government quality check. This is inducing the traders to give up their trademarks.
Traders are either de-registering their trademarks or have stopped selling the product under registered mark. When traders stop selling under the registered brands, the consumers cannot easily identify the source of the product. Hence, there are high chances that the consumers get misled about the origin and quality of the products. In absence of trademark registration, the traders are also more prone to get affected by unfair trade practices. Thus, this provision will have far reaching repercussions over the domestic trade and commerce. Introduction of GST may have disruptive effects on the overall objective of trademark protection. This issue needs a thorough and intelligible debate as how far it is going to affect the trademark filings in select categories and could enhance the incidences of trademark counterfeiting.
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