Taxation, whether it concerns real estate or incorporeal property, ever-so-often faces intricate peculiarities and delicately balanced issues.
The 57th GST Council meeting has brought to the limelight the taxation of intellectual property rights (IPR), which was believed to be settled. IPR could encompass brand names or trade names, copyrights, patents, designs, etc., and, given its nature and characteristics (intangible, a bundle of various rights), it presents complex subject matter for taxation.
It has been the position that a permanent transfer or alienation of IPR (including, for instance, under the Indian copyright law, an assignment) is classified as a transaction in goods and taxed accordingly. This position is with reference to the States ‘ Value Added Tax (VAT), the central government’s customs law and service tax law; in Mahyco’s case, the Bombay High Court in August 2016 held that agreements involving technology transfer, know-how, and intellectual property rights are a case of deemed sale of goods. Au contraire, under the erstwhile service tax law, a temporary transfer or permitting the use or enjoyment of IPR (non-permanent rights, such as licensing of copyright) was classified as service – this was by virtue of the apex board’s clarificatory circular, judgments (including in AGS from the Madras High Court). For the GST law too, “temporary transfer or permitting the use or enjoyment of any intellectual property right” is specified as a service – in September 2026, the Bombay High Court in the Dharma Productions case acknowledged this position in the context of copyright in films.
The recommendations of the GST Council are articulated vide the Press Release[2] – an amendment in Schedule II of the CGST Act, 2017 will be carried out, to provide that transfer of title in IPR, whether temporary or permanent, will be uniformly treated as supply of services. The GST Council on 8th of October 2026 has perhaps birthed another quandary for those concerned with taxation of transactions in IPR.
Since 01st July, 2017, under the GST regime, an Indian business permanently transferring IPR (for example, brand names or copyright) by way of export classified it as goods, and would be required to file a shipping bill in order to demonstrate that there has been an actual export of goods. The Bombay High Court in 2025, in the Dupahar Interfran case, concluded that assignment of trademarks/brand names to an overseas person is a sale in the course of export for purposes of the VAT law. On the other hand, a temporary transfer or a right to use IPR provided by the Indian exporter was classified by the Indian business as services, and if the five ‘export of services’ conditions are fulfilled, such an Indian exporter would claim ‘zero-rated supply’ status for the transaction, which did not require GST to be paid on the transaction and the exporter could claim set-off of taxes paid on its inward supplies.
Similarly, if an Indian importing business received a temporary transfer or a right to use IPR cross-border, it would classify it as services, and reverse charge the GST and, ordinarily, avail credit of the tax. Whereas, if an Indian business acquired IPR by way of permanent transfer, the transaction would be classified as goods, and upon crossing of the customs frontier of India (for which purpose the IPR must be on some media), these goods would be imported into India with an obligation (on the Indian business) to file an import bill of entry, pay applicable customs duty and IGST. In contrast, the transaction (obtaining IPR permanently) if completed electronically (via email or online file transfer protocol), qualifies as one in goods yet, there arises no implication of customs duty and GST (for such electronically received/transmitted IPR, albeit permanently) as the taxable event of crossing the customs border does not occur.
The recommendation of the GST Council unsettles the proverbial apple cart by re-classifying transactions that hitherto were regarded as one in goods, to henceforth and by application of the law to be construed as transactions of services.
An Indian business importing permanently IPR (for instance brand names held outside of India) for the Indian market, which will be received electronically/transmitted via the internet, going forward will not classify the transaction as that of goods; instead, will have to classify the transaction as that of services, to pay GST on reverse charge basis and have cash outgo. If this is an Indian business importer permanently receiving IPR, imported into India on a hard drive or some other tangible media, it will give rise to an anomaly as the goods cross the customs frontiers – the customs authorities will attempt to assess the imported item as goods (as has been the practice) to levy customs duty and IGST. It will have to be seen how the field formations deal with these situations, but not subject the Indian importer to double taxation – first as goods, upon entry inward into India, and then, as services as per the recommendation of the GST Council.
The resultant position is that IPR, whether permanently transferred or otherwise, would have dual status. The thumb rule is that on some media, IPR is goods (chattel), whilst simultaneously, by virtue of the provision of the forthcoming GST law, it is to be classified as a service. Questions of classification and double taxation will ensue. However, the quagmire would dissolve if the IPR transaction is completed electronically (and classified as a service), in line with the recommendations of the GST Council.
Life for the Indian exporter of IPR is expected to become easier (as is envisaged in the Press Release). Whether temporary or permanent transfer of IPR (at least, for electronically transmitted cases), the business would regard the transaction as ‘export of services’ and, upon satisfaction of all the conditions prescribed in the IGST Act, 2017, would claim ‘zero-rated supply’ status for the transaction. If the Indian business exports the IPR on some media (hard drive), there shall be an obligation to file a shipping bill before it crosses the customs frontier for a destination overseas, but it may have no tax consequences, as the goods are leaving India (exported, as goods), the export transaction will not attract customs duty and IGST.
The recommendations of the GST Council are well-intended – the Press Release states
that “… will ease GST compliances and will facilitate smoother cross border transactions…”. It appears that the recommendations will foster confusion and litigation, especially since incorporeal property (IPR, other than software) is inherently amorphous, capable of variable treatment – as goods or services – thereby the eternal questions of how to classify and tax IPR will remain.
Views expressed by: Ranjeet Mahtani, Partner, Dhruva Advisors
