GST – its impact on Trademark

Shortly after the Goods and Services Tax (GST) was enacted on July 1, 2017, the Ministry of Finance informed that 5 % will be charged on “branded items”. The Ministry intended to clarify the definition of “branded” after confusion arose since several unbranded food products are exempt from GST while their registered counterparts are being charged at 5 % GST.

Under the new law, Central Goods and Service Tax (CGST) is exempt on the supply of certain goods, such as chana or paneer, natural honey, wheat, rice and other cereals, pulses, flour of cereals and pulses, other than those put up in unit containers and bearing a registered brand name. However, the supply of such goods, when put in a unit container bearing a registered brand name, attracts 2.5 per cent CGST rate.

The unfair advantage of this goes in favor of those owners whose brands have not been registered, while those who own registered brands will have to shell out additional 5 % GST or manufacture and/or sell their goods and items under unregistered trademarks. The impact of this is that brand owners are already deregistering their brands to prevent the levy of 5 % GST and others who have still not applied for registration of their trademarks are refraining from doing so. Hence, brands such as “India gate”, a popular rice brand, which was never applied for registration, are at an advantage, while many popular brands, trusted for their quality, have been deregistered from trademark protection.

If this trend of deregistering trademarks catches on, the chances of players in the market copying and plagiarizing the names/labels of reputed brand owners increase, giving rise to misuse of the goodwill and reputation earned by renowned brand owners. The consequences of this would lead to depreciation of the goodwill and reputation of popular brands, complications in the price structure of similar goods and goods that belong to the same category and eventually upsurge in trademark litigation.

In today’s world, the importance of protecting intellectual property is increasing manifold, which can be seen through the conduct of developing economies and their initiatives to promote innovation and provide a guarantee in the quality of goods and services. However, introducing a policy which would discourage players from registering their brands would set a wrong, unwanted precedent. While on one hand start – ups, for which the Government itself has implemented certain initiatives, would become reluctant to proceed with registering their trademarks, on the other hand, existing traders who shell out additional costs for creating certain standards for quality of their goods could suffer losses. Though the Government intended to safeguard the interests of the public, the important factor of customer satisfaction seems to have been neglected.

The solution, or a preventive measure in this regard, would be to reconsider the repercussions of introducing such a tax structure which would not backfire the intended growth and benefit of the economy. Surely the indirect tax regime under GST has been recently introduced, but the advantage of this is that the effects which are uncalled for can be curbed at the initial stage itself. The result would be that confusion among the traders and people in general and any losses suffered could be altogether avoided. The larger picture to be seen is interest of the consumers and safeguarding the trade practice. In this fairly competitive market, it becomes necessary for the ruling authorities to ensure that there is no discrimination faced by any segment of the market and there is uniformity introduced and maintained.

Having said that, the step to take an action in curbing the same has already been taken. There will be no exemption for brands which have not yet been registered, though which have been applied for registration. Moreover, a final decision would be taken by the GST Council, headed by Finance Minister Arun Jaitley and comprising representatives of all states, at its next meeting which will take place in the following month. The GST Fitment Committee has approved a new rate structure for certain items and forwarded the same for final decision to be taken by the apex body. Hopefully, this brings the much needed clarity and relief sought by the people, thereby building trust in GST regime.

Our view The object of registration of a trademark is to give comfort and protection to the consumers such that the consumers are getting goods of a certain quality, in particular, food items. Therefore, imposing a tax on brands of basic food items is not correct for the reason that it conflicts with food safety laws and can expose consumers to adulterated and harmful food items. Keeping in mind the welfare of the people and Make in India initiative, this tax should be withdrawn.