Business Income

This query is : Resolved

Abhishek Agarwal (Querist)
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17 February 2011 Case details:
There is an US company (X) with a big brand like Adidas which gets its products manufactured in India from many licensed manufacturers (Y1, Y2) for itself. This company (X) is introducing its products in India now and for that they will appoint one Master Distributor (Z) in India. Z is not a sister concern of X, Y1 or Y2 in any manner. Z is an independent Indian Company.
Z will sell products of X in India by various retail formats. Z will pay to X 20% over and above the purchase price ( i.e. FOB+ Margin of 20%) paid by X to Y1/Y2 after the sales are effected in India.

US Co. (X) wants to purchase goods from (Y1, Y2) for India as well and wants these goods to be sent directly to Z for further sale as Y1, Y2 and Z are all in India. X will raise a Purchase Order to Y1/Y2 of USD 1000 to make goods. After the goods are manufactured Y1/Y2 will send the goods to Z and X will pay USD 1000 to Y1/Y2. Z will receive these goods on behalf of X in India from Y1/Y2 and will sell these goods in India at USD 1500. As per agreement, Z will remit USD 1200 to X now (USD 1000 plus 20%). Remaining USD 300 is Z’s share. Y1/Y2 will prepare the sale invoice in the name of X and X will prepare the sale invoice in the name of Z. All prices are at arm’s length.Y1/Y2 manufacture goods for other companies and brands also. Z sells products of X only.

Questions:
1. Will the sales made by Y1/Y2 qualify as export sales from India?
2. Will the purchase by Z from X be considered as imports into India?
3. Is it possible that Y1/Y2 get export benefits but purchases by Z do not come under imports?
4. What will be the tax implications on Y1/Y2 and Z?

Anupkumar Vaishnav

Anupkumar Vaishnav (Expert)
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17 February 2011 1 It will not qualify as export as goods are not physically crossing indian cost

2 No

3 No

4 Just like any other indian entity

However there is possibility that the X will be taxed in India u/s. 9(1)(i) on profit earned on sale to Z

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