Case Law Details
Himalaya Drug Company Vs ACIT (ITAT Bangalore)
We noticed that the assessee has exported finished goods to its AEs located in various Countries and the AEs have only marketed the goods. Since the finished goods exported by the assessee are drugs and beauty care items, the assessee was required to comply with the requirement of local laws of the concerned Country with regard to marketing of the said products. There should not be any dispute that the technical details; the details of clinical trials etc., are available with the assessee only, since it has actually developed the products. Hence the assessee could submit those details to the concerned Government authorities for getting product registration/license. The TPO has expressed the view that the concerned AEs would have obtained the product registration/license, if the assessee had not obtained the same. However, it is the undisputed fact that, if at all the AEs wanted to obtain product registration/license, they have to get relevant details from the assessee only.
The assessee has submitted that such kind of approvals are required to market pharma products in any country. Hence these licenses enable the assessee to market its products. The AEs, in the capacity of distributors, should have also obtained separate license for trading in pharma products. There is also no dispute that the AEs have marketed products as re-sellers only. It is also submitted that it is not the commercial practice to charge any amount as royalty over and above the selling rate. In our view, this submission of the assessee is a reasonable one and also makes sense.
The product registration/licensing are requirement of statute, without which the said products could not be marketed in those countries. As noticed earlier, such kinds of product registration/license could be obtained by the manufacturer only, in normal circumstances. The traders should have obtained separate license for trading in the drugs/beauty items. Hence, it cannot be said that the traders have exploited the registration/license obtained by the suppliers under the various statutes. Further, the manufacturers and other suppliers of the products sell them at profit and the practice or presumption is that the supplier has determined the selling price by taking into account all relevant costs. The Ld A.R also submitted that the obtaining product registration/license is usually the responsibility of the manufacturer and it is not the trade practice to levy separate charges as royalty over and above the selling price. He also submitted that the assessee has not collected any amount over and above the selling price from export made to non-AEs. We have noticed that the tax authorities have taken the view that the assessee would have collected royalty amount for finished goods exported to unrelated parties. However, the Ld A.R pointed out that the assessee has not collected any amount over and above the selling price either from domestic customers or from non-AEs. Hence, the basic premise of the TPO, which formed the basis for determining ALP of alleged royalty fails here. Accordingly, we are of the view that, in the facts and circumstances of the case, it cannot be taken that the AEs have exploited the product registration/license obtained by the assessee from various Governments. Hence the question of payment of royalty does not arise. Accordingly, we set aside the order passed by AO/TPO on this issue and direct the AO to delete this T.P adjustment.
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