Case Law Details
Randox Laboratories India Private Limited Vs ACIT (ITAT Bangalore)
The core issue arising for consideration is, whether the international transaction relating to purchase of reagents, spares, consumables from the AE is a simple trading activity, hence, can be benchmarked under RPM. Before we advert to the core issue, it is necessary to understand the activities of the assessee with its AE. As stated earlier in the order, assessee’s AE is manufacturing medical diagnostic reagents, analyzers and consumables. Assessee imports these reagents form the AE and sells them to diagnostic units / laboratories in India for use in various chemical analysis. These reagents are analyzed in machines / equipments known as analyzers. For the purpose of sale of reagents, the assessee enters into specific agreements with third party customers. As per the terms of the agreement, a sample copy of which is placed in the paper book, the customer in India is required to purchase reagents from the assessee and in the event of such purchase, the assessee provides them the analyzer for carrying out the chemical analysis with the reagents. As per the terms of the agreement, the analyzer is made available to the customer for a period of five years without any extra cost. Further, as per the terms of agreement, the assessee is required to provide spares for the analyzer and also provide services including repairs. The analyzers were kept with the third party customers since the assessee was undertaking a research regarding its products as per Indian norms for clinical tests and to provide feedback to the Head Office. Thus, as could be seen from the facts on record, the analyzers were never sold to the third party customers who buy the reagents from the assessee, but, were only installed in their premises for chemical analysis and research work for a period of five years. After expiry of five year period, the WDV of the analyzers get reduced to zero and accounting entries to that effect are passed in the books. These facts are evident from the materials available on record. Thus, it is clear, the assessee is merely purchasing reagents from its AE and reselling them to third party customers in India without making any value addition. In fact, the analyzer / spares of the machines are never sold to the third party customers but always remain the property of the assessee.
It is very much clear that in the year under consideration, assessee has not undertaken any manufacturing activity as the manufacturing unit was still in the process of being set-up. On the contrary, the facts on record clearly reveal that the assessee had purchased reagents and chemicals from its AE and sold to the third party customers without any value addition. Further, the analyzers, spares and consumables, though, were imported, however, they were not sold but were provided in the laboratories / diagnostics units of the third party customers for testing and research activity. Keeping in perspective the aforesaid factual position, it has to be examined which is the appropriate method to benchmark the arm’s length price of the transaction. On-going through the provisions of rule 10B and more particularly sub-rule-1(b) of the aforesaid rule, it is evident that RPM is applicable to a case where the price at which property purchased or service obtained by a enterprise from the AE is resold or provided to an unrelated enterprise. The gross profit margin of such a transaction is thereafter compared to the gross profit margin of similar comparable uncontrolled transactions after making necessary adjustment with regard to the expenditure incurred, functional and other differences, the arm’s length price is determined. Thus, in the facts of the present case, since the assessee has resold the goods imported from the AE without any value addition, the most appropriate method which can be applied for determining the arm’s length price is RPM and TNMM cannot be the most appropriate method in such type of transaction.
If assessee resold goods imported from AE without any value addition, than most appropriate method for determining ALP is RPM
FULL TEXT OF THE ORDER OF ITAT BANGALORE
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