IT Dept demands Rs 30 cr from HLL

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posted on 18 years ago — updated on 1 second ago

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The Income Tax authorities have placed a demand of Rs 30 crore on Hindustan Lever for alleged default in payment of TDS or tax deducted at source.

New Delhi: The Income Tax authorities have placed a demand of Rs 30 crore on Hindustan Lever for alleged default in payment of TDS or tax deducted at source. HLL has contested the demand. This turns out to be an impending legal battle.

When a company outsources its manufacturing, does it need to deduct TDS on payments it makes? HLL does not think so, but the Income Tax Department thinks otherwise. The department has slapped an order on the FMCG giant on Tuesday alleging it had not deducted tax on Rs 1,500 crore worth of payments in 2003-04.

According to the order, under section 201 of the IT Act, HLL is liable to pay up Rs 30 crore as penal interest. The amount is calculated at 2.24 per cent TDS on the principal amount of Rs 1500 crore.

HLL could also be liable for another penal interest at 12 per cent PA calculated from the time of default, say IT department officials. Sources in the IT department said that they would be sending out another order under sections 201 (1a) and 217 C. According to section 217C, which covers penalty for default in TDS payments, HLL could be liable to pay another Rs 30 crore.

Chief Commissioner at IT (Zone-IV), Mumbai, Indira Bhargava says, "The company had been treating these items as purchases, whereas the departments view was that these were contracted items, specifically manufactured as per contract for HLL. Therefore the TDS provisions were applicable in respect of these purchases."

HLL has denied any violation of the IT rules and says it purchases finished goods on a principal-to-principal basis from suppliers.

The company's stand is that these are purchases of goods on a principal-to-principal basis and no tax is required to be deducted under section 194 C. The view of the company is supported by orders of the High Court and various tribunals. The IT department is of the view that tax is required to be deducted under section 194 C of the IT act from payments made for such purchase of goods.

HLL now has 30 days in which it can appeal to the office of the Commissioner of Income Tax. The matter could even get entangled in a legal battle if HLL approaches a higher court for a stay order on the payments till the dispute is settled.