By K R Nambiar, CRN, Mar. 3 2009, 1200 hrs
Following a request from Confed-ITA, distributors have stopped billing in the state of Tamil Nadu to help the channel association. The association has been pressurizing vendors to bail out partners who have received notice from regional tax authorities for paying service tax on back-end rebates.
As reported earlier in CRN, the Service Tax (ST) department in TN has issued notices to hundreds of resellers to cough up ST on all incentives, price-protection discounts and rebates received since 2004. Interest for the delayed period and penalties are also expected to be levied.
Confirming the move, P N Prasad of Confed-ITA said, “We had written to all leading vendors to support us and work with us in addressing this issue. The problem is as much theirs as it is ours. The entire system of providing back-end rebates has been defined by them. But so far, none of the vendors have extended any concrete help to us. As a result, we decided to take this extreme measure to force vendors to own up to their responsibility. Instead of asking partners to boycott business, we have asked distributors to stop billing. I am happy that all distributors are cooperating.”
Suresh Pansari, Managing Director, Rashi Peripherals confirmed, “We are cooperating with the local association, and understand the magnitude of the issue and the need for collective action. We hope that things will be resolved fast, as an embargo for a longer period is not in the best interest of the industry, definitely not in the current market scenario. The best way will be to initiate a strong legal action. Collective representation to the concerned department through the association backed by vendors’ legal teams can resolve the issue, or at least bring down the impact.”
Prasad said that while Confed-ITA accepts that such a trade embargo is not in the interest of the channel business, they were forced to take it to prompt urgent action from vendors. “We have to either file a legal case against the notice or pay up the dues before the end of the fiscal and hence we want the vendors to act fast,” he added. Confed-ITA has also approached other leading channel associations in the country to work collectively on the matter.
“It’s a matter of time before the ST department serves such notices across India. It is high time that we unite and find ways to address this issue,” he added.
With back-end rebates and incentives paid by vendors accounting to anything from 4 to 8 percent of the turnover of authorized partners, they could face penalties that alone could run into crores of rupees. “For sub-distributors having monthly billings of Rs 5 crore, the back-end payouts are usually in excess of Rs 20 lakh. The cumulative penalties and interest over five years could cost them in crores—and some of them have not even booked profits close to that figure over the past few years,” Prasad added. |