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IT
hardware major,
India is likely to implement its regional
distribution policy, the Bengaluru division of Directorate of Revenue
Intelligence (DRI) has slammed a Rs 1,450 crore tax evasion notice to
the vendor on charges of improper disclosure of its imported
products. Backed by the charge of undervaluing its components and
raising duplicate invoices, primarily one for customers and another
for its internal official accounts, DRI has issued a show-cause
notice to HP India Sales Pvt Ltd. (HPISPL), the Indian division of
the California-based HP in order to possibly seek a clarification on
its entire import records since FY 2005-06.
has
alleged that HPISPL had undervalued its imported products, which
include computers, laptops, notebooks, desktops, spares and other
peripherals supplied by its overseas HP entities, possibly in
Singapore and USA. Furthermore, the government agency has declared
that HPISPL was entitled to a discount ranging between 44 percent and
83 percent, on its imports. While some part of this discount was
being transferred to their sub-dealers in the channel space as a
measure to boost the competitive environment in the channel and
end-user space, the rest of the discount was being retained by HPISPL
itself. During these transactions, the company has been allegedly
hiding these details from customs authorities. Besides, the situation
was favorable to the company as HPISPL, being a part of the
Accredited Client Programme (ACP) has access to an extended green
channel facility in customs for faster clearance of imported goods,
without routine customs checks and scrutiny.
exclusively
to The DQ Week, Sunil Dutt, President-PSG
Division, HPISPL said, "The DRI have stated its position and we
are contesting it. We have always abide by the law and have conducted
transparent business all the while.” With the investigation process
going on, the company has been reported to have pre-deposited Rs
79.25 crore with the government. However, HP, in an official
statement claimed that it has cooperated fully with the Directorate
of Revenue Intelligence in its investigation.
the
DRI allegation coming to the forefront, the IT major seems to be
in troubled waters again. So long, HP's strength has been its channel
partners who have stood by the vendor, even during September-October,
2008, when a similar case of excise duty evasion was slammed on the
company. At this stage, most of HP's partners in the East and South
are unwilling to comment. “A similar incident had occurred before
when the price quoted on HP boxes were much lower than the actual MRP
of the product. Now that the DRI has slapped that notice to HP, there
must be something wrong with HP's customs declaration,” commented a
leading channel partner of HP based in Kolkata.
HP partners across the East confirmed
that there are back-end issues along with the degraded service
stature of the company that has been raging on for a a long time.
Keeping his identity discreet, one of the HP partners in the East
said, “It is true that HP has been retaining a major chunk of the
discount on the imports. The national trade partners of HP are aware
of this. However, in the channel space, no one has spoken about it
much. Besides, there are rumors that HPISPL brought spare parts in
India for the sake of after-sales services and repairs under their
warranty scheme, but routed them to full-fledged sales later.”
Apart from these charges, the HP
partner also said, “HP has been charging atrocious amounts for
repairs from its customers for a long time. Since these parts are
exclusive to HP, the customer also has no other option but to abide
by the company's dictum.”
Although some partners in the eastern
upcountry have started to question the company's integrity and
policy, especially as HP has changed its distribution to a RD model
based on cash-flow trading rather than the traditional credit-based
policy, some partners maintain their loyalty with the company.
Enforcing the same, Pradeep Jhawar of Kolkata-based Bard Roy Infotech
said, “I stand by HP in this situation. Since the notice has been
issued from DRI to the company, I think the channel business will not
be affected at all. Besides, I do not see any reason to worry about
any projected dip in HP sales.” HP partners in the northern region
have shared a similar point of view. Speaking about the ongoing
issue, Daljit Singh of Compro Systems said, "HP will challenge
the DRI in court and this will not have much of an impact in the
market. Price behavior is entirely dependent on the market dynamics
and I do not see any problems in the future.” Somesh Narang, CEO of
Elcom Trading commented, "I do not see this impacting HP in
short-term. HP will fight wholeheartedly in the court of law. With
the recent change in HP's channel strategy; there are not any sales
pressures in the market. There may be a price impact only if HP loses
the case.”
Also, HP partners in Mumbai are siding
with the company. "I do not think a company of HP's stature will
resort to such an unethical method to save money. As far as I know,
HP is an ethical company and they have been around in India for about
20 years now. I think there is just some misunderstanding and they
will emerge out of this stronger," said Bimal Kumar of Navi
Mumbai-based Geonet India. Sudhir Budhay of Nagpur-based Business
Algorithms said, “According to me, HP is an ethical company. It is
possible that this could have happened through some confusion or
misunderstanding but I am sure they will deal with this accordingly.”
However, Balkrishnan Prabhudesai of
Goa-based Amey Computers has opined that the government is at fault
instead of HP. Speaking over the show-cause notice issued to HPISPL,
he said, “Even if it is true, I would say that why should only HP
be blamed? It is the government that is at fault. They are aware that
most companies that do import goods undervalue the price in order to
save or evade tax or customs duty. This is applicable to many
companies and not just HP, if they are doing it. So the onus lies
with the government to clean up its act. Even when I was the
President of the association here, we addressed this to the Finance
Ministry but they have not been responsive to our concerns yet."
Partners in Chennai received the news
with mixed reactions. Speaking over the matter, an HP partner in
Chennai said, “Already we are facing lots of problems with HP in
terms of service tax on back-end and VAT on cartridges. The evasion
can be calculated only for five years but what about the previous
five, where it enjoyed monopoly in marketshare.” On a similar note,
S Prakash, Proprietor of Vashini Systems, Salem, who is also the
President of
said, “The government had to be more
careful in allotting the green access to MNCs. Most of us also feel
that they should be made more accountable like the Indian companies.”
A Hyderabad-based partner, on the
condition of anonymity, said, “HP is too big a company for anyone
to tarnish. We are doing business with them since last 20 years
Even
if the government brings HP's act out in the open, public memory
is very short and this will not hinder their business in the country.
The dealers are a very small part of this big ocean.”
a
diverse series of responses pouring in from HP partners, its trade
partners in India are unwilling to come up with any comments.
Besides, HP is also facing a bribery probe in Europe over a 2003
contract. Concluding HP's stance over the ongoing confusion with
DRI, Dutt stated, “We will revert appropriately to the position
stated and deal with this through the legal route. As far as where
this supposed allegation came from is concerned, I do not want to
speculate so as of now we will respond accordingly.”
(with inputs from John Jacob in
Mumbai, Muntazir Abbas in Delhi and Revathi Raghavan in Bengaluru)