HP caught in tax evasion scam

The vendor is under scanner for allegedly undervaluing its imports and thereby evading customs and other related import duty. As the story unfolds, the HP partners give mixed responses on the same

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hardware major, href="">HP

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.


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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.

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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.

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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 href="">Confed-ITA,

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

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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.”

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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)