The Supreme Court has sought a reply from sports apparel manufacturer Adidas India Marketing Pvt Ltd on a couple of petitions by the Income Tax Department, which said the company should pay tax on goods outsourced for manufacturing.
A Bench headed by Justice S H Kapadia has issued notice to Adidas India while allowing the two petitions filed by the department, which alleged that the company had failed to pay more than Rs 72 lakh for assessment years 2000-01 and 2002-03.
The Commissioner of Income Tax moved the apex court, challenging the Delhi High Court's judgements of March and April this year passed in favour of Adidas India.
The high court dismissed its appeal against the firm "erroneously" and "without answering the substantial question of law", the petition said, adding Adidas does not manufacture the entire products but outsources the same to indigenous manufacturers or vendors under contract manufacturing.
The petition said the contract between the assessee and the manufacturer to make products as per the requirements and specifications was a work or service contract and not a contract of sale for purchase of goods.
Under the contract, the products were being made by manufacturers using technical know how, drawing and designs provided by Adidas as per its requirements and specifications, it said.
Since such contracts were composite in nature, the whole sum credited or paid under them was subject to provisions of TDS under Section 194C of the Income Tax Act, 1961, the Commissioner of Income Tax said.