The Indian unit of Sony Corp is in trouble! Know why

Sony corp India has allegedly violated the India-Asean free trade agreement to import goods from the group's overseas arms without paying appropriate duties.

Further, the corporation is the cross-hairs of a Directorate of Revenue Intelligence (DRI) investigation, the latest instance of a crackdown on corporates for abusing trade pacts, reported ET.

A source in the agency said the probe is going on, adding that DRI officials had visited the company's office to get documents. Sony's India arm has also been asked to furnish documents from suppliers.

Moreover, statements of officials have been recorded in the case, which is likely to have a duty implication of about Rs 300 crore.

However, a Sony India spokesperson said: "No show-cause notice has been issued to Sony India regarding the import of TVs."

Sony is not the only company coming on the radar of the DRI, which has earlier carried out probes against firms such as Toshiba and Haier and both companies have stumped up money claimed by the authorities as unpaid duties.

DRI officials confirmed ET that a probe was on and a show-cause notice would be issued soon.

The investigations are focused on the import of televisions from Malaysia in a semi-knocked down condition by allegedly mis-declaring them as parts that attract concessional duties under the India-Asean free trade agreement.

The Indo-Asean FTA offers concessional duty benefit to a large number of goods manufactured in the Asean region. However, all imports from Asean countries into India have to meet a mandatory 35% value addition norm in the Asean country from where they are exported to India. Without due value addition, India can deny duty benefits available to goods under the FTA.

Under the treaty, LCD panels, which constitute 80% of the cost of TV sets, attracts zero duty, whereas other parts attract a 4% import duty. The basic customs duty on colour TVs is 10%, implying a big duty benefit in case of televisions in a semi-knocked down condition.

The DRI has questioned the premise of a 35% value addition in the country of origin - Malaysia. As per DRI, LCD panels were not manufactured in Malaysia, rendering the claims of a 35% value addition next to impossible. Another source with the agency said the company had already deposited Rs 100 crore towards past duty liabilities and discontinued availing FTA benefits from February this year.

Policymakers in India have long been worried about the misuse of concessions given under FTA pacts in violation of country of origin norms.

Cases of third country exports taking advantage of duty benefits have risen lately, leading the government to also conclude that such imports undermine its attempts to boost domestic manufacturing under the 'Make in India' initiative.

(Image: Reuters)