Though most buying offices agree that order position is good now and business is definitely back on track; however, it is also a reality that problems still exist especially for mediumlevel buying houses; be it the changing priorities ofbuyers as well as vendors, increasing demand for sampling from Europe but less conversion resulting into extra cost and useless exercise, or buyer’s priority to work directly with those vendors with whom earlier he was working through buying houses.
A recent change in policy with regard to service tax is another problem which is claimed to have added an extra burden on buying agents/buying houses. Though these problems differ from company to company and buyer to buyer, AO takes a closer look on ground realities…
As the US market is now on an upward projectile and buyers are now giving more orders, many of the exporters with capacity for bulk quantities are now interested to work with bigger buying and liaison offices, abounding smaller offices that they worked for during the lean period to fill their lines. Delhi-NCR, known for many small- and medium-level buying houses are suffering more from this attitude. “I have suffered because of the callous attitude of some big exporters who did not think twice before dumping my order midway because a bigger buyer offered them more quantities,” shared an owner of a small buying house who didn’t want to disclose his name.
However, not all buyers agree to this trend and those working with certain exporters over a long period of time feel that the bigger exporters continue to give priority for the value and price that they can offer. “Good and big export houses are as usual supporting us in terms of timely deliveries and we have not felt any changes in their priorities. Texport Industries, Bangalore is one of them. The only issue we are facing is the price pressure,” says Vipin Bhutani, VP, Soul, a Delhi-based buying agency.
On the other side, European buyers are now asking for more and more sampling compared to last few seasons but not converting them into orders. Though it is a routine problem from buyer’s side but as it is on the increase, it is adding more worries to the buying houses, especially to those who are working with European market only. Paresh Vora, Production Head, H&G Textile, Mumbai says that to avoid this issue their company is asking for sampling charges, not to all, but with new buyers or wherever the number of samples is large. He also adds that to save the commission, buyers are now more interested to work directly with the exporters. “This trend is now increasing,” he shares.
In day-to-day operations most buying agencies are equipped to handle these kinds of market fluctuations, as these depend on mutual relations and understanding, but on the issue of policies, they are helpless. In a recent policy change, buying agents are now forced to pay service tax on receiving commission from overseas buyers, which are not only hampering their margins, but ultimately can be a reason of order shifting to other countries. Surprisingly, many small- and medium-level buying houses (especially in Delhi-NCR) are still not familiar with this matter while the Association of Buying Agents for Textiles, Tirupur, has raised this issue strongly at various fronts and seeks relief for the same.
M. Anand, General Secretary of the association and MD of Dean Textile, Tirupur shared with Apparel Online that an amendment in Service Tax Law in budget 2014-15 is creating havoc. Under the Place of Provision of Service Rules Notification No. 14/2014, the amendment made to rule 2(f) has changed the definition of intermediary. The existing definition of term ‘intermediary’ included only ‘intermediary of services’, henceforth, the definition of term ‘intermediary’ was substituted with effect from 01-10-2014 to include ‘intermediary of goods’ also to its ambit. Resultantly, with effect from 01-10-2014, an intermediary of goods (for instance, a commission agent of goods) shall fall within the purview of Rule 9(c) – Place of Provision of Service Rules. “Whatever commission we are getting from overseas buyers, is not completely our income as we have many expenditures and also we are getting foreign currency for the country so we deserve exemption from this. We have given a memorandum to the Government but still not got any positive response,” says Anand, adding that as of now they are paying it from their pockets, but in long-run, it will impact Indian exports. “In future, we will take the amount from overseas buyers, but since they are already tight on price front, they will ask us to build it into the price of apparels otherwise orders will certainly shift to other countries. In this situation, valuable foreign exchange earned by our country will be lost.” Under these circumstances, the levy of service tax on intermediary of goods will be viewed negatively by the importers and buyers, feels Anand.
Anand also said that previously the intention of the legislature was not to tax both export of goods as well as services from India and the Judiciary also had the same view, which is evident from the various decisions rendered by courts of India, for example, ‘Microsoft Case’. “The focus of the Government should be on export growth, increase in foreign exchange revenue and not on taxing the export transactions, and thereby making our ‘Made in India’ products costlier and less competitive in International Markets,” he concludes.
