Service tax net may catch manufacturers outside India

Indian companies and multinational corporations (MNCs) operating in India in order to derive the benefits offered by globalization have started to get their goods manufactured outside India through contract manufacturing.

A popular business model

Contract manufacturing is the manufacture of components or products by a company for an external customer. Companies often use contract manufacturing as an alternative to operating and maintaining their own factories.

Products such as printers, mobile phones and computers are created using this method. Normally, the customer is expected to supply drawings and specifications for their desired product as well as the quality control criteria.

Ravi Singhania is the managing partner and Sunil Kumar is a partner in the tax practice at Singhania & Partners. The firm is headquartered in Noida and has offices in New Delhi, Mumbai, Bangalore and Hyderabad.