Manufacturing or what?

[Schuaeb]

I would like to know whether the following is a manufacturing concern or not.

An enterprise who purchase goods, then gets them manufactured from some manufacturing service provider, and then sells in its own name.

I mean the enterprise has got no manufacturing facilities and manufacturing its goods is completely based on out sourcing

[CBPian]

A key different between a manufacturing and trading concern is value-addition. If no value addition is done, it is a trading concern regardless of what it claims to be.
In your example, there seems to be value addition e.g. packaging and b*****ng. There might be R&D involved as well in the shape of design and/or formulae / blue prints etc.
A good example is Apple's iPod. If Apple's iPod division was a separate entity, it would have been a manufacturing concern regardless of the fact that iPods are mostly made in China and Malaysia by contractors.
.. The reason being the R&D , b*****ng, packaging and marketing effort which has made it a unique product.
....my two cents[8D][8D]

[CBPian]

<blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by CBPian</i>
<br />A key different between a manufacturing and trading concern is value-addition. If no value addition is done, it is a trading concern regardless of what it claims to be.
In your example, there seems to be value addition e.g. packaging and b*****ng. There might be R&D involved as well in the shape of design and/or formulae / blue prints etc.
A good example is Apple's iPod. If Apple's iPod division was a separate entity, it would have been a manufacturing concern regardless of the fact that iPods are mostly made in China and Malaysia by contractors.
.. The reason being the R&D , b*****ng, packaging and marketing effort which has made it a unique product.
....my two cents[8D][8D]

<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Can the admin turn off the filter which has eaten my legit word b-r-a-n-d-i-n-g.
Hopefully all of us who are either qualified accountants or accountancy students are beyond this nonsense. [D][D][D]

[Schuaeb]

Thanks CBPian for your feedback

On the basis of value addition its to be decided whether one is a manufacturing concern or not.

In the above example assume that there is no b-r-a-n-d-i-n or packaging involved. I mean the enterprise does not have got any manufacturing facilities at all. Even then would it be manufacturing? I guess yes but not very much confirmed.

[Schuaeb]

I don't know why some senior members are refraining from giving their valuable suggestions

[Schuaeb]

Still unanswered!!!!

[kamranACA]

Dear Shoaib,

I just saw this post from u and earlier it skipped from my attention.

You have to see the definition of Manufacturer from some legislative. These could be sales tax act 1990, excise and salt act 1944, federal excise act 2005 etc for locating this definition.

As per sales tax, section 2 (117) (c) any person, firm or company which owns, holds, claims or uses any patent, proprietory or other right to goods being manufactured, whether in his or its name or on his or its behalf is a manufacturer.

However, for the sake of claiming refund of sales tax against export sales, own manufacturing facilities are must to prove a person as manufacturer-cum-exporter. If he does not hold his own manufacturing facilities he would be treated as commercial exporter.

Federal Excise law also includes such a person in the definition of manufacturer whether or not he owns his manufacturing facilities.

BLACK's law dictionery defines the word manufaturer as under

"A person or entity engaged in producing or assmbling new products"

Some American laws also include the distribution agents in the definition of manufacturer. Even some laws include the importer of goods for resale in the definition of manufacturer.

You should mention for what purpose u have to define manufacturer then some thing could be concretly concluded.

However, in my view such a person is manufacturer. (but not for the purpose of sales tax refund. for that purpose, he is commercial exporter.)

In woven textiles, GOVT has introduced the concept of R&D support and initially only manufacturers were included who have own production facilities. However, afterwards, it became an issue to match the production capacities and quality specifications of each company with R&D claims. It was impossible to ascertain/verify which shipment was from own production and which was from outsourced production. Therefore, to eliminate this mess, textile ministry afterwards, made eligible all those exporters either they have own production facilities or not as manufacturers.

This again confirms that such persons are also manufacturers.

Best regards,

Kamran.

[Schuaeb]

Your qustion that in what context I am enquring is worth asking. But there may be a genral context, I mean just to describe whether he is a manufactures, or service provider or commision agent. I guess the only answer should be manufacturer.

Furthermore, in my point of view such enterprise's Return of Total Income should also describe it as a manufacturer and it will be taxed accordingly.

No doubt, it is exluded from manufacturer cum exporter in Sales Tax Act, however, this exclusion is for some specific purpose.

On the basis of what you have said we can conclude that to be a manufacturer one does not necessarily need to have manufacturing facility. However, looking in same context at some enterprises having production facility may not be considered as manufaturers. I mean those who takes material from other companies, process it, return it to them and earn income for provision of their services. I guess such companies are service providers. If we see some real examples there are some large textile units doing the same, I wonder whether they are classified as manufacturers or not?