Unilever loses VAT Battle over Outsourced Signal & Vim Production

The Supreme Court has dismissed an appeal filed by Unilever Sri Lanka Limited in a long-running Value Added Tax dispute, ruling that the company could be treated as a “manufacturer” even though the products concerned were physically manufactured by other companies.

The judgment was delivered on September 14 by a three-member bench comprising Justices Mahinda Samayawardhena, Menaka Wijesundera and Sampath Abayakoon.

The dispute concerned Signal toothbrushes manufactured by Polypak Secco Limited and Vim scourer bars manufactured by R.M. Chemicals Ceylon (Private) Limited under contractual arrangements with Unilever. The products were subsequently supplied to Unilever, which marketed and sold them.

Unilever argued that the two companies that physically produced the goods were the manufacturers and that it merely purchased and subsequently sold the finished products.

However, the Supreme Court found that ownership of a factory or machinery, employment of the workforce or direct physical involvement in production was not necessarily required for a company to be considered a manufacturer under the VAT Act.

The court examined the contractual arrangements and noted that the products were manufactured according to specifications and quality requirements prescribed by Unilever, while the company retained substantial rights relating to production standards, packaging and commercial identity.

The court held that the arrangements went significantly beyond an ordinary buyer purchasing finished goods from an independent manufacturer.

Justice Samayawardhena held that Unilever was a “manufacturer” for the purposes of Section 3(1)(a), read with Section 83 of the VAT Act.

The Supreme Court accordingly affirmed the November 2022 judgment of the Court of Appeal and dismissed Unilever’s appeal with costs. Four other appeals between the same parties covering different taxable periods will also abide by the ruling. (Newswire)

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