Invoice anomalyThere is no benefit or advantage, a local supplier can possibly derive by quoting the name of foreign buyer in the invoices of the products meant for delivery to export promotion house.
Export promotion house, (defined in Industrial Enterprise Act of Nepal as a company or firm established as prescribed with the objective of gathering the products of the industries established in the Kingdom of Nepal and exporting them to foreign countries) secures export orders, buys, procures, and gathers the exportable products from the local manufacturers and arranges for the exports.
It is to be understood that in following the aforementioned process, local manufactures and sellers are not, ipso facto, exporting the products. They are simply selling the products to export promotion house. It is the export promotion house who eventually exports the product and gets the recognition as exporter.
It is not therefore uncommon to notice in the Nepal market, the bills and invoices of local manufactures and sellers in the name of foreign buyers, while selling the products to Export Trading House in Nepal.
Export promotion house collects products from VPE Garment & Exporters, a local manufacturer, to export to foreign buyer “Mr. Johnson” in USA. VPE raises invoices in the name of Mr. Johnson, USA as if it is exporting to Mr. Johnson and delivers the invoices and products to export promotion house.
Bills and invoices are the only documents giving legal title / ownership of the goods to the person, entity in whose name bills and invoices are. The moment legal title/ ownership of the goods is transferred, the risk and rewards associated with the goods also passes on to the buyer.
Similarly in above example, risk and rewards has not passed on to the export promotion house, because of the discrepant invoices. As a result, any loss, theft, damages of the product during the possession of export trading house may have to be personally borne by the local manufacturer and the export trading house has a reason to deny the claim.
It is also difficult to justify the payment process, as the invoice is in the name of overseas importer “Mr. Johnson, a USA” whereas the payment comes from export promotion house in Nepal.
Export promotion house will also be deprived off the VAT refund. Since the invoices are not in the name of Export promotion house, Income Tax Department will have a reason to reject the VAT refund process.
Likewise, Income Tax Department will also not allow the purchases of Export promotion house as a deductible expenditure, since the purchase bills and invoices are not in the name of export promotion house.
Insurance claim of export trading house for any loss, theft or damage of the product may also be denied since the ownership of the product does not lies with the export trading house.