Laws for Wholesale Trading in India

• Author(s): 'Arjun Anand'
• Date: 29-May-2020
• Post in: Foreign Direct Investment

Typically, retail is understood to be the sale of goods to end users, not for resale, but for use and consumption by the purchaser. The retail transaction is at the end of the supply chain. Interestingly, courts in India have defined the term ‘retail’ as a sale for final consumption in contrast to a sale for further sale or processing (i.e. wholesale). The government of India has revised its foreign direct policy (FDI Policy) to allow foreign direct investment (FDI) in the retail sector subject to certain conditions. Some of the key changes to the whole sale sector are discussed in the paragraph below:

The FDI Policy allows 100 % FDI in entities engaged in the business of wholesale cash and carry however, per the FDI Policy, to determine whether the transaction is wholesale or retail would depend on the type of customers to whom the sale is made and not the size and volume of sales. Wholesale trading would mean the sale of goods to retailers, industrial, commercial, other professional business users or to other wholesalers, but not for personal consumption. The FDI Policy also lists a number of ‘valid business customers’ with whom wholesale transactions can be entered into (besides the Government). These entities should have relevant tax and business registrations. It is expressly clarified that a retailer undertaking cash and carry wholesale trade cannot open retail outlets, whereby sales will be made to the customer directly unless retail trading and cash and carry wholesale trading are undertaken through separate business arms, wherein separate books of accounts for both arms of the business are duly audited by statutory auditors. The conditions of the FDI policy for wholesale/cash and carry business and for retail business have to be separately complied with by the respective business arms.[1] Under the existing FDI Policy, wholesale deals would be permitted among companies of the same group. However, such wholesale trade to group companies taken together should not exceed 25 percent of the total turnover of the wholesale venture.

5.2.15.1.2 (f) accessible at https://dipp.gov.in/sites/default/files/CFPC_2017_FINAL_RELEASED_28.8.17_0.pdf

The interpretation that whole sale traders cannot open retail outlets has very clearly been specified in the Delhi HC case FEDERATION OF ASSOCIATIONS

OF MAHARASHTRA & ORS vs UNION OF INDIA & ORS