Whether export incentives can be treated as part of sales

1.A public sector company is engaged in the manufacture and sale of heavy earthmoving equipment, rail coaches, heavy duty trailers, aircraft towing tractors etc. The company also renders after-sales service of the equipment both during and outside the warranty period.

2.The company is treating export incentives-both cash assistance and duty drawback-in respect of export sales a part of ‘sales’ and these are separately disclosed in the ‘Sales Schedule’ of the profit and loss account. The company has been following this practice consistently. The reason why this method of treatment/ disclosure has been adopted according to the company is that export incentives are in the nature of supplementary sales as these incentives are provided by the Government to compensate them for loss in sale value due to competitive international market and for earning precious foreign exchange for the country.

3.The company has now been advised that such export incentives should be treated as ‘Other income’ as they are not ancillary/incidental to the business.

4.The querist has sought the opinion of the Expert Advisory Committee as to whether such export incentives can be considered as part of sales or should be treated as ‘other income’.

Opinion May 16, 1986

The Committee is of the opinion that export incentives should not normally be merged with the sales figures. However, since the company has already disclosed the accounts in respect of export incentives in the profit and loss account and as a separate item in the relevant schedule of the profit and loss account under the head “Sales Including Export Incentives”, the manner of disclosure adopted by the company is in accordance with the requirements of Schedule VI to the Companies Act, 1956.

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