Unilever lost the VAT case

The Supreme Court has dismissed an appeal filed by Unilever Sri Lanka Limited regarding a long-standing dispute over Value Added Tax (VAT). The court ruled that even though the relevant products were physically manufactured by other companies, Unilever could legally be considered a 'manufacturer' in that process.

This decision was announced on September 14 by a three-member Supreme Court bench comprising Justices Mahinda Samayawardhena, Menaka Wijesundara, and Sampath Abayakoon.

This legal dispute originated from the issue of Signal toothbrushes manufactured by Polypak Secco Limited and Vim Scourer Bars manufactured by R.M. Chemicals Ceylon Private Limited, in accordance with contractual agreements with Unilever. After these products were supplied to Unilever by the respective companies, Unilever was responsible for releasing and selling them in the market.

Unilever argued that since it only purchased and sold finished goods manufactured by two other companies, only those physical manufacturers should be considered 'manufacturers'. However, the Supreme Court pointed out that under the VAT Act, ownership of factories or machinery, control of a workforce, or direct physical involvement in production are not mandatory factors to define a company as a manufacturer.

After studying the contractual agreements between the parties, the court observed that these goods were produced in accordance with specific specifications and quality standards provided by Unilever. Since Unilever held significant rights regarding product standards, packaging, and commercial identity, the court concluded that this process went far beyond a typical consumer or buyer relationship where goods are purchased from an independent manufacturer.

Justice Mahinda Samayawardhena ruled that Unilever is a 'manufacturer' according to Section 3(1)(a) read with Section 83 of the VAT Act. Accordingly, the Supreme Court affirmed the decision given by the Court of Appeal in November 2022 and dismissed Unilever's appeal, subject to the costs of the case. This decision will directly impact four other appeals currently pending between these same parties concerning different tax periods.