Advance by a foreign parent to indian subsidiary

This query is : Resolved

shubham agrawal (Querist)
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28 May 2018 A Ltd. a subsidiary of X Ltd. (German MNC) has received a payment of Rs. 96.60 lacs from X Ltd. for Research & Development expenditure. Out of this 96.60 lacs actually only 50.60 lacs as payable but due to some mistake in invoicing, X Ltd. has made an excess payment of 46 lacs to its indian subsidiary.
The payment was received in two tranches i.e. August 2016 - 46 lac & October 2016 - 50.60 lacs.

Now in February 2018 X Ltd. has demanded a refund of excess money.

So what all compliance are required to refund the money. For e.g. RBI/FEMA / FDI/ODI /FCGPR/Companies Act etc.???
Is there any rate of interest to e paid or any time limit??

Thanks
Shubham

CA Suresh Jain

CA Suresh Jain (Expert)
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28 May 2018 If invoice was raised by you for correct amount then for the excess payment received you must have made accounting entry as advance received for service to be provided and you must have informed the bank for receipt of advance. Now, you take a letter from the customer for cancellation of contract and demand of refund of balance. With the help of this letter, you shall be allowed to remit the money to your customer.

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shubham agrawal

shubham agrawal (Querist)
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28 May 2018 Hello Sir. Thanks for replying.
Actually the issue is that it was agreed between two companies that whatever invoice will be there it would be subject to an escalation of 10% to comply with Arms length provisions, but the indian company forgot to add 10% escalation and raised an invoice of 46 lakhs only.
But in October 2016 the issue popped up and the company again raised an invoice of 50,60,000 (this included 10% escalation). Although we have mentioned that only the difference should be paid i.e. 50,60,000 - 46 lakhs = 4,60,000, but the German company paid full 50,60,000 inadvertently.
So we were entitled to receive 50,60,000 but we have received 96,60,000.
Now they are demanding refund after 18 months.
So what is the compliance?

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CA Suresh Jain

CA Suresh Jain (Expert)
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28 May 2018 Please mail copy of both the invoices