Business Transactions: Advance Payments, Discounts, Etc.
Posted: 22 Rajab 1423, 29 September 2002
|Q.) I am a businessman involved in a manufacturing sector. Take for example, for this questions sake, I make a product called "A".
Please help me with the following questions:
1. Some of my customers are willing to pay me an ADVANCE payment for the item "A", though I do NOT have the item in stock. However, I do have the raw material to make it. Is it permissible for me to receive the advance payment?
2. Suppose the price of the item "A" is $20.00. A customer, once approached me, and told me that, he was willing to pay me an advance payment for the item "A", on condition that, I give him a discount. In other words, he wanted me to sell him the item "A" at a price less than $20.00. Again in this case I did NOT have the item "A" in stock, but, I did have the raw material to make it. Is this sort of a deal permissible?
3. Some of my customers are willing to pay me an ADVANCE payment for the item "A", though I do NOT have the item in stock. However, I also do NOT have the raw material to make it. Is it permissible for me to receive the advance payment?
4. In a shop, there is notice pinned stating "ALL PRICES INCLUSIVE OF VAT". At the end of the day, the businessman only declares part of the sales in his books.
What is the Islamic implication on this?? Note that some of the merchandise bought was without an invoice as such the businessman did not pay any VAT [Ismail Lunat]
A.) In principle, Nabi has prevented a person selling an article before it gets into his possession. However, due to the needs and necessities of man, including various other factors, Shari'ah has permitted a particular transaction with many conditions called, 'Bay Salam'.
Bay Salam means to collect an advance payment in lieu of the commodity which will be handed over later. There are seven conditions for the validity of this transaction. a) The Jins (category) of the commodity must be clearly known and distinct at the time of the transaction (e.g. clothing, fruit, vegetables, etc.), b) The type of this category must also be clearly known, e.g. trouser, shirt, socks, etc. c) The quality of the type must be clearly known, e.g. 100% cotton, wool, silk, etc. d) The amount / quantity must be stipulated and clearly distinct, e.g. 100 pairs of socks, 10 boxes of apples, 5 kg bananas, etc. e) The waiting period must be a stipulated time. At the time of the transaction, the date on which the buyer will collect the article must be a known and stipulated date. The duration of this time should not be lesser than one month, f) The price of the article must be known, g) The place where the buyer will be able to take possession of the article must clearly be distinct and known to both parties. Over and above these seven conditions the raw material for that article must be present for the entire duration of time from the time of the transaction uptil the date of possession. (Shaami vol.5 pg.214)
If the advance payment that you are receiving for your item 'A' is in conformity to the above mentioned explanation, it will be permissible, otherwise not. This answers questions 1, 2 and 3
4) If the prices of items include VAT, it is the businessman's responsibility to discharge that amount to the government as he is the Wakeel of the consumer in doing so.
And Allah Ta'ala Knows Best