Tax Issues Haunt Flipkart And Others In Kerala

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Conflict between the Income Tax Department and e-commerce companies is likely to continue unabated, at least in the near future. There were quite a few incidents in the past, which prompted the e-commerce companies to stop doing business in Kerala, but somehow things fell in line. However, the case is different this time. According to reports, the Kerala State Department has slammed a fine of up to rupees 54 crore on various retail players for dodging sales tax over the past two years.

The companies that have been fined are Flipkart, Vector E-commerce Pvt Ltd (stakeholder in Myntra), Jabong, and Robemall Apparels Pvt. Ltd (operator of Zovi.com). As per the reports published in Malayala Manorama, the government has imposed the highest fine of rupees 47.15 crore on Flipkart. Vector E-commerce has been fined rupees 2.23 crore, Jabong with rupees 3.89 lakh and Robemall Apparells rupees 36 lakh. The state government is looking for other e-commerce players also, which have tried to evade taxes in the past.

Even though, it’s not the ideal step taken by the government at a time when Indian e-commerce industry is growing at a steady pace, but the officials seem to have a different opinion. According to them, “Though these companies don’t have any physical store, but still all of their products are available online, which serve the purpose. Since they make money by selling these products to the local customers, they have to follow the regional tax rules. E-commerce companies sell products through online mode, but local customers are paying money to use them; hence, all of these trade transactions are taxable.”

V Satheesh, Deputy Commissioner of the Intelligence Wing, quoted in the NIE reported that online retail falls under Sales of Goods Act 1930, the purview of the definition of sales, trade, business, and goods as per the General Clauses Act 1897, Kerala Value Added Tax Act 2003, and Transfer of Property Act 1882.  He is quite sure that the department has done right by imposing the fine on all those companies, which have been found guilty. The department will win, even if they approach the court.

It’s not the first time that the state government has taken such a step. E-commerce companies such as Flipkart, Myntra, Snapdeal, and Jabong had stopped delivering goods in the entire state in early 2014 because the state government had banned the Cash on Delivery facility. The government said that these companies were selling goods in the state; hence, they were liable to pay tax, which they didn’t agree to. However, they resumed services in the month of June despite ban on COD.

The government officials think that it’s right to impose tax on e-commerce companies while these companies argue that they just facilitate the sale transactions and charge commission on them. At no point during the transaction, are they involved in the manufacturing process. This case amply illustrates how inefficient the Indian tax system is, when it comes to the e-commerce industry. The government will have to come to an ideal solution as soon as possible if it wants to see India on a development path in the near future.

Bhupendra Sharma

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