Flipkart restructured biz model to control over inventory, alleges CAIT

Traders' body CAIT on Thursday urged the government to investigate the "blatant" violation of FDI and taxation rules by e-commerce major Flipkart, alleging that the Walmart-owned firm had "creatively" restructured its business model to exercise control over inventory and retail prices.

Flipkart was violating FDI policy "by creatively structuring its marketplace business model and creating a facade in order to exercise control over inventory and retail prices, a practice expressly prohibited by the FDI Policy on e-commerce", CAIT said in a letter to Commerce and Industry Minister Piyush Goyal.

This warrants an immediate investigation and strict action from the Indian government, including tax authorities, Confederation of All India Traders (CAIT) added.

When contacted, a Flipkart spokesperson said as a marketplace, Flipkart's endeavour has always been to use technology and innovation to facilitate the buying and selling between lakhs of local sellers/MSMEs and over 300 million customers in a transparent and efficient manner.

"We will continue to operate with the same transparency, and in line with India's FDI and regulatory framework, while creating new livelihood opportunities and jobs...With more than 3 lakh sellers on the Flipkart Marketplace, our seller partners are an integral part of the ecosystem," the spokesperson said.

In 2018, Walmart Inc had invested USD 16 billion for acquiring a 77 per cent stake in Flipkart. Last year, the US retail giant led a USD 1.2 billion funding round in the Indian e-commerce company.

CAIT noted that in 2019, Flipkart had created a two-tier model consisting of ADs and Diamond Sellers (DSs) and that currently, there are 20 DSs and 10 ADs in place.

These 30 entities were created for the sole purpose of granting control of inventory and prices to Flipkart, and to "act as an eye-wash and (to) distract the government from taking note of the wholly illegal activities" being undertaken by Flipkart and these entities, it alleged.

CAIT alleged that the ADs and DSs exist only for GST compliance and to service their arrangement with Flipkart and cede control for a minuscule cost.

"Flipkart has created a system of surrogate business partners with the sole aim of bypassing the FDI Policy and destroying the very traders the policy aims to protect.

On behalf of over 8 crore traders, we are writing to you to initiate an immediate inquiry and investigation into the wholly illegal business practices of Flipkart and its violations of the FDI Policy, GST, Income Tax and more serious money laundering concerns, before it wreaks havoc in the lives of our members, their families and the overall retail industry," it said in the letter.