Now, Kerala tightens tax noose around e-tailers

State authorities levy Rs 54-crore fine on Flipkart, Jabong and two others

In yet another stand-off between e-commerce companies and state authorities, Kerala's commercial taxes department has slapped a fine on Flipkart, Jabong, Vector E-commerce Pvt Ltd (which holds a stake in Myntra) and Robemall Apparels Pvt Ltd (which operates zovi.com). The fine, Rs 54 crore overall, has been levied for evasion of sales tax in 2012-13 and 2013-14.

At Rs 47.15 crore, the fine on Flipkart is the highest, followed by Rs 3.89 crore on Jabong, Rs 2.23 crore on Vector E-commerce and Rs 36 lakh for Robemall Apparels.

Reportedly, Kerala's tax authorities are also reviewing other e-commerce companies for similar discrepancies, and might fine more defaulters. In line with the issues raised by state authorities, the tax officials in Kerala have now said though online retailers don't have physical showrooms in the state, they are selling products to locals and, therefore, have to pay regional taxes, according to agency reports.

With taxation regulations in the country predating the advent of online retail, issues pertaining to taxes have been hounding e-commerce companies across states. In many cases, the contention isn't tax evasion, but ascertaining the assessee - the e-tailer or the dealer selling the product.

In India, most large e-commerce companies operate through a marketplace model, as the country doesn't allow foreign direct investment in the online retail segment. Under the marketplace model, these companies do not own goods; they only facilitate transactions between sellers and buyers for a commission or fee.

Earlier, Amazon India had caught the attention of Karnataka's tax authorities when it was found the company wasn't paying value added tax (VAT) for transactions on its online platform, claiming it wasn't doing business in the state directly. The company had asked the department to collect VAT from sellers instead. Following this, the Karnataka tax department had banned Amazon India from selling a few products, including electronics, from its warehouses in the state and cancelled the licences of about 100 vendors selling products through the website.

In October last years, the Tamil Nadu government had asked e-commerce companies to ensure they paid taxes on all transactions. According to reports, the state had threatened "prosecution" if the companies didn't comply with regulations. The move followed an investigation by Tamil Nadu's commercial taxes department, which showed evasion of taxes by some companies.

In December, Maharashtra's revenue department had initiated action against tele-shopping platform Naaptol.com and ordered a freeze on several of the firm's bank accounts to recover VAT on the sale of third-party goods.

Till the time of going to print, Flipkart did not respond to a query on the company's future course of action. Jabong couldn't be reached for comment.

Sources said earlier this month, officials of several e-commerce companies met Finance Minister Arun Jaitley to discuss issues relating to taxation. According to some present at the meeting, the minister and the companies concerned had reached a conclusion that implementation of a goods and services tax (GST) across states would address most of the woes in the sector.

After several extensions, the government has now set a deadline of April 1, 2016, for the implementation of GST across the country.