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Karnataka taxman frowns at Amazon's warehouses

According to Karnataka's tax laws, Amazon is classified as a commission agent

Mahesh Kulkarni  |  Bengaluru 

Amazon's fulfilment centres, which store products of hundreds of vendors selling on the American major's platform, are being cited by state government authorities as a primary concern in an ongoing dispute.

Fulfilment centres, referred to as by other companies, have a pride of place at and the company maintains these are essential to ensure quality of service.

attracted the attention of authorities when it was found the company was not paying value-added (VAT) for transactions on its platform, saying it was not doing business directly. It asked the department to collect from sellers.

"This is not acceptable, and we have told them to comply with the laws because they are acting like a commission agent," a tax official said.

Explaining why should make the payment, Ajay Seth, commissioner of commercial taxes for the government, said there was no provision in the state's rules for retailers to take shared space at Amazon's fulfilment centres. "They do not have exclusive access to the space they have taken. They are only sharing it with others and there is no scope for the tax authorities to inspect this place."

It was a violation of the law and the state government had asked Amazon to reply by mid-November or face action, Seth said. Ámazon refuses to accept the commission agent status, but its executives said anybody issuing a tax invoice was liable to pay tax to the government.

Products are packed and shipped to consumers across India from these centres under Amazon's vigil. Flipkart, which shifted to the e-marketplace model months ago, has for storing the inventory of traders selling on its site. But Snapdeal, another leading player following the marketplace model, functions without owning or leasing any warehouse.

Karnataka's commercial tax department recently identified 75 vendors selling on Amazon, Flipkart and Snapdeal, among others, for violations and issued notices to them. Around 50 vendors, most of whom had their inventory in Amazon's fulfilment centres, were yet to respond, an official said. As for vendors of other like Flipkart and Snapdeal, "they rectified their mistake", officials said without elaborating.

"We have been working with the relevant authorities to address their concerns. We understand this to be a case where the laws have not kept pace with the new-age business models that enable a faster, convenient and nationwide access to customers for sellers, especially small and medium businesses, at significantly low costs," Amazon said in a statement.

"We look forward to an early resolution to avoid closing our local warehousing operations in and to stay on course for bringing more investments in the state," the statement added.

In a recent disclosure to the US Securities & Exchange Commission, Amazon had said Indian regulations could hit its business prospects. However, the company's founder & chief executive Jeff Bezos had during his recent India visit pointed out that every country had unique challenges, and businesses must work around those.

TAXING MODEL?

  • According to Karnataka's tax laws, Amazon is classified as a commission agent
  • A commission agent is liable to collect value-added tax from customers and remit it to the government
  • The commercial tax department has sent notices to over 50 retailers of Amazon to comply with the tax laws
  • State government has informed Amazon to comply with the tax laws and remit tax collected from customers
  • The government has also pointed out that retailers taking space with Amazon's fulfilment centres is against the law

First Published: Sat, November 08 2014. 23:55 IST
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