Amazon's Karnataka tax issues likely to escalate

Tax dept may attach assets of dealers; new retailers not being registered

The stand-off between online retailer Amazon India and Karnataka’s commercial tax department is likely to escalate. Tax officials are contemplating attaching the assets of its dealers who haven’t responded to a notice by the department.

A number of such dealers, served a cancellation notice by the department, are yet to respond. The commercial tax authorities, who have already extended the deadline for responses, are now deliberating the next course of action. The department has stopped issuing fresh registrations to new dealers on Amazon’s e-commerce platform.

“As of now, the status quo continues, as we are waiting for the chief minister to take a stand on the issue,” said I S N Prasad, principal secretary, finance department, Karnataka. “However, we have stopped issuing fresh licences to new dealers until the matter is resolved. We had given additional time to dealers and are waiting for their response.”

Amazon India told Business Standard its stand on the issue was unchanged. A spokesperson said the company hoped for an early resolution to avoid closing warehousing operations in Karnataka and to bring more investment into the state.

According to senior state government officials, the options before the tax department include attaching the assets or bank accounts of dealers.

However, the department hadn’t set any timeframe for its next action, officials told Business Standard.

Amazon India had caught the attention of 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 directly. It had asked the department to collect VAT from sellers.

Officials in the department say the contention isn’t tax evasion, but a matter of ascertaining who the assessee was —Amazon or its dealers.

They said in this case, Amazon was clearly acting as more than a facilitator or a logistics provider for the goods booked and sold on its platform.

Also, it was raising invoices on behalf of its dealers, packing the goods and delivering these at customers’ doorsteps, they added.

IN A BIND

KARNATAKA & E-TAILERS

• Bengaluru is the headquarters of two of India’s largest e-commerce companies, Flipkart and Amazon, besides a host of smaller e-tailers
• With a high density of tech-savvy consumers, the city is a major e-commerce market
• All major e-retailers have warehouses in or around Bengaluru

COMPLEX MARKETPLACES

• As FDI in direct online retail isn’t allowed in India, companies do not own products but host third-party merchants on their platforms

THE REGULATION

• Laws across states in India predate the advent of online retail
• VAT or sales tax differ from one state to another
• In Karnataka, there is no specific mention of regulations for e-commerce companies
• The Karnataka tax department is working on amending the regulations to address issues relating to this sector

THE CONTENTION

• Karnataka authorities want online retailers to pay VAT on third-party goods stored in state warehouses even before customers order these products

HOW IT UNFOLDED

JULY-AUGUST, 2014

• Karnataka tax department sends notices to cancel the licences of about 100 third-party merchants working with the state unit of Amazon India; some of these merchants worked with Flipkart and Snapdeal, too

SEPTEMBER

• News reports claimed business lobbies and Karnataka govt officials, including the CM, asked the tax department to “go easy” on Amazon’s sellers but sellers continued to get notices from the department

DECEMBER

• Tax officials contemplate attaching assets of dealers who have not responded to its notices

“We will stand by our interpretation of the law. If Amazon or its dealers do not agree with our notice, they are free to file complaints or even take legal recourse. However, none of them have moved in that direction. It only means they are on weak ground. So, we will wait for some more time before initiating penal action on them,” the officials said.

The department had served cancellation notices to about 75 dealers operating through Amazon’s fulfilment centre; of these, only some have responded to the notices.



The department also sought to know how so many dealers shared a common place of business — all of them had stocked their goods at Amazon’s fulfilment centre at Hoskote, on the outskirts of this city. The officials declined to say whether other e-commerce companies had also been served similar notices.

“We are hoping by the end of December, a solution will emerge and we hope not just Amazon, other e-commerce players operating in Karnataka will also fall in line and comply with state tax laws,” they added.

They clarified Amazon India was still operating out of its fulfilment centre in Hoskote, adding the department wasn’t preventing the company from doing regular business. Officials in the commercial tax department said there was no provision in the state’s VAT rules for retailers to share 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; there is no scope for tax authorities to inspect this place and that amounts to violation of law,” they added.