Growth and potential of e-commerce in India have been extensively commented upon, and unfortunately, this has led to state governments yearning for a share of this pie.
The initial forays of state governments to tax e-commerce through the VAT route met with stern opposition in Karnataka and judicial censure from the High Court in Kerala. In the last year or so, state governments seem to have changed strategy and decided to extract their pound of flesh from e-commerce by making a variety of hasty amendments to their entry tax legislations (and in the process, often leaving the said amendments vulnerable to challenge on various legal/constitutional grounds).
To illustrate:
> West Bengal mandated courier/logistics companies making such deliveries in the state to register themselves and generate waybills through an official portal only after making a mandatory pre-deposit of entry tax, even though the entry tax legislation there was stayed earlier by the Calcutta high court. This coercive practice was recently stayed by the high court.
> Bihar amended its legislation to make all goods couriered in the state liable to entry tax at the hands of e-commerce logistics/courier companies. Assam also amended its entry tax legislation empowering the commissioner to issue notification prescribing a procedure for collection of entry tax on entry of goods made through online purchase/e-commerce and also for collection of entry tax from a person other than an importer but on behalf of the importer. The constitutional validity of these amendments in Bihar and Assam is vulnerable to challenge. In fact, the amendments in Bihar have already been challenged and the matter is listed for final hearing before the Patna HC on May 4.
> Uttarakhand, similarly, amended the Uttarakhand entry tax legislation to prescribe a 'simple procedure' for collection of entry tax on entry of goods made through online purchases and issued a notification thereunder. The notification mandated a 10 per cent entry tax. However, the amended section in the entry tax legislation neither has clarity as to the 'taxable person' nor does the notification issued thereunder prescribe a procedure as mandated by the amended section in the entry tax legislation. Recently, the Uttarakhand High Court granted an interim stay against entry tax on goods purchased through e-commerce based, inter alia, on foregoing grounds and will hear this matter again the near future. Despite sub judice status, the Uttarakhand government has further amended the entry tax legislation (with effect from March 31, 2016) probably to deal with the arguments raised before the high court in the aforementioned litigation.
> Himachal Pradesh has also made amendments to its entry tax legislation similar to that of Uttarakhand and is likely to be exposed to similar legal/constitutional challenges.
> Gujarat has not only amended the definition of 'importer' ('taxable person' under entry tax) to include e-commerce players, but has gone a step further to mandate that e-commerce players qualifying as 'importer' shall "collect the (entry) tax from the person for whom such facilitation has taken place".
> Rajasthan, Odisha and Mizoram have also joined this bandwagon.
Given that the very constitutional validity of levying entry tax by state governments is under examination by the larger bench of the Supreme Court, this approach by the states appears to be driven solely by short-term revenue maximisation devoid of any long-term tax policy consideration; especially, given the avowed consensus of most state governments towards introduction of the Goods and Services Tax (GST) by 2017, which will subsume entry tax.
Thus, e-commerce companies will incur huge expenditures to tweak their IT systems/logistics to deal with entry tax in various states (with some states casting responsibility to pay entry tax on ultimate buyer and some on e-commerce courier/logistics companies) and then again re-customise to deal with the GST in 2017.
Also, fastening entry tax liabilities upon the marketplace players will push 'marketplace' players to assume responsibilities that probably transcend the limited role envisaged for such players in the recent Press Note 3 of 2016.
The author is principal-tax controversy management, Advaita Legal.
Views expressed are personal
Views expressed are personal
