Karnataka taxman frowns at Amazon's warehouses

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

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

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

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

Explaining why Amazon should make the payment, Ajay Seth, commissioner of commercial taxes for the Karnataka government, said there was no provision in the state's VAT 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 warehouses for storing the inventory of traders selling on its site. But Snapdeal, another leading e-commerce 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 e-commerce companies 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 online 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 Karnataka 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