The Confederation of All India Traders (CAIT) on Friday filed a petition against Flipkart with Enforcement Directorate (ED) for violating Foreign Direct Investment (FDI) policy and circumventing law in its favour so as to grab the market.
"CAIT has urged ED to take action against Flipkart and other E-Commerce platforms," says Praveen Khandelwal, Secretary General, CAIT.
CAIT in its petition to ED said that Flipkart in the guise of operating under a marketplace model is actively engaged in the inventory-based model of e-commerce.
Their own admission before a tax authority shows that Flipkart is engaging in buying goods which are ultimately sold on their platform.
Flipkart tried to circumvent the law by routing the sales via their preferred sellers, who are their affiliates. It is a clear case of what they cannot do directly, they are doing it indirectly and this goes against the teeth of any law, including FDI policy and as such, Flipkart should liable.
The policy mandates in order to ensure that the marketplace does not own the inventory, stipulated the name, address and contact details of the sellers, which should be clearly made available while displaying the nature and price of these goods on the online platform.
The said details are conspicuously absent in Flipkart's platform.
Flipkart is in charge of delivery of goods to consumer, which is prohibited under FDI policy.
Flipkart is also actively involved in selling 'extended warranty' to customers directly. It (either directly or through companies over which they have control over / ownership stake in / affiliate) is directly 'selling a service' to customers directly in violation of the FDI Policy.
The FDI Policy provides that an e-commerce entity providing a marketplace will not exercise ownership over the inventory i.e. goods purported to be sold.
Such an ownership over the inventory will render the business into inventory based model. The key word used is 'goods purported to be sold', thus is of a wide coverage. Thus, at no points during the entire supply chain, the market place should have control or ownership over goods which are sold on its platform.
Conversely, as evident from the manner of their operations highlighted before tax authorities the entire structure is created by Flipkart to ensure that the goods purchased by it are ultimately sold off its platform.
Flipkart has consistently acted in violation of this condition by ensuring that close to 80 percent of the sales on its platform has taken place through WS Retail Ltd (including its successors, assignees etc.,).
Even after the said condition was brought in, there has never been a dip in the sales on Flipkart's platform in any quarter, which shows that they are engaging in circumvention of this condition by rerouting their sales via different sellers.
Flipkart is manufacturing products under its label 'Billion' in 12 categories ranging from power banks to mixer-grinders. Its other in-house brands include SmartBuy for electronic accessories, Perfect Homes for furniture, MarQ for large appliances, and Supermart for staples.
Therefore, there is direct conflict of interest between Flipkart and the sellers and the manufactures on its platform. This is a clear case of conflict of interest, and no level playing field.
Disclaimer: No Business Standard Journalist was involved in creation of this content
