The Assam government has proposed to bring online shopping under the tax net. To tax e-commerce transactions through the entry tax route, it has proposed an amendment in the Assam entry tax (amendment) Bill, 2014. Legal experts decode what this means for the $3-billion e-commerce sector.
Entry tax is one out of the multiple taxes levied by states. It is triggered when goods enter a state/designated area for "sale, use or consumption". With e-commerce transactions, while the purchase is made electronically over the internet, a physical delivery to the customer follows.
As this physical delivery meets the requirement of "sale, use or consumption" in the state where the customer is located, entry tax has to be paid.
The entry tax levy in various states has been constitutionally challenged before high courts and the Supreme Court, under Articles 301 and 304 of the Constitution, on the basis that it isn't compensatory.
Also read: ‘Non-imposition of tax is a beneficial treatment’
Assuming the levies are upheld, the liability is usually on the "importer" of the goods, or the person who causes the goods to be brought into the state concerned. In the case of e-commerce transactions, it is difficult to establish who the importer causing the entry is and, therefore, the implementation of the levy is unclear.
Amid this, the Assam government recently moved to tax e-commerce transactions that lead to movement of goods into the state. The proposed Bill seeks to recover the tax not only from the "importer", but also from any person acting on behalf of the importer, which might include the carrier/logistics agency carrying out the delivery.
A specific mechanism has, therefore, been proposed to implement the levy for online purchases. This mechanism might also be replicated in other states.
The Assam Bill further proposes to introduce a residuary entry under the schedule to cover all goods not falling under one of the specific entries.
Separately, under the existing provisions in certain states, other online transactions such as electronic download of software (where there is no physical delivery) have become the subject of entry tax disputes.
The proposed levy might have far-reaching impact, given higher volumes of retail purchases have been shifting to e-commerce portals.
The entry tax may be offset against VAT (value-added tax) liability in certain states, reducing the tax cost.
In respect of the higher tax impact, any resolution may be through constitutional challenge or the eventual subsuming of the levy under GST (Goods and Services Tax).
Rohit Jain
Partner, Economic Laws Practice
Partner, Economic Laws Practice
(Divya Jeswant, associate manager at Economic Laws Practice, assisted the author with research and inputs. The information provided in the article does not constitute legal opinion or advice)
