GST impact on ecommerce: Amazon India gets big relief, tax dispute in Karnataka trashed

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Bengaluru | Published: July 6, 2017 7:07:24 AM

Amazon India has got a relief from its three-year-old tax litigation with the Karnataka government.

The development will now allow Amazon India to accept taxable goods from Karnataka-based sellers for its “Fulfilment by Amazon” (FBA) service.

Amazon India has got a relief from its three-year-old tax litigation with the Karnataka government. With the onset of the goods and services tax (GST), the Karnataka commercial tax department said that the dispute with Amazon India is over, and there are no differences as far as the interpretation of law is concerned. The development will now allow Amazon India to accept taxable goods from Karnataka-based sellers for its “Fulfilment by Amazon” (FBA) service. The vexed dispute coming under the ambit of the earlier VAT regime forced many online sellers from Bengaluru to take a circuitous route to fulfil their sale transactions by FBA. Speaking to FE, Ritvik Ranjanam Pandey, commissioner, Karnataka commercial tax department, said, “Now that GST has come, it (litigation with Amazon) will get resolved completely. Now there is no dispute as far as inferring the law is concerned. E-commerce companies generally deal with goods.” Pandey added, “But now the law is very clear. It says that e-commerce companies will deduct 1% tax and pay it to the government. Of the 1%, SGST and CGST will have a 0.5% component, respectively.”

“Whether they (e-commerce companies) are providing goods or service, it doesn’t matter — all they have to do is deduct 1% and give it to the government,” Pandey went on to say. An email sent to Amazon India seeking its response to this development remained unanswered.

The issue in Karnataka was that the tax department wanted Amazon and other e-commerce companies to pay VAT on third-party goods that were stored in their warehouses even before customers ordered for these products.

While e-commerce companies claimed that they only stored goods of third-party merchants at its warehouse, the tax department had raised concerns over the ownership of products that come under the FBA category and were stored in the company’s warehouses.

During this period, the difficulty in selling goods online using Karnataka’s VAT licence forced many Bengaluru-based sellers to get their VAT registrations from neighbouring Hosur (Tamil Nadu) and Telangana and using Amazon’s fulfilment centres in those states, even as Amazon Bengaluru fulfilment centres limited its inwards of goods to only “non-taxable” items from Karnataka-based sellers.

Sellers sources said that the tax litigation had put them at a disadvantage compared to other states’ sellers. They said the tax dispute led Amazon India to register only tax exempted sellers or categories in its Bengaluru fulfilment centres.

On the issue of sellers getting VAT licences from neighbouring states, Pandey said, “Now that there is a uniformity in tax policy and rates across states, that will also simultaneously come down. If you see mobile phones, our tax rate on mobile phones was 5.5% sometime back. In Tamil Nadu it was 14% that came down to 5% later. When Tamil Nadu had more tax rate than Karnataka, they (online sellers) started making sales from Tamil Nadu and when our rates were lower, they started making sales from Bengaluru.”

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