At a time when all online marketplaces and vendors are busy liquidating their inventory before the GST rollout, online sellers are apprehensive over the treatment of a very common feature that exists in the e-commerce sector – “goods returned”. While sellers are still puzzled over the tax treatment of goods that straddle across two tax regimes (pre-GST and GST), there is also a concern about return of goods under the cash on delivery model and how they will be treated during the intervening period. Harish Mehta, an online seller in multiple marketplaces, said, “For return of goods, customers are never in a hurry. If a cancel order gets initiated on let’s say June 27, we may receive the goods back during the first week of July. I don’t know how will I treat those goods for taxation purposes.”
Sellers say that online marketplaces, due to their lenient return policies, usually witness a return rate of 15-20% and that can go much higher in the case of cash on delivery. Now that all marketplaces are busy selling goods at a higher discount rate to exhaust their stocks by end of June, sellers expect that a sizeable portion of goods sold during the current sale will come back from customers and possibly reach them after June 30. Another seller who didn’t want to be named, said, “So where will the input credit go? Will they return the money to us?” Mruthunjay, another online seller in various marketplaces, said, “Returns are always encouraged by marketplaces. If marketplaces don’t encourage returns, it will be a big dampener in online selling.”
It is this lenient return policy of e-commerce companies that is likely to increase sellers’ paper work. Abhimanyu Chhapolia, senior partner at auditing firm DK Chhajer and Co, said, “There are transitory provisions for such goods returned in the new GST rule book. If a seller is getting back the goods in July, he will get the input credit for the old duty or tax that he has paid under previous tax regime. But he has to file the transitional returns. Because online sellers have a higher rate of returns, they might be subjected to increased paper works.”
Some sellers also feel that online sales will fall to about 50% during the first two to three weeks in July. With marketplaces busy getting their stocks exhausted or asking sellers to take their inventory back, there will be hardly any stocks left in their warehouses by July 1.
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Mehta said it will take a while for marketplaces to refill their godowns and with near empty stocks, either there will be a fall in online sales or the delivery of goods to customers will get delayed. He said sellers will go on a wait and watch mode to see how online sales is progressing and the subsequent tax treatment under the new tax regime, before stepping up their activity. Sreedhar Prasad, Partner e-commerce, KPMG, said, “Marketplaces have a strong relationship with sellers. There will be arrangements between them to manage this transition period. But once these existing stocks get over, there could be a period of lull. There may not be too much of discounting in this period as e-commerce players will be grappling with what will be new pricings and configuring their internal IT systems and other such areas.”
Commenting on the return of goods from customers, an Amazon spokesperson said, “We have ensured that our systems and processes are geared up to handle the transition into GST regime”.