More Amazon vendors get Karnataka VAT notice

By: and |
Bangalore | Published: November 1, 2014 12:15:31 PM

Karnataka’s commercial taxes department has issued notices to an additional 25 vendors...

Karnataka’s commercial taxes department has issued notices to an additional 25 vendors on Amazon’s online marketplace for registering the e-commerce player’s fulfilment centre as an additional place of business. The move comes even as the department is working to amend the state’s value-added tax (VAT) laws to plug loopholes that it believes e-commerce companies are exploiting. After the latest round, the total number of notices issued has risen to 75.

Earlier, the department had issued notices to about 50 sellers who too had registered Amazon’s fulfilment centre, near Bangalore, as their additional place of business, which is against the state’s VAT rules. These vendors, sources said, had not disclosed that it was a shared facility.

“We don’t want to drive out e-commerce companies from the state but we want to ensure rules are followed,” an official told FE. The tax authorities had raised a red flag over the Fulfillment by Amazon service under which the e-tailer encourages merchants to store products in its fulfilment centres even before an order is placed to facilitate faster delivery and enhance customer satisfaction.

However, the authorities contend that this makes Amazon a commission agent and wants it to pay VAT on behalf of the sellers. Amazon maintains that it merely provides a platform to third-party merchants and does not own the inventory and so is not liable to pay VAT.

“When Amazon started the fulfilment centre here, 101 sellers had applied to register it as an additional place of business, of which 27 were rejected at the outset,” the official said. Of the remaining 74 sellers, the department recently cancelled the permission given to 24 while issuing notices to the remaining 50 and allowing them two weeks’ time to respond.

Besides, the department also wants to ensure that e-commerce firms do not escape paying taxes given how some of them operate through a maze of subsidiaries. “Some e-commerce companies have separate entities controlling different areas of the business. We want to make them liable or ensure that one particular entity shoulders the responsibility to pay the tax,” the official said.

Amazon, in a filing with the US Securities and Exchange Commission earlier this week, had said that its business in India involves unique risks as there are uncertainties over the country’s laws and regulations.

The e-tailer’s China business may also face similar hurdles, it had said in the statement. “If our international activities were found to be in violation of any existing or future PRC (the People’s Republic of China), Indian or other laws or regulations or if interpretations of those laws and regulations were to change, our businesses in those countries could be subject to fines and other financial penalties, have licences revoked, or be forced to shut down entirely,” the company said in the filing.

VAT’s the big deal

State govt is yet to approve the changes proposed by the sales tax department in the law

If approved, it will drive Amazon out of the state

State govt wants to bring clarity in law while not driving out e-commerce firms

Amazon had recently issued a warning that its businesses in India, China could face regulatory risks

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