The e-commerce boom and build-up of online sales, has opened up
a massive opportunity for the online service providers/aggregators.
Popularity of the online market places has however, also brought
with it certain legal and regulatory challenges especially in
relation to taxability of the online aggregators.
One such issue that the online aggregators seem to be grappling
with is applicability of value added tax
("VAT"). In one of its recent
judgements, the Kerala High Court dealt with this issue, in the
matter of Flipkart Internet Private Limited and Ors.
v.State of Kerala and Ors. (2015 (5) KHC 522). The state
revenue authorities had imposed a penalty on the petitioner
(Flipkart Internet Private Limited and others) under the Kerala
Value Added Tax Act ("Act"), on the
ground that the petitioner had not registered itself as a
'dealer' under the Act and not filled returns and
maintained true and correct accounts as mandated under the said
Contentions of the petitioner: The order of the
authorities was challenged on the ground that the petitioner was
merely a service provider, who is not engaged in the business of
sale or purchase of goods and therefore cannot be termed as a
'dealer' under the Act. The petitioner pointed out
that it merely facilitates transactions of sale and purchase
through its online portal and, after an online customer identifies
a product of his choice, the seller of the particular product is
notified of the choice of the customer and he, in turn, raises an
invoice on the customer and makes arrangements for the delivery of
the product to the customer. Further, depending on the nature of
the sale transaction, whether intra-state or inter-state, the
seller of the product pays tax either under the local Act or under
the Central Sales Act, and the fact of payment of tax is indicated
in the invoice issued to the customer. The petitioner contended
that it has absolutely no role to play in the transaction of sale
and purchase and hence it could not have been proceeded against
under the penal provisions of the Act.
Decision of the Court: The Kerala High Court
agreed with the contentions of the petitioners and quashed the
penalty orders imposed. It held that the notice issued by the
authorities was silent on the fact how the petitioner was
considered as a 'dealer', and the authorities
didn't enter a specific finding with reasons as to whether
there was any sales effected by the petitioner. Also, there was
uncertainty as to whether the transactions in question had to be
treated as local sales/intra-state sales vis-a-vis
inter-state sales. The Court was of the view that the impugned
orders reflected a patent non-application of mind by the revenue
authority and seemed arbitrary.
Implications: While this judgement of the
Kerala High Court, does not end up settling the VAT liability
issue, its persuasive value in other states and likely influence on
the ongoing discussions between the various players on this issue
has definitely been welcomed by the online service providers.
There, does appear to be certain hope in the e-commerce industry
that to ease the confusion on the matter, the government may issue
a clarification for the e-commerce companies that operate
marketplaces (and only provide a platform for the sales
transactions), so that they are not made subject to the same taxes
as brick and mortar retailers.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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