An MNC into e-portal business and the State commercial taxes department are at loggerheads. While the company argues that it is just a facilitator of moving products and not a seller or buyer, the department has viewed it as a backdoor entry into retail business, which is prohibited under the Foreign Direct Investment regulations.
Amazon, one of the largest online retailers of multibrands in the world, has opened three large warehouses in Bangalore in the last one year. Under the FDI norms, foreign firms cannot do retail business of multibrands in India. Hence, such firms cannot register as dealers.
Amazon in Bangalore has declared its business as ‘Fulfilment By Amazon’ (FBA). Several companies carry out their business through the e-portal and also stock their products in the warehouses.
The dealers pay Value Added Tax (VAT) of nearly Rs 100 crore to the department, while Amazon is paying service tax on the commission it earns to the Centre. The investment by the MNC in Bangalore runs into billions and it has put on hold its expansion plans due to the taxation issue.
Sources in the department said Amazon’s argument is that it is not flouting any norm as it is only collecting commission for delivering goods to customers of its dealers. But officials argue that if such foreign firms have to conduct their business, they can do so only through an Indian subsidiary or else shut shop.
The department’s stand is that the company must register as a dealer and pay VAT. If the MNC insists on exemption, Section (8) of the VAT Act has to be amended, official sources said.
Official sources said the representatives of Amazon have petitioned Chief Minister Siddaramaiah to look into the taxation issue. The Commissioner of Commercial Taxes, while clarifying on the issues raised by Amazon Seller Services Private Limited, on July 21 stated that the proposed business arrangements of declaring FBA warehouse as an additional place of business of a large number of original suppliers was not in conformity with the provisions under the VAT Act, 2003.
The trading activities include issuing invoices, dispatch, delivery and return of goods. It is retaining fee and passing on the balance sales procees to the original suppliers, which are the activities of a commission agent.
Therefore, it should be registered as a commission agent and should pay tax.
The department has also slapped notices on several dealers intending to carry out business through the MNC to close their transactions with the MNC. One such firm is Acme Fitness Pvt Ltd.
The department officials recently inspected the warehouse and wrote to Acme that Amazon group was trying to make a ‘backdoor entry’ into retail trade in India by using some grey areas in taxation laws.
The model followed by the MNC may be replicated by other corporate firms or retailers to evade tax payment, the department has observed in its note to Acme.
Some of the Amazon’s competitors like Flipkart in Bangalore are Indian companies and hence, they are not facing this particular problem.