Analysis of tax trouble faced by Amazon in Karnataka

All governments talk about simplifying laws to make the life of businessmen easy. But it’s like the saying ‘the slip between the cup and lip’. The politicians promise a whole lot of things before the elections but when they assume office, they take a U turn! None of their promises get materialized, especially when it comes to helping businessmen. Analysis

Today E-commerce (now popularly known as ‘e-tail’) is gaining momentum over retail. I buy goods through Flipkart, Snapdeal or Amazon. E-tail is really helpful for office-going people. They send the goods (nicely packed) to our doorstep, without any additional cost. Infact, one can get anywhere between 5% to 30% discount on many products.

How does this model work with Amazon in Karnataka?

Let me get into the topic straight. Amazon.com started its e-tail operation in Karnataka recently. They have two business models, namely

Market place Model 

It operates on market place model where it links merchants (Manufacturers, wholesalers & Retailers) with customers through its technology platforms. Merchants will take care the storage of goods at its own place and delivery will be taken care by logistic partner.

Fulfillment center model 

In this model, the merchants will store their goods at Amazon’s Godown. Based on the service agreement with Amazon, dealer will apply for additional place of business (amazon’s godown) under VAT laws. The customers place order through amazon website and in turn amazon ships the goods to the customers. By stocking the goods at its godown, amazon ensures speedy delivery of goods to its customers.

Karnataka VAT department Vs Amazon

The fulfilment centre model has got into trouble now. You would have read the news about this information in the media.

How does the billing work under fulfillment centre model?

• Amazon will raise the invoice on sellers name and raise the e-sugam by using sellers e-sugam user name and password, deliver the goods from its warehouse through its logistic partner. 

• Amazon collects the money through payment gateway. After retaining its commission, transfers the balance amount to merchants along with VAT amount. The merchant will pay VAT and file monthly returns from VAT 100.

Challenges faced by Amazon in Karnataka:

Issue # 1 – Registration

• As per Karnataka VAT Laws, an additional place of business can be given for those merchants who can submit documents such as rental agreement and electricity bill.

• Secondly, each of such additional places should have separate place to keep the goods and display board (name board) outside the premises.

In case of amazon model, it’s not possible, because hundreds of small vendors keep items in the same godown!

However, the VAT department granted registration to sellers with respect to Amazon warehouse as additional place of business on the basis of No Objection Certification (NOC) issued by Amazon to sellers and Service agreement between Amazon and sellers and electricity bill of Amazon warehouse.

Recent development – Subsequent to the registration of many dealers, the VAT department felt that this model is violating the registration provisions of VAT Laws and hence sent notices to all the dealers (who have amazon godown as additional place of business) to cancel the Amazon warehouse as additional place of business.

Issue # 2 – Tax liability

As per the definition of ‘dealer’ under KVAT Act, the commission  agent or any other mercantile agent by whatever name called, who carries on the business of buying, selling , supplying or distributing goods on behalf of any principal has to discharge the tax liability.

So, the VAT department says “As per the Karnataka VAT laws, they (Amazon) are acting as commission agents, and hence should discharge their liabilities to the government under the fulfillment model. We have no issues with regard to the market place model”

But Amazon argues that

• It has told Tax department that the company does not own the goods at any point and neither does it sell on behalf of any seller. It is only providing services—storage, delivery etc.

• It is acting as service provider and to ensure the faster delivery of goods to the customer the goods are kept in Amazon’s Godown. For keeping goods rent & commission is charged for services.

Tragedy of our country

This is the story! Don’t you think that it is silly?

• Somebody manufacture goods
• Somebody buys the goods
• Somebody facilitates the supply.
• The Government gets its taxes without any lapse.

But Outdated, meaningless provisions of laws are making its headway over the genuine business!

Mr.Modi or otherwise, State or Centre, this country needs a quick solution. As it is going, we can only find roadblocks. God, save our industry!

Trade secret

Amazon fails to ship “goods” to Karnataka VAT department. The day they ship “right goods”, all problems will be solved.

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