In a fallout of the outcry over discount sales by e-commerce players, the Tamil Nadu government has raised a flag. The state commercial taxes department has issued a communication cautioning businesses about the repercussions of indulging in unfair trade practices.

“Recent investigations undertaken by the commercial taxes department of the Tamil Nadu government reveal that certain dealers involved in online trading have indulged in tax evasion by not declaring the turnover on online sales. Such dealers have not paid value-added tax (VAT) due thereon to the government on sales effected through e-commerce portals,” said the note signed by principal secretary of commercial taxes. “In one such instance, a dealer made online sales worth several crores of rupees but reported a small portion of the turnover to the government, for which legal action is being pursued to collect tax due including interest and penalty.”

The department is verifying bank transactions made on e-commerce portals to detect suppression of sales and ascertain legitimate tax due to the government and the tax recovered as per provisions of the state VAT Act. “Further, such dealers evading tax are warned of prosecution under Section 71 of the Tamil Nadu Value Added Tax Act, 2006,” the notification said.

VAT is payable on online purchase of any goods, including downloaded software, e-books and songs, among others, by a consumer in Tamil Nadu from an online retailer delivering goods from Tamil Nadu. In case an e-tailer delivers goods from Tamil Nadu to a consumer in another state, central sales tax is payable. In the case of sale of motor vehicles from within Tamil Nadu or outside the state to a consumer in Tamil Nadu, entry tax should be paid by the online seller or importer of such vehicle.

“Hence the dealers involving in e-commerce are hereby cautioned to disclose and pay VAT and central sales tax due on all transactions through e-commerce portals promptly, failing which punitive action will be taken as per penal provisions of TNVAT Act 2006,” the note said.

This is not the first time e-tailers are facing a tax tangle. Amazon India has found itself on a sticky wicket with tax authorities in Karnataka over the Fulfillment by Amazon service, wherein the global giant encourages third-party sellers on its platform to store goods in its warehouses even before an order is placed. The tax authorities contend that Amazon is essentially functioning as a commission agent, which, they say,