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VAT Issues: Karnataka offers ecommerce giant Amazon a month for tax call
October, 13th 2014

Karnataka has offered the Seattle-based ecommerce giant Amazon one month's time to explore and come up with options by which they could comply with the state VAT laws.

Until then, the Commercial Taxes department has agreed not to act against individual dealers who have business partnership with Amazon. The development has come as a breather to both Amazon, and dealers, and it is still too early to say whether a mutually acceptable solution is possible soon.

"We are trying to arrive at a common ground, and have told Amazon to suggest options. We have also told them that we cannot allow the present uncertainty to linger for long," ISN Prasad, principal secretary, finance department, Karnataka, told ET. "Once a solution is found, we can propose necessary changes in the VAT law or in the rules keeping the specific needs of the ecommerce businesses in mind," he added.

In response to an ET query, Amazon said: "We are awaiting a resolution and will extend full cooperation to the government to arrive at a solution."

Amazon, which opened its modern warehouse in Hoskote taluk of Bangalore Rural district in January, could partner with barely 50 dealers/merchants as its "fulfillment model" ran afoul with Karnataka tax authorities. Under this model, the dealers register the Amazon warehouse as their additional place of business (APOB), also called branch, with VAT authorities. The Commercial Taxes department accepted this initially, but later questioned the business model. The local VAT offices (LVOs) soon issued notices asking dealers why their branch certificates be not cancelled.

"The Commissioner of Commercial Taxes has verbally asked local VAT offices not to cancel the certificates immediately, and instead offer one more month's time to dealers to give their replies," an official said.

A person tracking the developments confirmed that the VAT authorities have not issued any further notices or cancelled branch certificates.

The American behemoth with $74.5 billion in global revenues last year has conveyed to the Finance department that it is unable to issue VAT invoice to buyers or remit taxes on dealers' behalf as any such activity would be construed as engaging in retail trade, and violate FDI regulations in India. It cannot register itself as "commission agent" with the tax authorities for the same reason, it said. The Finance department, however, has lobbed the issue onto Amazon's court to explore solutions.

The affected dealers, meanwhile, are unhappy at the stalemate, and some have already moved their stock from the warehouse though they continue selling on Amazon. Others have stopped selling online altogether because of the problem.

of the additional services like warehousing and packaging offered by Amazon," said a dealer, whose branch certificate has been cancelled.

The Bangalore-based dealer, whose firm has an annual turnover of under Rs. 5 crore, was expecting online to account for almost 40 per cent of his revenue this fiscal. "If the problem continues Amazon can move its warehouse to Tamil Nadu or some other state. Then merchants will suffer and Karnataka will not get these taxes anyway," he said.

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