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States tightening tax rules for e-tailers
February, 20th 2015

Tax authorities in Maharashtra, Karnataka, New Delhi and Gujarat — the four States that account for most e-commerce transactions — are putting their heads together to devise a formula to ensure that online retailers pay tax commensurate with their booming sales.

Discussions papers have already been shared among the sales tax departments of the States.

A senior Maharashtra sales tax department official told BusinessLine that the whole exercise is not only aimed at netting applicable tax but also to ensure transparency. For the past six months, middle-rung officers in the department have been studying business models of e-commerce companies, to ensure that sales tax on the goods are paid either in Maharashtra or the State where the goods are shipped from, the officer said.

He said an amendment to the Maharashtra VAT Act is also being examined, which will make it compulsory for e-commerce companies to share customer transaction data with the department. Since the data is in electronic form, it can be easily shared with State government servers. Other States are also thinking on similar lines.

“Servers of some of the e-commerce companies are located overseas, which could create issues of jurisdiction for Indian sales tax authorities. Therefore, the law would be amended in such a manner that companies will be mandated to share the data,” the official.

Clearance from the top
But the officer was also quick to point that such sensitive decisions pertaining to change in legislation will have be supported by the highest offices in the country.

Another officer said about 138 e-commerce portals have been closely studied by the department, of which 35 have offices in Maharashtra. They would be soon issued notices asking them to declare in every transaction, valid VAT registration numbers of suppliers. These numbers would be shared with the customers so that they know that VAT would be paid on the transaction. It will help weed out companies which don’t pay sales taxes.

The officer said that VAT registration numbers given by sales tax departments are updated every day, therefore, it would not be difficult to mention the numbers in the transactions. These measures will help in making e-commerce trade more transparent. But implementing these measures may not be easy. Advocate Amit Vyas of the Economic Law Practice (ELP), a Mumbai-based legal firm, points to a recent case filed in the Bombay High Court against a well-known search engine for not disclosing the name of an anonymous author, who was posting defamatory statements against ELP’s client.

The plea by the defendant was that since the server was located outside India, only its overseas parent company could access it and, hence, the orders passed by the court could not be complied with.

This shows that there are difficulties in implementing an order/requisition from a court/enforcement agency when the servers are located outside India, Vyas said.

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