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VAT problem: Amazons operations face disruption
September, 17th 2014

With the Karnataka commercial tax authorities contending that Amazon India is liable to pay VAT (value added tax), because it is a trader, the e-commerce player finds itself on a somewhat sticky wicket. Moreover, the notices issued to the 40-50 vendors, by the department for registering Amazon’s fulfilment centre as an “additional place of business” without properly disclosing that the premises was being shared by several businesses, could disrupt operations at the e-commerce major.

Tax experts, however, point out that Amazon is a pure service provider and, therefore, not liable to pay VAT. Sujit Ghosh, Arguing Counsel, Taxation, Advaita Legal, observed that the contention was frivolous and not based on an understanding of fulfilment services. “It goes against the order issued in favour of Amazon by the Authority of Advance Rulings in August 2012, holding that the activity was a service.” The ruling had

held that “...what the

applicant is providing is an online retail distribution channel and the associated logistical services... His role therefore does come across clearly as one of service provider”.

Anita Rastogi, associate director (indirect taxes), PWC, observed that the rules on e-commerce companies were unclear.

“The law does not specify than an additional place of business can apply to one vendor or several vendors,” Rastogi said, adding that the department was probably not ready to acknowledge that this was an additional place of business.

Amazon India follows a ‘Fulfilment by Amazon Service’ model wherein the global giant encourages third-party sellers, on its platform, to store goods in its warehouses even before an order is placed. The idea is to be able to deliver quickly when customers make purchases.

Krupa Venkatesh, senior director, Deloitte, said the e-tailer was taking possession of the goods for delivery similar to a courier agent, instead of owning the goods.

“If goods are stored in someone’s warehouses, they have possession of goods but they don’t own the goods. In case of an e-commerce marketplace, the dealer who is selling the goods, being listed on the marketplace, is renting warehouses. It can be a service of renting,” Venkatesh said. “Some e-commerce firms sell on their own account, some do not. It may not be right to say all e-commerce companies are commission agents,” she added.

A senior tax official, who declined to be named, told FE, “There are no issues against marketplace model. But in the fulfilment model goods come into the warehouse before

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