Amazon India is in a dispute with tax authorities in the state of Karnataka. The state has alleged that the e-commerce giant has flouted tax laws and has ordered merchants to stop storing products at the company s warehouses near Bangalore, Mint reports. Also Read - Redmi Note 10S with Rs 1,000 discount on Amazon sale: Check offer details, new priceAlso Read - OnePlus Nord CE 5G, OnePlus TV U1S launch in India today: Event time, how to watch the event
The tax authorities allege that Amazon India has sold products directly to its customers, thereby violating India s foreign direct investment (FDI) laws. India doesn t allow FDI in e-commerce, and thus companies like Amazon India and Flipkart only act as market places to sell products from third-party merchants. The Enforcement Directorate (ED) is investigating the matter, and in the meantime the tax authorities have cancelled the licenses of several third-party merchants and stopped them from selling their products via the e-commerce site. Some of these merchants also have tie-ups with other e-commerce platforms like Flipkart and Snapdeal, and have been ordered to stop supplying products in the state. Also Read - Amazon School from Home store live in India: What's new
The tax authorities issue with Amazon is regarding its fulfillment centers. These are essentially warehouses, where merchants send their products to once an order has been placed. The company then packs the products and ships them to the customer. Amazon calls these kind of orders as fulfilled by Amazon, which accounts for nearly three-fourths of the total number of orders. Once the customer pays for the product, Amazon sends the money across to the merchant after deducting its commission. It only has to pay service tax to the government, while the merchant has to pay the Value Added Tax (VAT).
The tax issue is regarding the ownership of these products that are stored at Amazon s warehouses. The authorities say that ownership of a product is passed on to Amazon the moment it reaches its warehouses, and thus it is the company that should pay VAT, and not the merchants. Amazon however has countered saying that at no point it owns the product, and instead only offers storage and delivery services to third-party sellers. Thus it should not be liable to paying any kind of tax.
We understand this to be a case where the laws have not kept pace with the new-age online business models that enable a faster, convenient and nationwide access to customers for sellers, especially small and medium businesses, at significantly low costs, an Amazon India spokesperson told Mint. We look forward to an early resolution in order to avoid closing our local warehousing operations in Karnataka and to stay on course for bringing more investments in the state.
Amazon India is trying to resolve the issue with tax authorities. But if they fail to reach a consensus, the company could be forced to shut its warehouse in Bangalore.
Earlier this year Amazon announced it would invest $2 billion in its Indian operations for expanding its business in the country. These expansion plans include opening new fulfillment centers in Haryana, Tamil Nadu, Gujarat and Rajasthan among others.