Flipkart Files Case Against Uttarakhand Govt. For Levying 10% Tax on Ecommerce Goods

Flipkart has filed a case against the state of Uttarakhand for imposing a 10% entry tax on ecommerce goods, reported ET.

The case was filed through Flipkart’s logistics arm, Ekart, in the high court of Uttarakhand in Nainital. The writ, filed by the ecommerce giant, calls the levy “discriminatory”.

In December 2015, the Uttarakhand government had imposed 10% tax on all ecommerce goods entering the state. In its petition, filed in February, Ekart had argued that while the standard rate of entry tax is 5%, goods purchased through ecommerce companies have been subjected to entry tax at the rate of 10%.

“This new scheme is ex facie discriminatory wherein an additional tax burden is imposed on ‘goods’ procured through a different stream of commerce or commercial mobility. This is an aberration from the scheme of the UT Entry Tax Act, which sought to levy entry tax on specified goods irrespective of the entity from where they were procured,” said the petition.

In January 2016, The Internet and Mobile Association of India (IAMAI) stated that the amendment is unconstitutional and was imposed to pander to small section of local traders.

In its statement against the imposition of taxes, the authority cited two arguments –

A Supreme Court judgment of 2006 clearly states that Entry Tax has to be a form of ‘Compensatory Tax’, and the onus lies on the state to provide quantifiable evidence that the proceeds from the tax is to be used to facilitate trade and commerce for those entities on whom the tax is being imposed. Entry tax cannot be used as a tool for revenue generation or as a tool for compensating revenue loss due to e-commerce activities.

In this case, the tax is being imposed on courier companies, who are wrongly being poised as a ‘principal’ in the transaction. The principal within the state is the consumer, and this tax aims not to facilitate but punish consumers from availing e-commerce facilities.

As per Article 304 of the Constitution of India, state authorities cannot discriminate between goods from outside the state and goods being produced within the state. State legislatures can bring about ‘reasonable’ restriction on movement of goods from outside in ‘public interest’, but such legislation has to be sanctioned by the President of India. This present move by Uttarakhand seems to focus more on the interest of local traders than general ‘public interest’, and in any case cannot be imposed without the President’s consent.

While the central government is promoting the startups and ecommerce through its Startup India, Standup India initiative, the state governments are imposing taxes on ecommerce purchases. This move is making it difficult for the companies to grow in small cities. Prior to this, the West Bengal and Bihar governments had also imposed taxes on ecommerce goods.

This tax imposition is bound to impact the availability of products for online purchase for the consumers in the state. The additional tax will have to be paid either by the consumer or have to be absorbed by the merchants in their commissions. As, the additional tax is on top of the tax already paid on such goods by the sellers in the state from where the goods have been dispatched.

Prior to this, in October 2015, Flipkart, Amazon and Snapdeal had collectively decided to stop delivering products exceeding INR 5000 in value, in UP and Uttarakhand. The decision was made citing the harassment by tax authorities, wherein buyers needed to file VAT form and provide the details of vehicle shipping good, while purchasing goods from them.

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