taxing E-Commerce through entry tax – authored by Sudipta Bhattacharjee, Principal – Tax Controversy Management, Advaita Legal (views are personal). The final concluding paragraph was not part of the published article, and has been added for the sake of completeness.]
E-Commerce through State entry tax laws – a short-term revenue maximisation
Growth and potential of
e-commerce in India have been extensively commented upon, and unfortunately,
this has led to state governments yearning for a share of this pie.
e-commerce through the VAT route met with stern opposition in Karnataka and
judicial censure from the High Court in Kerala. In the last year or so, state
governments seem to have changed strategy and decided to extract their pound of
flesh from e-commerce by making a variety of hasty amendments to their entry
tax legislations (and in the process, often leaving the said amendments
vulnerable to challenge on various legal/constitutional grounds).
> West Bengal mandated courier/logistics
companies making such deliveries in the state to register themselves and
generate waybills through an official portal only after making a mandatory
pre-deposit of entry tax, even though the entry tax legislation there was
stayed earlier by the Calcutta high court. This coercive practice was recently
stayed by the high court.
> Bihar amended its legislation to make all
goods couriered in the state liable to entry tax at the hands of e-commerce
logistics/courier companies. Assam also amended its entry tax legislation
empowering the commissioner to issue notification prescribing a procedure for
collection of entry tax on entry of goods made through online
purchase/e-commerce and also for collection of entry tax from a person other
than an importer but on behalf of the importer. The constitutional validity of
these amendments in Bihar and Assam is vulnerable to challenge. In fact, the
amendments in Bihar have already been challenged and the matter is listed for
final hearing before the Patna HC on May 4.
> Uttarakhand, similarly, amended the
Uttarakhand entry tax legislation to prescribe a ‘simple procedure’ for
collection of entry tax on entry of goods made through online purchases and
issued a notification thereunder. The notification mandated a 10 per cent entry
tax. However, the amended section in the entry tax legislation neither has
clarity as to the ‘taxable person’ nor does the notification issued thereunder
prescribe a procedure as mandated by the amended section in the entry tax
legislation. Recently, the Uttarakhand High Court granted an interim stay
against entry tax on goods purchased through e-commerce based, inter alia, on
foregoing grounds and will hear this matter again the near future. Despite sub
judice status, the Uttarakhand government has further amended the entry tax
legislation (with effect from March 31, 2016) probably to deal with the
arguments raised before the high court in the aforementioned litigation.
> Himachal Pradesh has also made amendments
to its entry tax legislation similar to that of Uttarakhand and is likely to be
exposed to similar legal/constitutional challenges.
> Gujarat has not only amended the definition
of ‘importer’ (‘taxable person’ under entry tax) to include e-commerce players,
but has gone a step further to mandate that e-commerce players qualifying as
‘importer’ shall “collect the (entry) tax from the person for whom such
facilitation has taken place”.
> Rajasthan, Odisha and Mizoram have also
joined this bandwagon.
Given that the very constitutional validity of
levying entry tax by state governments is under examination by the larger bench
of the Supreme Court, this approach by the states appears to be driven solely
by short-term revenue maximisation devoid of any long-term tax policy
consideration; especially, given the avowed consensus of most state governments
towards introduction of the Goods and Services Tax (GST) by 2017, which will
subsume entry tax.
Thus, e-commerce companies will incur huge
expenditures to tweak their IT systems/logistics to deal with entry tax in
various states (with some states casting responsibility to pay entry tax on
ultimate buyer and some on e-commerce courier/logistics companies) and then
again re-customise to deal with the GST in 2017.
Also, fastening entry tax liabilities upon the
marketplace players will push ‘marketplace’ players to assume responsibilities
that probably transcend the limited role envisaged for such players in the
recent Press Note 3 of 2016.
reasonable basis to treat sales through the mode of online/mobile platform in a
different manner than sales through traditional modes. Such an arbitrary
distinction in fact stifles E-Commerce and curtails consumers’ choices. Given
the strong legal/Constitutional and policy arguments against such disruptive
taxation, State Governments ought to refrain from attempts to fasten E-Commerce
marketplace players (who are nothing but service providers) with VAT and/or
entry tax liability.