Regulations
Kerala HC judgement gives relief to e-commerce ventures
The absence of a separate taxonomy for the expanding e-commerce industry has put the e-commerce world into a dilemma. A recent judgment from the Kerala HC will be of much relief to the e-commerce companies
 
E-commerce is the new buzzword not just among consumers but seemingly also the revenue authorities. It seems that the income tax authorities are finding ways and collect revenue from e-commerce sector with their customized tax rules. In the past, several e-commerce firms such as Amazon, Snapdeal, Flipkart have been victimised due to hostile claims raised by the revenue department . In the absence of any standard tax norms for the e-commerce sector, various e-commerce portals are finding it difficult to accommodate the demand notices being hurled by the tax authorities.
 
Recently, the Kerala High Court dismissed the groundless claims raised by the tax authorities under Kerala vat law to Flipkart and Myntra (Writ petition no. 5348 & 6916) stating that the tax authorities did not satisfactorily deal with objections of petitioners (Flipkart and Myntra in this case). Further, the High Court held that the tax authorities shall be certain about the nature of transactions, for instance, whether the transaction is an intra-state sale or an inter-state sale or if at all the petitioner is supposed to be charged under the respective tax laws before issuing any show cause notice to the assessee. 
 
Facts of the case
 
There were two writ petitions pertaining to the two online portals, discussed as follows:
Under writ petition no. 5348 — the assessee/ petitioner (Flipkart), an online service provider was aggrieved by the penalty orders passed against it by the authorities under Kerala Value Added Tax Act, 2003 (KVAT). The authorities have imposed penal provisions under section 67 (Offences & Penalties) of KVAT subject to the breach of the provisions of section 20 (Filing of returns) & 40 (Maintenance of true and correct accounts by dealers) of the KVAT. 
 
Under writ petition no. 6916 — the assessee/ petitioner (Myntra) was engaged in the business of sale and purchase of goods and services on its online portal. Myntra was a registered dealer under KVAT and regularly paid tax on local and inter-state sales taking place from its business premises in the state of Karnataka.
 
Contention of the parties
 
In case of writ petition no. 5348, Flipkart was not engaged in the business of sale and purchase, but served as an intermediary by proving buyers and sellers and acted as a common platform to trade, hence it was not subject to penal provisions. Further, it was contended that even if Flipkart was required to file any returns or pay any claims, the tax authorities should have at least given an opportunity of being heard under section 22 (Assessment in case of non-filing of return and filing of defective return) of the KVAT before imposing penal provisions. 
 
Also, the applicability of vat laws arises in the case of intra-state sales. Flipkart, further asserted that the sales were affected in the course of inter-state sales by a retailer registered on its portal, hence falling under the purview of CST regime and not under vat laws. 
In the case of writ petition no. 6916 — Myntra was aggrieved that the order of penalty, impugned in the writ petition, which finds that the sales effected to its customers in Kerala are local sales and it is on the said premise that the petitioner has been proceeded against under the penal provisions of the KVAT Act and Rules.
 
Judgment
 
The Kerala High Court held that before determining whether to impose penalties or not the petitioner should have been given a due opportunity of being heard in this regard. The High Court further stated that even before getting into the question of imposing penalty, the assessing officer should evaluate whether there is an offence at all committed by the assesse on evading tax or otherwise. The High Court very rightly mentioned that the duty of the revenue is not to usurp taxes but to keep the essence of Article 265 of the Constitution alive, which is no tax shall be levied or collected except by the authority of law.
 
Further, it is clarified in the judgment that it is now well settled that show cause notices issued by statutory authorities, more so when they propose the imposition of penalty on an assessee, cannot pre-determine the guilt of an assessee. The notices issued cannot confront an assessee with definite conclusions as regards the commission of an offence by him as, otherwise, it would make a mockery of the process of quasi-judicial adjudication.
 
The show cause notice issued cannot conclude the guilt of the petitioner. On the contrary, the show cause notices are issued so that the petitioner can take his defense and prove his innocence. 
 
Before taking any action, the tax authorities should be well versed with the genesis of transaction and legalities encompassing the same.
 
In an attempt to promote ease of doing business in India, the authorities should take utmost care to keep the aforesaid judgment under consideration.
 
(Shruti Agarwal works at Financial Training Division of Vinod Kothari & Co)

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COMMENTS

R S Murthy

1 year ago

Excellent. Will our tax authorities at least follow fir practices hereafter, shedding their ego.

`Insurers are easier target for tax department than auto dealers'
 The department of revenue is going after the non-life insurance companies for wrongly availing themselves of Cenvat credit instead of automobile dealers as it is easier to target the former in terms of numbers, a senior official of an industry body said.
 
The Chennai zonal unit of the finance ministry's Directorate General of Central Excise Intelligence had in August issued summons to general insurers for wrongly claiming Cenvat credit of Rs.1,200-2,500 crore ($180 million-$377 million) on bogus invoices of car dealers.
 
"Some errant auto dealers who did not remit the service tax component of the payments made to them for outsourced services have caused the department of revenue to investigate from the insurance company point of view of Cenvat credit. Rather than go after the dealers, the tax authorities have gone after the 23 insurance companies - easier target in terms of numbers," R. Chandrasekaran, secretary general, General Insurance Council of India, told IANS in an email interview on Wednesday.
 
The council represents the interests of non-life insurers in the country.
 
According to him, the show cause notice to the general insurers may be on procedural or documentation shortcomings.
 
"Insurance companies have availed the services from automobile dealers and have paid for the services as well as service tax on such services," Chandrasekaran said.
 
He said the insurance companies would attend to the show cause notices and reply to the department and would show proof as requested and furnish all information needed.
 
"So far they have given the details and documents called for during investigations and would do so even during the show cause notice process," Chandrasekaran added.
 
Queried as to the reason and timing of the insurance regulator setting up a committee to bring clarity and transparency in payouts made to auto dealers when the investigation is being done by the government, Chandrasekaran said: "IRDAI (Insurance Regulatory and Development Authority of India). is the regulator of insurance business and has set up the committee to see how the systems and practices could be improved."
According to him, automobile dealers provide details of comprehensive insurance coverage as part of their value added services to vehicle buyers.
 
"The dealers do get paid for outsourced services (there are IRDAI guidelines on outsourcing) which are not for solicitation of business but for other associated customer service activities which otherwise would be carried out in the office of the insurance companies," Chandrasekaran said.
 
"The total payment made, including commission for procurement of business, and the payment for outsources services which varies from company to company based on their cost structure - perhaps the combination of both as a percentage of premium may be referred to in a ministry note... I have not seen this ministry note and hence cannot say anything beyond this," he added.
 
The union finance ministry has said the IRDAI regulations do not allow any person other than insurance agents and insurance brokers approved by IRDAI, to sell vehicle insurance policies.
 
Further the maximum brokerage/commission payable for selling insurance policies is also capped at 10 percent of the premium.
 
To circumvent these regulations, the insurers ask the car dealers to raise invoices to show that they have provided services such as advertisements, renting of computers/ printers, training, arranging customer awareness programme and others, the finance ministry said.
 
"As these services were never provided by the car dealers, their invoices are not permissible documents under the CENVAT Credit Rules, 2004, and the Service Tax Rules, 1994, for availing Cenvat credit by the insurance companies.
 
"These facts have been confirmed by the employees of the insurance companies and the car dealers in their voluntary statements. The estimated incorrect Cenvat credit involved in this case is Rs. 1,200-2,500 crore," the finance ministry said.
 
Chandrasekaran added: "As the matter is already between the insurance industry and the tax authority, the raking up of the issue by the media at this juncture is not necessary."
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
Bharti to roll out legal assistance initiative
Bharti Enterprises is all set to roll out an initiative to provide legal and financial assistance to underprivileged undertrials across the country.
 
The initiative, called "Nyaya Bharti", was announced on Thursday by Sunil Bharti Mittal, founder chairman of the group, who said it will be extended to "first time offenders and minor offences".
 
"Nyaya Bharti" will start functioning soon and commence giving first grant from April 1, next year, he added.
 
Bharti Airtel will provide an annual grant of Rs.10 crore on an ongoing basis towards this initiative.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

Silloo Marker

1 year ago

Mr. Mittal Bharati's initiative is a good one. Most CSR efforts go into education or Swach Bharat efforts but one rarely thinks of the poor fellow who is in jail on some minor charges and may be there forever almost for lack of money to pay bail if granted.
This reminds me of an article in the Times of India under a column "100 years ago" which has long been stopped. Wish I had kept that article. It was the story of an unknown small-time Parsi trader who used to go to the Small causes court regularly and pay the small amounts of bail for poor under-trials. The man was later known as Sir Jamshedji Jeejeebhoy,1st Baronet, one of the richest men in the business community in Bombay in the late 18th-early 19th century.His philantrophy is well known to hundreds of beneficiaries even today who use, for example, the J.J. Hospital or the J.J. School of Art and many other charities.

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