Flipkart Faces Tax Scrutiny Over Alleged GST Billing Loophole

Ecommerce major Flipkart has come under a preliminary tax probe over allegations that the Walmart-owned online marketplace has tweaked its billing practices to reduce its goods and services (GST) tax liability, according to a report published by Mint.

Investigators alleged that the company classified the marketplace fees charged to sellers as “transportation costs” to claim lower GST rates reserved for small road transport operators. This would effectively reduce the company’s overall tax outgo.

Online marketplace activities, including buying and selling, charging commission from vendors, providing listings, and enabling payments, usually attract 18% GST.

Currently, the Directorate General of Goods and Services Tax Intelligence (DGGI) is conducting investigation into the complaints against Flipkart, the report said. The officials, as quoted by Mint, will also send a show-cause notice for prosecution if they get full proof against the company.

The allegations came to light after a Madras High Court lawyer flagged Flipkart’s billing method in a letter to Union Finance Minister Nirmala Sitharaman. The matter was later highlighted in a press statement issued on August 23 by the Federation of International Trade Investor Gunodaya Association, the report added.

Other Legal Probes Against Flipkart

Earlier this year, the company has also faced monopoly heat from the Supreme Court of India. The apex court had said the ecommerce major was known for creating monopolies in the market, while expressing concern about the survival of smaller players.

The probe pertains to Flipkart’s alleged use of its dominant position, prompting the bench to inform the company’s counsel that it would like to examine the issue of monopoly.

Even in 2020, the CCI had launched an investigation to examine alleged anti-competitive practices by Amazon and Flipkart such as favoring select e-retailers, hampering competition in India’s e-commerce market.

The CCI investigation found that the e-commerce giants violated antitrust laws by colluding with certain e-retailers and smartphone manufacturers for exclusive online launches, thus restricting market access.

Retailers affiliated with Amazon and Flipkart filed multiple petitions in various high courts, opposing the CCI’s conclusion. These petitions pointed to the faulty procedure of the investigation and questioned the credibility of its findings. In response, CCI asserted that filing multiple petitions are just tactics to derail the probe and avoid accountability for anti-competitive practices.

Foreign-owned ecommerce giants like Amazon and Flipkart are violating restrictions on foreign ownership in the retail sector by indirectly controlling e-retailers on their platforms. The ED claimed that the e-commerce platforms bypassed the rules by exercising indirect control over their preferred e-retailers.