Etailers want clear rules and profiteering explicitly defined before opening up accounts for GST audit

While rules appear simple, the applicability of these in the absence of any detailed guidelines by the NAA (National Anti-Profiteering Authority) has left many companies anxious as they are still not clear about what constitutes profiteering.

The NAA has recently written to the Central Board of Indirect Taxes and Customs (CBIC) that it would like to examine the books of accounts of ecommerce companies to ensure that GST rate cuts have been fully passed on.

Ecommerce industry experts said that companies such as Amazon, Flipkart and Snapdeal do not hold inventory but just act as mediator between the customers and the offline merchants.

Therefore, the responsibility of passing on the benefits of the rate cuts is of the merchants and not the e-tailers.

According to a senior executive at a leading e-commerce firm Moneycontrol spoke to, the e-tailer passes on all the government notifications to their sellers. If at any point in time, they are found flouting the norms, they are de-listed.

“We will do the same in this case as well if it is proven that the merchant has not been passing on the rate cut benefits to the customers,” the executive, who did not wish to be identified, said.

"However beyond that we cannot do much because the Press Note 3 (government notification that defines ecommerce rules and regulations) also clearly states that the marketplaces cannot influence the price of the goods sold on the website. Then, under what section can we be penalised?" he asked.

Flipkart, India’s largest e-commerce company in which Walmart recently bought a majority stake for an eye-popping USD 16 billion, was under the taxman's scanner following a consumer complaint.

A consumer had alleged that the e-tailer had not passed on the benefit of the GST rate on the product he had ordered. While NAA concluded that it was not a case of anti-profiteering, the authority now wants audit of e-commerce companies.

In this case, the tax rate on the date of order was higher (28 percent) than the one on the day (18 percent) it was delivered, mainly because the GST council had lowered the rates in the intervening period.

The consumer alleged that he wasn't given the benefits of the rate cut. Flipkart got relief after it withdrew the discount given by the supplier to the customer.

However, the case threw up fresh questions as Flipkart admitted that there were 7,245 similar such transactions where tax rates were lower on the date of product’s delivery compared to the date of order.

The NAA now wants an audit of all e-commerce companies, on the basis of this particular case.

Flipkart, Amazon, Shopclues and Snapdeal did not respond Moneycontrol’s emails seeking their views for this story.

If the bone of contention is that the customer should not be charged more that the revised maximum retail price (MRP), that's anyway not happening because of the heavy discounting blanket, the executive said.

According to analysts who track the sector, customers enjoy discounts of 30-50 percent on ecommerce portals, which are split among merchants, banks, payments gateways and etailers.

“In principle, the rate cuts were lesser than the discounts offered by the e-commerce industry. And as marketplaces we anyway cannot price in real time. It appears that the government is trying to catch the wrong horse,” said the executive mentioned above.

A government official, requesting anonymity, told Moneycontrol that the issue of passing on GST rate cuts and price discounts were unrelated.

The official said that e-commerce companies need to ensure that the impact of tax cut is reflected in the final bill, and passed on to the consumer, without changing or withdrawing the discount given.

The industry has sought specific guidelines from the government so that there is clarity on what constitutes profiteering.

Another senior finance ministry official told Moneycontrol that NAA is only a quasi-judicial body and not a price regulator.

“NAA is not there to control price. The government just wants to ensure that the benefit of the price cuts (in November, January and July) is passed on to the consumers,” the official said.