Online service providers like ‘Flipkart/Amazon/Snapdeal/Ebay’ facilitating sale and purchase of goods through online portals cannot be considered as dealer of goods – Not liable for VAT

Flipkart Internet (P.) Ltd. Vs. State of Kerala [(2015) 62 taxmann.com 387 (Kerala)]

Flipkart Internet (P.) Ltd. (“the Petitioner”) is an online service provider, registered under the Finance Act, 1994 facilitating transactions of sale and purchase through its online portal. After a customer identifies a product of his choice online, the seller of the particular product is notified of the choice of the customer and the Petitioner, in turn, raises an invoice on the customer and makes arrangements for the delivery of the product to the customer.

Further, depending on the nature of the sale transaction, whether intra-state or inter-state, the seller of the product pays sales tax either under the local VAT Act or under the CST Act, and the fact of payment of sales tax is indicated in the invoice issued to the customer.

An order of penalty was passed against the Petitioner by the authorities under Section 67 of the Kerala VAT Act on the finding that the Petitioner had breached the provisions of Sections 20 and 40 of the Kerala VAT Act in not getting itself registered as a dealer thereunder and further, for not filing returns and maintaining true and correct accounts as mandated under the Kerala VAT Act.

The Hon’ble High Court held that:

  • The Department had imposed penalty without considering the contention of the Petitioner and the facts of the case that these sales transactions were effected by sellers who were registered on online portal of ‘Flipkart’ and all sales were inter-State sales, on which tax had been paid by seller under the CST Act.
  • The contention of Department that the online portal could be seen as an intangible shop was legally flawed because it is well settled that the situs of a sale is wholly irrelevant to a determination of the issue of whether a sale is inter-State sale or not.
  • The Department had imposed penalty on ‘Flipkart’ due to non-filing of returns and due to its failure to maintain true and correct accounts. However, there was no indication in notice as to why the ‘Flipkart’ was to be considered as a dealer and why said transaction was to be treated as local sales against inter-State sales.
  • The Department has proceeded against the Petitioner without first having ascertained whether these transactions would come under the coverage of Kerala VAT Act. The matter must be first referred to the concerned Assessing Officers before invoking penal provisions since no tax can be levied except by authority of law.

Thus, the Hon’ble High Court set aside penalty by holding that ‘Flipkart’ is merely facilitating sales, purchase and delivery of goods, it can’t be considered as dealer of goods under Kerala VAT Act.