The indirect tax department’s audit division is investigating scores of cases where major e-commerce operators like Amazon and Flipkart are suspected to have collected excess goods and services tax (GST) from their customers and failed to refund the taxes. The move followed a direction from the National Anti-Profiteering Authority (NAA), which received a clutch of complaints about the e-commerce firms allegedly not passing on the benefit of tax rate cuts to the buyers, after the GST Council lowered the tax for over 220 items on November 15 last year.
Flipkart in response to a particular case informed the NAA that there were 7,254 cases in which the GST rates at the time of booking the orders on the platform was higher than those prevalent at the time of delivery. In all these cases, the e-commerce firm said, it had initiated the refund process as per the instructions from the sellers. An NAA order on one such case reviewed by FE freed the firm from charges of profiteering.
In the order mentioned above, the NAA said that it had asked the Central Board of Indirect Taxes (CBIC) to audit major e-platforms and submit its findings to the authority. The authority is “also conscious of the fact that there may be cases in which e-platforms had collected excess GST from the buyers and have not refunded the same after the tax was reduced on various products on 15.11.2017”, the order said.
Emails sent to Amazon, Flipkart and Paytm Mall did not elicit any response. According to sources, the e-commerce firms’ argument is that since they are not supplier/manufacturers of products and act only as agents by offering the service of their platforms to the suppliers, they can’t be held responsible for any excess tax collected.
The anti-profiteering mechanism that comprises the NAA, Director General Anti-Profiteering (DG-AP) and a standing committee at the national level and screening committees at states is tasked with ensuring that a reduction in tax incidence due to rate cuts or input tax credit has been passed on to customers by way of commensurate reduction in prices. If the authority confirms the necessity of applying anti-profiteering measures, it has the power to order the business concerned to reduce its prices or return the undue benefit availed by the sellers along with interest to the recipient of the goods or service.
The GST Council cut rates of over 170 items to 18% from the highest tax slab of 28% on November 15. The items that saw tax cuts included suitcases, travel bags, detergents, shampoos, deodorants, perfumery, wrist watches and apparel and clothing accessories of leather, among other goods.
In the NAA order reviewed by FE, the complainant had alleged that Flipkart had issued an invoice amount of Rs 14,852 at the time of ordering a Godrej almirah on November 4, which was revised downwards by the supplier (Godrej) by Rs 700 at the time of delivery on November 29. The complainant alleged that Flipkart hadn’t refunded the difference between the two invoice amounts to him.
During the investigation that followed, DG-AP found that the base price for the article for applying GST rate hadn’t been changed in both invoices. And the lower amount in second invoice was due to withdrawal of Rs 500 of discount provided by the supplier earlier. “Discount of Rs 500, which was offered earlier, had been withdrawn by the supplier vide his invoice dated 29.11.2017 which didn’t amount to profiteering,” the order said.
Flipkart, in its response to DG-AP, said that the complainant had been refunded the difference in invoice amount on January 18 by the product supplier.
Though the NAA mechanism is in place, the government has been saying that it will investigate only those cases that have mass impact and not small cases of alleged undue profits. So far, NAA has issued only five orders, all of which absolved the businesses concerned of charges of profiteering. Investigations are on against a host of firms including Jubilant Foodworks, a McDonald’s franchisee, and some real estate firms.