THIRUVANANTHAPURAM: Now that the High Court has struck down the move to collect sales tax from e-commerce giants, the Commercial Sales Tax Department is trying to approach the issue from a safer side.
The thinking is: if sales tax on online traders is illegal (on the grounds that they are based outside the state), why not a purchase tax on the buyer? The state government is seriously considering a 1-2 percent TDS (tax deducted at source) on all payments made to online firms like Flipkart, Amazon and Myntra.
The move, once put in place, will make online shopping costly but would secure for a cash-strapped state a substantial amount as tax revenue. Karnataka has already made public its intent to collect as 1 percent TDS on payments.
“Between October 2014 and January 2015, Flipkart alone had a sales turnover of Rs 165 crore from the state, all free of tax. Such a scenario makes no economic sense. Just because our Constitution had not foreseen the emergence of online trading does not mean that we cannot tax this new kind of trade,” a top CST official said.
What’s more, these online traders get an unfair competitive edge because traditional businesses are taxed.
It was in January this year that the CST fired its first big salvo against online trading companies. It imposed a tax default penalty of nearly Rs 50 crore on online trading companies for the last two years; Rs 47 crore on Flipkart and Rs 2.15 crore on Myntra.
The High Court upheld, in its order on October 20, the contention of Flipkart that the CST had no jurisdiction to slap penalty. The CST’s argument is that an online sale is a local sale.
“An online shop though intangible is right in front of me. The shop is where the shopper is,” the officer said. The Department had also cited the Supreme Court verdict in the Antrix-Devas case in which it was stated that Bangalore, where the agreement to sell an intangible product like a transponder was inked, should be considered as the point of sale and taxes paid there.
