Flipkart Faces Investigation for Alleged GST Evasion through Fee Readjustment:

Flipkart Faces Investigation for Alleged GST Evasion through Fee Readjustment Flipkart is under Investigation over allegations of Walmart owned Online marketplace altered its billing structure to reduce its goods and services tax (GST) liability. Flipkart allegedly transformed its billing model by recasting market place fees collected from its vendors as transport charges to claim lower GST rates applicable to goods transport agencies by shifting revenue to a category meant for small road transporters. The Directorate General of Goods and Services Tax Intelligence (DGGI) is conducting careful examination into complaints against Flipkart.

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A DGGI official said, "We will send a show cause notice for prosecution once we have accumulated full proof." while another official added, "We are obliged to take cognizance of every such complaint, as e-commerce platforms are not allowed to do this." Flipkart did not respond to an email sent on August 23. The accusations were made after Madras High Court advocate wrote to the Union finance minister about Flipkart's billing practices. This was also highlighted in a press statement issued on August 23 by the Federation of International Trade Investor Gunodaya Association. Some professionals said, Marketplace facilitation activities, which involve connecting online buyers and sellers, charging commissions from vendors providing listings and enabling payments, normally attract 18% GST.

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A Tax advisory firm partner said, 'Transportation is only ancillary and does not alter the nature of the principal supply since it does not represent the dominant element of the transaction.' he also added that if the GST authorities conclude that the restructuring of fees as transportation charges was intentional, it may result in the recovery of the several taxes with interest and the imposition of penalties. A senior industry consultant said that Remodeling core marketplace commissioners as transport charges is not a practice seen with other e-commerce players since their commissioners continue to be taxed under the standard 18% GST bracket. When services such as online marketplace access and delivery are bundled together under GST rules, taxes can apply in different ways. In a composite supply, one service is the principal element and the whole bundle is taxed at the rate. In a mixed supply, where the services aren't naturally tied together, the highest applicable GST rate applies. An unexpected shift in the principal supply from taxable to exempt would attract scrutiny from GST authorities, said the expert. Moreover, GST law may treat an ancillary supply as a composite supply and charge tax at the rate applicable to the main supply, added a senior advisor.