Tax demand on Flipkart quashed: KerHC

In an important tax ruling, the Kerala High Court quashed the demand raised by a State tax authority against e-commerce company Flipkart and termed it as ‘arbitrary’.

Kerala Sales tax authority issued notice to Flipkart that the company is liable to pay tax under the Kerala Value Added Tax, 2003 since sales were effected within the state of Kerala. Company responded that it is a service provider and is not engaged in the business of sale or purchase of goods as it merely facilitates transactions through its online portal. The response was, however, rejected and demand was raised by the authority.

The Court said, “A mere perusal of the said notice would indicate that rather than stating the reasons that prompted the revenue authorities to suspect an evasion of tax, and calling for the explanation of the assessee to those reasons, the notice proceeds to draw definite conclusions as regards the commission of an offence by the assessee. There is no indication in the notice as to why the revenue authorities considered the petitioner a dealer, or why the transactions in question had to be treated as local sales as against inter-state sales.”

“The findings in the impugned orders reflect a patent non-application of mind by the authority concerned and also smack of arbitrariness”, the Court added.

Cautioning the tax department, the Court opined, “In cases such as the present where there is an uncertainty with regard to the real nature of the transaction in question, for instance, whether the transaction is an intra-state sale or an interstate sale, the Intelligence Officers ought, ideally, to refer the matter to the assessing officers concerned to arrive at a finding regarding liability to tax before taking recourse to the penal provisions of the Act”, and added that “Revenue authorities must realize that tax administration is not just about collecting revenue from citizens. They have to bear in mind the fundamental constitutional precept under Article 265 that no tax shall be levied or collected except by authority of law.”

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