Amazon, Sellers embroiled in tax controversy; faces enquiry

Amazon and close to fifty of the company’s sellers have been accused of tax evasion. Officers representing the Directorate General of Central Excise Intelligence (DGCEI) have alleged that the company and some of its sellers have falsely claimed Central Value-added Tax (Cenvat) worth Rs. 118 crores. The DGCEI has conducted searches on Amazon’s offices in Bangalore and other cities.

An official of the DGCEI confirmed this,

“So far, the total tax evasion we have been able to establish is to the tune of Rs 118 crores, which could increase. We will soon issue show cause notices to respective sellers.”

Amazon has said in a statement,

“We confirm that the DGCEI had raised some questions around our promotion programme. We have cooperated with the authorities to the fullest extent and provided them with all the information that they needed.”

What is Cenvat and what did Amazon do?

Cenvat is a scheme introduced by the government with regard to service tax and excise duty. The government’s business website explains in brief,

“Under the Cenvat Scheme, a manufacturer of final product or provider of taxable service shall be allowed to take credit of duty of excise as well as of service tax paid on any input received in the factory or any input service received by manufacturer of final product.”

It is alleged that the company has issued invoices in the names of non-existent companies. Sources have also said that some sellers have not deposited the service tax that Amazon has paid them, with the government.

If proved to be in the wrong, Amazon will have a tough time in getting its squeaky clean image cleaned up. Fiddling around with tax is a serious concern, and ecommerce companies need to ensure that they are in the clear when it comes to the legal side of things.