Flipkart is facing GST probe over alleged billing malpractice
What's the story
Flipkart, the Walmart-owned online marketplace, is facing a preliminary investigation over allegations of altering its billing structure to reduce its goods and services tax (GST) liability. The Directorate General of Goods and Services Tax Intelligence (DGGI) is looking into complaints against the company. The allegations were made after a Madras High Court advocate flagged Flipkart's billing practices to the Union finance minister.
Billing manipulation
Allegations of recasting marketplace fees
The allegations against Flipkart revolve around the claim that it has recast marketplace fees collected from vendors as transport charges. This was allegedly done to take advantage of lower GST rates applicable to goods transport agencies by shifting revenue to a category meant for small road transporters. "We will send a show-cause notice for prosecution once we have accumulated full proof," said a DGGI official.
Market reaction
Flipkart yet to respond
Flipkart has not yet responded to the allegations. Industry experts have said that marketplace facilitation activities such as connecting online buyers and sellers, charging commissions from vendors, offering listings, and enabling payments usually attract an 18% GST. Ranjeet Mahtani of Dhruva Advisors said, "Transportation is merely ancillary and does not alter the nature of the principal supply since it does not represent the dominant element of the transaction."
Tax implications
Potential consequences for Flipkart
If GST authorities find that the restructuring of fees as transportation charges was intentional, it could lead to denial of the claimed exemption, recovery of differential tax with interest, and also imposition of penalties. A senior industry consultant said, "Recasting core marketplace commissions as transport charges is not a practice seen with other e-commerce players since their commissions continue to be taxed under the standard 18% GST bracket."
Tax scrutiny
GST rules on bundled services
Under the GST rules, when services such as online marketplace access and delivery are bundled together, taxes can apply in different ways. A sudden shift in the principal supply from taxable to exempt could draw scrutiny from GST authorities. Kamal Aggarwal of Singhania and Co, a law firm, said, "GST law may treat an ancillary supply as a composite supply and charge tax at the rate applicable to the main supply."
Market growth
E-commerce shipments in India should grow significantly
E-commerce shipments in India are expected to grow at a 23-24% compound annual growth rate (CAGR) to 15-16 billion by 2029-30. This is up from a tipped 4.8-5.5 billion in FY25 and 4.4 billion in FY24, as per a Redseer Research report published in March.