Maharashtra’s Revenue Department has frozen all bank accounts of Naaptol Online Shopping Pvt. Ltd, the company behind Naaptol.com and their tele-shopping platform. This extreme step has been taken after Naaptol failed to pay Value Added Tax or VAT on the sale of third party goods.
The Revenue Department wants Naaptol to pay Rs 23 crore, which is the amount of VAT due on all third party goods sold by Naaptol between 2008 and 2012.
Earlier, Naaptol management had filed an appeal at the Bombay High Court seeking an “urgent hearing” on this case, as revenue officials had frozen several bank accounts on December 16th.
But the court couldn’t come up with a stay order, and as of now, all assets of Naaptol which are placed in banks are out of their reach. It is not yet clear as to how it is affecting their business operations as both their website and tele-shopping platform is active and accepting orders.
The Problem
Naaptol works as a market place where in various sellers showcase their products, and Naaptol takes a small commission from the sellers in case of any sale. The Government wants Naaptol to pay the VAT on all goods sold; whereas Naaptol is arguing that as they are not a dealer “under either of the Acts, namely Maharashtra Value Added Tax Act, 2002 and the Central Sales Tax Act, 1956”.
Moreover, all third party sellers on Naaptol are paying VAT, hence there is no requirement for them to pay additional taxes. Naaptol is anyways paying tax on the commission earned by the sellers.
Manu Agarwal, CEO of Naaptol has strongly objected this move by the Government, as he said, “We believe the department has taken this up now as there are activities going on in other states on e-commerce and marketplace companies. We have legal option from senior counsels and law firms and all of them are of the opinion that the order by the department is illegal,”, adding, “There will be no impact on Naaptol’s business. Overall I do feel such actions will impact business sentiments in India,”
Manu may be partially right here.
Ongoing Tax & Regulations Problem
In recent weeks, state governments in Karnataka and Tamil Nadu have taken bold, and decisive steps against ecommerce companies like Amazon and others on the issue of tax. In case of Amazon in Karnataka, several major sellers were given notice and asked to stop their businesses as they were violating rules related to logistics and associated VAT. However, common sense prevailed after some days, and the ban was removed.
In Tamil Nadu, Confed-ITA, the federation of IT dealers’ associations from the state had placed a ban on billing of all products which were sold online by resellers and dealers. The ban was prompted after they discovered that there is a huge pricing discrepancy in the offline and online mode of business; and offline dealers are suffering due to this practice. However, as of now, the ban has been partially lifted, and business is limping back to normalcy.
The case with Uber was different, as non-compliance of safety measures by Uber led to a rape incident in Delhi, and subsequently, Uber was banned from all the major states of India including Delhi, Karnataka, Maharashtra.
Our View
Rules of the state should be followed and taxes need to be paid. There is no ambiguity in this notion. However, banning a startup or freezing their bank accounts can be a major hurdle and in some cases, it can totally wipe off the business establishment. It will discourage entrepreneurship in the country, and force all new businessmen to think thrice before starting their own company.
Government officials should impose their rules in a subtle, professional manner. Issue should be resolved without hampering the operations or bringing in major losses for the company.
Or if required, Government shouldn’t shy away from rectifying or amending existing laws, just like the evil aspects of Companies Act 2013 were recently amended for the entrepreneurial community’s betterment.
The ball is the Government’s court now, and we have too much expectations from their end.
High court immediately provided the stay and all effected accounts were released by an order. Please correct the story.