After Flipkart, Amazon files a lawsuit at Gujarat High Court against the entry tax levied by state government

On Thursday, The Economic Times reported that global e-commerce giant Amazon has challenged the concept of ‘entry tax’ levied by the Gujarat state government and filed a lawsuit in the Gujarat High Court. Earlier, Flipkart filed a case in the same court against the tax.

The state levies an entry tax on goods purchased through e-commerce portals and delivered from outside the state.

A person familiar to the case told the publication that Amazon acts only as a facilitator between buyers and sellers on the portal. Neither does it import nor act as the consumer. Moreover, the company has nothing to do with the goods. Therefore, the tax shouldn’t be levied to the marketplace - is Amazon India's argument.

Besides Gujarat, states of Uttar Pradesh, Assam, Odisha, Uttarakhand, Rajasthan, West Bengal and Mizoram also levy entry taxes on e-commerce companies. A loss of revenue due to these taxes have caused e-commerce companies to stop delivering products from outside (other states) in many of those states.

According to A Didar Singh, Secretary General at Federation of Indian Chambers of Commerce and Industry (FICCI), the entry taxes will prove to be a major barrier to inter-state trade and any such special taxes levied will make the goods only costlier.

The story so far

Only a few weeks ago, Amazon completed three years in India, with Amazon CEO Jeff Bezos announcing an additional investment of $3 billion to fill up the cash coffers of the Indian arm of the business. According to Amit Agarwal, a chunk of the investment is expected to go in enhancing customer and seller experience, which would be based on selection, low prices and reliable delivery options.

It was also reported earlier this year that Amazon witnessed a rise in its market share (in terms of shipments) to over 21 percent from 14 percent, making it the only major player to increase its share from a year ago.

Flipkart's market share slipped from 43 percent in March 2015 to 37 percent in March 2016 and Snapdeal went from 19 percent to 14-15 percent, according to reports.

Amazon and Flipkart announced increase in seller commissions in 2016. However, Flipkart sellers have already started to protest against the company’s new return policy, while charging commissions.

Flipkart and Amazon along with Snapdeal were named as the one of the most preferred e-commerce website for sellers.

But with Amazon hitting the gas pedal, it is clear that the company is going all out to become the market leader in the segment.