How can e-commerce sites be retailers for tax and not for FDI?

The Delhi High Court has observed that if the central and state governments were not treating e-commerce sites like Flipkart and Amazon as retailers for foreign direct investment (FDI), they cannot be treated as retailers for taxation purposes. Justice Rajiv Sahai Endlaw was of the "prima facie" view that if governments were treating transactions by e-commerce sites as retail sale for tax purposes, then how can they say these firms are not retailers for receiving FDI.

"Prima facie, the Union of India/State Governments cannot, on the one hand, for the purpose of tax, treat such sales as retail and on the other hand, for the purposes of investment, not treat the same as retail sale", the court said. The observation by the court came while hearing a plea alleging that e-commerce sites are violating FDI policy by retailing goods through Internet.

The court has also issued notices to the Centre, Delhi Government, RBI and the Enforcement Directorate, seeking their replies on the plea by an association of footwear makers and retailers which has contended that though FDI is prohibited in retail "but entities retailing goods through the Internet are not being restrained from accepting foreign investment".

It contended that Internet-based entities are in this way violating the FDI policy and thus, prejudice was being caused to them. The association told the court that the e-commerce sites are being treated as retailers for the purpose of tax, but the Centre sought time to inform the judge about their stand. The court listed the matter for hearing on October 14.

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