Impact of the Companies Act- 2013 and Rules on Statutory Auditors of Company Section- 139

PROCESS OF APPOINTMENT OF AUDITOR

APPOINTMENT OF AUDITOR,

Section - 139 read with rules The Companies

(Audit and Auditors) Rules, 2014

Series-25.1

STEP 1. INTIMATION FOR APPOINTMENT BY COMPANY TO AUDITOR. Date of Such Intimation will be before the Date of Board Meeting in which Notice of AGM will be issue. 

STEP 2. CONSENT & CERTIFICATE BY AUDITOR TO COMPANY Date of Consent & Certificate will be after the Date of Letter of Intimation and before the Date of Board Meeting in which Notice of AGM will be issue. 

STEP 3. ISSUE OF NOTICE OF AGM BY COMPANY BY PROPOSING APPOINTMENT OF SUCH PERSON AS AUDITOR OF COMPANY. 

STEP 4. APPOINTMENT OF AUDITOR IN GENERAL MEETING BY PASSING OF ORDINARY RESOLUTION. 

STEP 5. ISSUE OF INTIMATION LETTER BY COMPANY TO AUDITOR WITH IN 15 DAYS OF ANNUAL GENERAL MEETING. 

STEP 6. FILLING OF FORMAT-1 AND CONSENT OF AUDITOR AS AN ATTACHMENT IN GNL-2 WITH MCA BY COMPANY WITH IN 15 DAYS OF AGM. 

DRAFTS OF THE DOCUMENTS REQUIRED FOR THE APPOINTMNET OF AUDITOR

i.              INTIMATION FOR APPOINTMENT BY COMPANY TO AUDITOR

                                                                                      22^nd August, 2014

M/s Name of auditor firm.

Chartered Accountants,

Address:------------

Ref: Consent & Certificate for re-appointment as statutory auditor under the

Companies Act, 2013

Dear Sir,

The company is planning to hold 1^st Annual General Meeting on 25^th September, 2014 and in accordance with provisions of Section 139 of Companies Act, 2013, we need your consent and certificate under section 141 of Companies Act, 2013 for your re-appointment as Statutory Auditor of Company.

Thanking you,

Yours sincerely,

For Name of Company

(Name of Director)

Director

DIN: ---------------

Add: -------------

II.            Consent of auditor

 To                                                                                                                  Date: 25^th August, 2014

The Board of Directors

Name of Company

Address

Dear Sirs,

Sub: Letter of Consent for re-appointment as auditors of Divine Advertisers Private Limited.

We thank you for your letter dated: 22^nd August, 2014, seeking our consent for re-appointment as auditors of Divine Advertisers Private Limited (“the company”). We hereby consent to our re-appointment as auditors of the company pursuant to the provisions of Section-139 of the Chapter X of the Companies Act, 2013.

Thanking you,

Yours Sincerely,

Name of Auditor Firm

Chartered Accountants

Firm Registration No. -----------

(Name of Partner/Proprietor)

Partner

Membership No. -----------

Place: Delhi

III.           Eligibility Certificate from auditor

 Certificate

[Pursuant to the provisions of Section 139 of the Chapter X of the Companies Act, 2013 read with

 the Companies (Audit and Auditors) Rules, 2014]

To                                                                                                                   Date: 25^th August, 2014

The Board of Directors

Name of Company

Address

Dear Sirs,

Sub: Letter for re-appointment as statutory auditor under the Companies Act, 2013

In connection with re-appointment of Name of Auditor firm. (“the Firm”), Chartered Accountants as auditors of  Divine Advertisers Private Limited (“the Company”) in accordance with the provisions of the Companies Act, 2013 (the Act) and rules and regulations made there under, we are pleased to confirm that:

1) The firm is eligible for re-appointment and is not disqualified for re-appointment under section 141 of the Companies Act, 2013, the Chartered Accountant Act, 1949 and rules and regulations made thereunder;

2) Our proposed re-appointment would be as per the terms provided under the Act;

3) The proposed appointment is within the limits laid down by or under the authority of the Act;

4) There are no proceedings pending against either of the partners or the firm with respect to professional matters of conduct.

5) We satisfy other criteria as provided under Section 141 of the Act.

Thanking you,

Yours Faithfully,

Name of Auditor Firm

Chartered Accountants

Firm Registration No. -----------

(Name of Partner/Proprietor)

Partner

Membership No. -----------

Place: Delhi

IV.           LANGUAGE IN NOTICE FOR APPOINTMENT

2.    Re-appointment of Auditor

To consider and if thought fit, to pass with or without modification(s), the following resolution as an Ordinary Resolution:

“RESOLVED THAT pursuant to the provisions of Section- 139 and other applicable provisions, if any, of the Companies Act, 2013 and the Rules framed there under, as amended from time to time, M/s. Name of Chartered Accountant., Chartered Accountants, (FRN No. ----------) be and is hereby re-appointed as Auditor of the Company to hold office from the conclusion of this Annual General Meeting (AGM) till the conclusion of the 6^th AGM of the

Company to be held in the year 2019 (subject to ratification of their re-appointment at every AGM), at such remuneration as may be agreed upon between the Board of Directors and Statutory Auditors, in addition to the reimbursement of service tax and actual out of pocket expenses incurred in relation with the audit of accounts of the Company.

V.            LANGUAGE IN DIRECTOR REPORT.

Auditors of the Company M/s Name of firm., Chartered Accountants, hold office until the conclusion of the ensuing Annual General Meeting and being eligible offer themselves for re-appointment until the conclusion of 6^th Annual General Meeting of the company to be held in the Year 2019 (subject to ratification of their appointment by the Members at every Annual General Meeting held after the ensuing Annual General Meeting).

As required under the provisions of section – 139(1) of the Companies Act, 2013, the company has received a written consent from M/s Name of firm., Chartered Accountant to their re-appointment and a certificate, to the effect that their re-appointment, if made, would be in accordance with the new Act and the Rules framed there under and that they satisfy the criteria provided in section- 141 of Companies Act, 2013. The Board recommends their appointment.

vi.            LANGUAGE OF ordinary resolution.

1.      RE-APPOINTMENT OF RETIRING AUDITORS

The Chairman informed the meeting that the Retiring Auditors, M/s NAME OF AUDITOR FIRM., Chartered Accountants, have shown their willingness to be re-appointed as Auditors of the Company and have confirmed that their re-appointment, if made, would be within the limits prescribed under Section 139 of the Companies Act, 2013.

On this connection, the Chairman invited the member/s to propose the following resolution which was proposed by Mr. Sumit Khanna the Managing Director and Member of the Company:

“RESOLVED THAT pursuant to the provisions of Section- 139 and other applicable provisions, if any, of the Companies Act, 2013 and the Rules framed there under, as amended from time to time, M/s. NAME OF AUDITOR FIRM., Chartered Accountants, (FRN No. --------------) be and is hereby re-appointed as Auditor of the Company to hold office from the conclusion of this Annual General Meeting (AGM) till the conclusion of the 6^th AGM of the Company to be held in the year 2019 (subject to ratification of their re-appointment at every AGM),

FURTHER RESOLVED THAT the remuneration of the Statutory Auditors of the Company be and is here-by decided either by Mr. Name of Director or Mrs. Name of Director, both Directors of the Company.”

The resolution then was seconded by Mr.  Name of Director, Director /Member of the Company.

The Chairman then put the resolution to members present at this meeting to vote by show of hands in response to which all the members present, raised their hands in favor of the resolution. Then the Chairman declared the same as passed unanimously.

vii.          Intimation letter to auditor.

                                                                                      25^th September, 2014

M/s Name of auditor firm.

Chartered Accountants,

Address:------------

Sub. : Reappointment as Statutory Auditors of the Company.

Dear Sir,

With reference to the resolution passed at the Annual General Meeting held on 25^th September, 2014, we bring to your kind notice that you have been re-appointed as Statutory Auditors of the Company till the conclusion of the 8^th AGM of the Company to be held in the year 2019 (subject to ratification of their re-appointment at every AGM). The remuneration shall be decided mutually.

Thanking you,

Yours sincerely,

Yours sincerely,

For Name of Company

(Name of Director)

Director

DIN: ---------------

Add: -------------

DOWNLOAD THIS ARTICLE ALONG WITH FORM ADT-1

Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com) Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Though utmost efforts has made to provide authentic information, it is suggested that to have better understanding kindly cross-check the relevant sections, rules under the Companies Act, 2013. The observations of the author are personal view and the authors do not take responsibility of the same and this cannot be quoted before any authority without the written

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VAT Accounting in Tally.ERP 9 – Part 1

VAT Accounting in Tally.ERP 9 – Part 1

VAT in Tally is something that many people actually don’t know and if they know they do not exactly know how it is done. Don’t worry I was also one of those people but I researched a lot and figured it out with the help of my principal (actually boss).

Let me tell you that with the introduction of Tally.ERP 9, VAT accounting has become very easy and less time consuming. So if you are learning VAT accounting for the first time in Tally you are the luckiest one.

What is VAT?

VAT means Value Added Tax which is imposed by various State Governments on sale and purchase of goods.

Therefore today we are going to see two simple entries of sale and purchase and you can apply it no matter from which state you are.

But before starting with the entries you are required to have Tally.ERP 9 licensed or educational version on your computer in order to apply what you will learn today.

Presuming you already have Tally.ERP 9 on your computer, we’ll go further.

Let’s start!

At first you have to create a company in Tally. You can check out the video tutorial of creating a company in Tally if you don’t know how to create a company in Tally. If you already know just go ahead.

Enabling VAT – VAT is disabled in Tally by default. We have to enable it for doing VAT accounting in Tally. Following are the steps to enable VAT in Tally.ERP 9.

·         From Gateway of Tally go to Quick Setup.

·         Then go to Value Added Tax (VAT).

·         Set Enable VAT to Yes.

·         Make Set/Alter VAT Details to Yes.

·         Enter the Company VAT Details. The screen will look like this.

After entering company details, you have done the basic work and now you are ready to pass the entries. We will pass a single purchase entry first and then a sales entry.

Purchase entry in VAT

For passing a purchase entry you need to create a purchase ledger, Input VAT on purchase ledger, VAT commodity and a stock item. We need to create purchase ledger because we can identify the category of sales i.e. 1%, 4% or 12.5% etc. Creating a purchase ledger is simple. Here are the steps for creating a purchase ledger for VAT purposes:

·         From Gateway of Tally, press ALC consecutively and you will reach Ledger Creation Screen.

·         Select Purchase Accounts.

·         Name the ledger Purchases @ 4%.

·         Set Inventory Values Affected to Yes.

·         Set Used in VAT Returns to Yes and in there select Purchases @ 4%.

·         Keep everything else as it is and the purchase ledger is created.

Now we will need to create Input VAT Ledger for calculation of VAT.

Here are the steps:

·         Again press ALC consecutively from Gateway of Tally.

·         As we have created a purchase ledger for 4% we will also create Input VAT Ledger for 4%. Name the ledger Input VAT @ 4%.

·         Select Duties & Taxes.

·         Then select VAT for Type of Duty/Tax.

·         Select Input VAT in VAT Sub Type.

·         Select Input VAT @ 4% in Default VAT/Tax Class.

·         Then select rounding method you prefer. Generally Upward Rounding is used.

·         Keep everything as it is and create the ledger.

When you complete the ledger it will look as shown below in the picture.

Now we need to create VAT Commodity. Basically VAT Commodity is specified by the government as a product on which you have to pay VAT.

For creating a VAT Commodity, here are the steps:

·         From Gateway of Tally, go to Inventory Info. and then VAT Commodity.

·         Press Create.

·         Let’s assume we are creating Jewellery. So enter the name Jewellery.

·         Enter VAT in Used For option.

·         If you want to, you can enter the commodity code. We are here entering 102 for jewellery.

·         Then enter the rate of vat to 4%.

·         Enter Schedule Number. Here we will enter First Schedule – Part A.

·         Then enter Schedule Serial Number. We’ll enter it to 2.

Now lastly we need to create Stock Item which is what actually we are going to purchase for VAT. It is the inventory in our business.

Therefore go to:

·         Inventory Info., then go to Stock Items and then Create.

·         Enter the name once again Gold Jewellery.

·         Enter the units No. You can create units by pressing ALT+C.

·         In VAT Details, enter Commodity which we created earlier which is Jewellery.

·         Rate of VAT to 4%.

·         And create stock item.

Now, we have created purchase ledger, Input VAT on purchase ledger, VAT commodity and a stock item.

We can now pass a purchase entry for VAT purposes.

From Gateway of Tally, press V and then press F9. V is the shortcut for Accounting Vouchers.

Select As Invoice by pressing CTRL+V in case you are previously passing entries as vouchers. This will convert the screen for passing vouchers as invoices or bills. Now from the top of the screen, we will start entering details for passing a purchase entry.

For this example, we have purchased 1 No. of Gold Jewellery.

Enter the Purchase No. as 1 and Supplier Invoice No. as 1. Date will be 01/04/2014.

In Party’s A/c Name, you have to enter a creditor’s name from which we have purchased Gold Jewellery. In an extreme case if you want to see how to create a ledger, you can see it here.

In Purchase Ledger, we have to enter the ledger that we created which is Purchases @ 4%.

In VAT/TAX Class, following a similar way, we have to enter Purchases @ 4%.

Now we are in the main area of the invoice. As we have purchased Gold Jewellery we will enter it in the Name of Item column.

In Quantity – enter 1 and the units will automatically get selected to No. as we have set already while creating stock item.

We will enter the rate Rs. 10,000 per unit just for example purposes and so the total amount will be Rs. 10,000.

If you have enabled details by going in the Configure menu, you can enable additional details like Marks and Num. Packages as shown in the picture.

After entering the details, you will automatically get an option for Input VAT @ 4% which will automatically calculate VAT amounting to 4% on the total invoice.

Going ahead, in the bottom, there is an option Show Statutory Details which will show you statutory details which are assessable value and VAT amount of the invoice.

For your clarification narration can be entered. We have kept it blank here in this example.

Okay, we are done. Go ahead and press enter to create a purchase voucher for VAT purposes.

You can see the effects in the Profit and Loss A/c as well as Balance Sheet. You can also the purchased Gold Jewellery in Stock Summary too. Go and check it right now.

This was the purchase entry for VAT Accounting. Stay tuned for Sales entry as I will be posting it here tomorrow.

By the way, I am Rishit Shah, CA. Finalist from TallySchool.com, a huge Tally fan. If you have any queries or suggestions you can email me at rishit@tallyschool.com.

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Industrial Training for CA students – Why and How of It

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Authored by Nimish Goel (www.nimishgoel.com), a qualified chartered accountant who’s passion is to coach young chartered accountants and aspiring students achieve the best in their life.  Nimish used to work with EY and PwC in India and has also worked with KPMG in Europe.  He now runs his own consulting company and runs a blog www.nimishgoel.com.  He can be reached for any queries and issues on his blog. 

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I keep getting emails on providing guidance on the importance and relevance of ‘Industrial Training’ forming part of the 3-year articleship.  Initially I wasn’t very clear on what should I write because if you Google, there are many articles on it.  And there’s absolutely no sense for me to repeat the same things.  So, I thought why don’t I share my own personal experience with you that might help you take a well-informed decision. 

It’s difficult to comment whether going for industrial training is worthwhile or is it beneficial than articleship training.  Both of them have its pros and cons.  However, in this article I have not delved on the issue of which is better, rather I have tried to explain how you should go about it.  You can read my subsequent article on the topic “Which is better – Articleship or Industrial Training”.

I always share with students the “3 Step Success Formula” that I have learnt – “With better awareness you make better choices and with better choices you get better results”

This article is an attempt to make everyone aware of the nuances of industrial training; how you should approach the companies and finally, how do you select the right organization.

When did I start?

I did my articleship from a firm called RSM & Co, which later merged with PwC in 2006.  It was a great firm having big multinational clients and a super cool environment to work.  My articleship was in audit because at that time (year 1999), there were hardly any firms providing articleship opportunity in taxation. You can read my blog on “What should I opt in Articleship – Audit or Tax” to get more clarity on the pros and cons of each vertical.

After 2 years of learning, I came to know about ‘industrial training’ and that sounded to me super exciting.  Working in a company would mean being on the other side of the table – i.e., I would then not audit the company rather, I would now help get the audit done from another auditor.  Sounds exciting!! 

I started exploring more about it but unfortunately did not get much information.  Those times there was no Google or any website guiding CA students.  So, I believed in my-self and decided to take that plunge.  What I was very clear was that the Company I would join should be good and they should offer me good exposure.  After all, it was a matter relating to my career.   

How did I apply for industrial training?

In those times there used to be limited usage of emails and reliance was placed mainly on postal services/ courier.  Since I had no one to guide, I asked my father - “how should I go about it Dad?”  Being an experienced and seasoned professional he suggested I should do the following:

1.         Get a list of companies registered with ICAI offering industrial training. 

I went to the Institute and got a hard copy of the list of companies registered with the ICAI.  However, now a days you can find the list on ICAI’s website with all the details.  The same can be found on http://www.icai.org/post.html?post_id=823.

2.         Don’t pick and choose your options now

I think the biggest mistake at this point of time when you are looking for industrial training opportunity is to pick and choose a company you like since you don’t know which organization would call you and which would not.  Therefore, to improve your chances, I suggest you send your CV to all the firms in the city where you are located or where you want to do industrial training.  Send it to as many companies as you can so your chances of getting an interview call are bright and promising.

3.         How do you send your CV

The next question you might face is the way to send your CV.  Should you send it via email or via courier?  The importance of this question is more relevant now than it was at my time because we didn’t have too much of email system.  Majority of the correspondence used to happen via hard copies, i.e. courier. 

I was checking the details of some of the companies and realized that the ICAI’s list does not necessarily provide email addresses to which CV can be sent.  In such a case, you would only have the option to either visit personally the Company’s office or send your CV by courier.  I did it the second way, i.e., sending it through courier.  I don’t remember correctly, but I think I would have sent some 50-70 couriers.

I suggest that wherever you don’t have the email ID, just send your CVs to the postal address of the Company and address it to the HR manager. 

4.         Expect a low turnaround

There is a high likelihood of majority of the companies not responding to your emails/ couriers because either the address would be incorrect or the HR manager would be sitting in some other office or your letter may not even reach the right place.  Consequently, the chances of you receiving any call or email are low.

However, don’t panic or get demoralized.  As I mentioned earlier, the more companies you send your CVs to, the brighter are the chances to receive interview calls.  Ultimately you need only one company to work with and that one company you would surely find.

How do I select the right organization for industrial training?

This question would arise only if by God’s grace you receive calls from more than one organization.  And therefore, the chances of you struggling to identify the right organization.  Selecting the right organization is very critical as a wrong decision can ruin your last 9-12 months of articleship.  I am saying 9-12 months because that’s the period for which you are allowed to undergo industrial training during the last year of articleship.   

Try and have clarity on the following aspects by getting answers to these questions, whenever you meet the company’s HR or the technical manager:

(i)         What kind of work are they offering? 

Since you would be moving away from your current employer (i.e. CA Firm) and going to a new company, you should be very clear of the kind of work they offer to industrial trainees.  A lot of companies hire industrial trainees for their finance departments only to engage them for bank or other reconciliations.  This kind of job might turn out to be really frustrating and you should therefore be careful before picking.  Please weigh the pros and cons between your current articleship experience and the one offered by the Company.

In my experience, leaving audit or tax exposure for industrial training would make sense only when you get good quality work or in a situation where you are not satisfied with your current employer.

(i)         Be upfront to ask about the work profile

Be very clear asking for your work profile with the interviewer.  In my personal experience of more than 10 years of interviewing candidates, I have liked candidates who are clear in their thoughts and like to know why would they join the organization.  Asking for the work profile is your right, which should be exercised every time.

(ii)        Is it a Company or a Bank and the division in it

Lot of banks also hire industrial trainees for a lot of their departments like corporate finance, private banking, wealth banking etc.  You should therefore, be clear which division would you work for and what kind of work would they offer you.

(iii)       Other miscellaneous things like leave policy, office working hours etc

There is no harm in candidly asking the above questions from the interviewer.  Since you would be needing leaves for your study preparation, asking about their leave policy, working hours etc would be helpful in determining your decision to join that organization. 

The CA firm might give 2-3 months of study leave whereas the company may offer you less and therefore, you would have to take a call what suits you.  There is no set mechanism to take a decision and it would purely depend upon your circumstances in that moment.

Don’t join with an expectation to be absorbed

There is a misconception in the minds of students that once you complete your industrial training, the chances of you getting hired by the same company are very high.  This may not be completely true. Majority of the good companies hire chartered accountants at the central level.  I know of companies like Kotak Bank, ITC (where I did my industrial training), HUL, Citibank etc that hire industrial trainees, but to get absorbed on their payroll you have to follow a completely different process.  Yes, if your credentials are strong and you satisfy the requirements of their hiring process, you would definitely be preferred.  But don’t take absorption in that organization for granted.

This is also true because regional managers generally hire the trainees, whereas to hire qualified chartered accountants, the HR head and the CFO are involved.  Consequently, there is a very high likelihood of you having to clear interviews the way anyone else from outside that organization would do.  However, for smaller companies, you may not face similar problems and they might hire you if your performance is good .

Use your gut feeling to take the final call

I hope my experience would be useful to you in taking a well-informed decision.  However, I have been a very strong believer of one’s own gut feeling, because that feeling comes from within and always guides you to the right direction.  You should be completely aware of what’s store in for you before you join any organization but your ultimate decision to join or not should purely be based on your sixth sense/ gut feel.

Wishing you all green lights in life…

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VAT Problems In E-Commerce Transactions – Amazon’s Karnataka Case Study (A Potential Noscitur Principle Issue)

VAT Problems In E-Commerce Transactions – Amazon’s Karnataka Case Study (A Potential Noscitur Principle Issue)

E-commerce transactions in India are gaining popularity at the very fast pace majorly due to its attributes of ease of shopping, good discounts, social media integration, cash on delivery mode of payment etc. The Industry is all set to grow and beat the records considering the recent show of strength of several E-commerce companies of India Inc in there capability to raise funds as well.

The fact that the domain of e-commerce is so new and upbeat there may be several laws that were essentially made to govern the conventional sales and purchase system which are required to made upbeat or atleast clarified by revenue authorities / judiciary to ensure that this richly growing industry is certain in terms of taxation.

One such case of tax hurdle has recently cropped in case of Amazon in Karnataka. Before we proceed with the legal discussion, the facts are important.

E-Commerce Transactions – Types

E-commerce transactions in India can be of several natures. Two well known are as under,

   A)     It may be a case where an E-com Company may buy the products in bulk in discount and then sell the same at cheaper price by the help of its online e-commerce platforms.  Though this is not a general model considering the cost and working capital pressure that may be involved.

   B)      The other method which is more popular and frequently adopted method is to act as platform facilitator between the sellers and the buyers. In this model, E-com company does not purchases the inventory but instead asks the third party sellers to sell by using its platform to the customers who log on the E-com company’s platform. Importantly, the e-com company charges commission / delivery charges and undertakes to perform packing and marketing / delivery of the goods to the customer. Obviously, the invoices are made at the end of independent sellers directly to the customers.

KEY NOTE :- Crucially, in order to ensure quick availability of products with E-commerce company these sellers are required to amend their registration to include the space/premise with E-com Company as “Additional place of business (if already registered with main office”) based on rent / lease/ Service agreement entered into between the sellers and E-commerce Company. In Delhi it is undertaken by amendment filed with DVAT department in DVAT – 07.

From this premise of E-com Company then all the goods are gathered, processed / packed and sent for delivery to the customers either independently or vide dedicated courier agencies.

Issue

As reported by several leading business times, it is learnt that the issue mainly arisen in case of e-commerce companies that undertake storage of goods procured from various sellers in their warehouse before dispatching them to the respective buyers. It appears that Karnataka VAT authorities are of the view that in such cases, the e-commerce companies are involved in supplying and distribution of goods and, therefore, would qualify as ‘dealers’.. The authorities are also of the view that these companies act as commission agents or consignment agents of sellers. Therefore, these companies are covered under the definition of ‘dealers’ and, therefore, are liable to discharge VAT.

The term dealer is defined under Section 2(12) of the Karnataka Value Added Tax Act, 2005 as under (relevant portions only):
            'Dealer' means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration, and includes-
(c) a commission agent, a broker or del credere agent or an auctioneer or any other mercantile agent by whatever name called, who carries on the business of buying, selling , supplying or distributing goods on behalf of any principal;
Key Note :- Similar provisions may exist in most of the states in regard to the definition of dealer and this fact can raise serious concerns in regard to taxability in all states on ecommerce industry if the matter is not expeditiously addressed by the revenue authorities. In Delhi (unlike Haryana) incidentally, section 2(1)(j), do not refer to supplying, or distributing in the main part of the definition though portion relating to commission agent is similar even in delhi.

Further, the authorities in Karnataka are insisting that e-commerce companies register their premises / warehouse and undertake other compliances like maintenance of statutory records and filing of returns.

“The tax authorities do have a point when they question how so many vendors have registered the Amazon warehouse as an additional place of business; even if there is no rule capping the number of vendors that can declare a particular place as an additional place of business, the spirit of the law would suggest that such a registration be backed by some staff, infrastructure and so on.” – Financial Express   

Legal Discussion

Four Key Points,

    a)        It is learnt that in the current matter, advance ruling dated August 24, 2012 in case of Amazon Seller Services was obtained wherein the Authority held that Amazon is providing an online retail distribution channel and the associated logistical services. Thus, it was held that Amazon is clearly a service provider.

    b)      Karnataka VAT authorities may need to consider that without even first going in the aspect of who is dealer and who is not, it is essential that the incidence and taxable event must exist to tax such a transaction. Taxable event is sale / purchase. 

    c)       Thirdly, the whole issue gains force on the assumption / hypothesis that E-commerce Company acts as ‘Agent’. the e-commerce companies provide services on principle to principle basis to the sellers and not as agents of the sellers. As per Section 182 of the Indian Contract Act an agent means “a person employed to do any act for another or to represent another in dealings with third persons”.   Clearly, in the present case e-commerce companies are not engaged in sale of goods on behalf of the principals. They only provide a portal which enables the buyer to meet the sellers and thereafter provide logistic services to the sellers to ensure that the goods are delivered to the buyer.

   d)      Noscitur Principle:- Despite this it is crucial to understand that the Karnataka VAT Authorities may push to consider the E-commerce Companies therein as dealers without the definition of agent since the dealer itself covers the activity of supplying / distributing the goods for any valuable consideration. 

But the Karnataka VAT authorities may have overlooked is the Noscitur Principle which has used in catena of judgements to identify the harmonious law applicable to the transaction.

In above the case, the word ‘supply’ and ‘distributing’ should be interpreted in light of ‘Noscitur a Socii”. Several case laws might be resorted by the E-commerce companies,

a)       CIT Bangalore v. BC Srinivasa Shetty 1981 (2) SCC 460

b)       M/s Bhayana Builders (P) Ltd. & Others Versus CST, Delhi & Others 2013 (32) S.T.R. 49 (Tri. - LB) etc

Nonetheless, it seems that the issue might be stretched on the aspect of interpretation specially in those states where the definition of dealer itself covers supply and distribution in the main portion of definition irrespective of agency.

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About the Author:

CA Ankit Gulgulia (Jain)

Author is Practicing Chartered Accountant in New Delhi/NCR and specialising in Indirect Taxes, Corporate Laws and Transfer Pricing. He can be reached at ankitgulgulia@gmail.com or at +91-9811653975

DISCLAIMER: This article is provided purely for your information only and you should check other information sources before taking any action based on any of the content in this article. Neither the authors nor website hosting the article make any warranty as to the quality or currency of the information contained in any of the site's articles.

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