NEW DELHI: If you live in India’s most populous state Uttar Pradesh and order a new smartphone from Flipkart Snapdeal or Amazon, it most likely won’t be delivered to your home.The three online marketplaces have virtually stopped delivering products exceeding Rs 5,000 in value to customers in UP and Uttarakhand , citing harassment by tax authorities over a form that buyers are required to furnish when purchasing goods from other states. Buyers have to file a VAT declaration, along with the registration number of the vehicle bringing the products, which has to be furnished by the deliverer. The tax authorities have upped the ante to ensure it is strictly followed and have even seized goods.“Owing to these statutory restrictions imposed by the UP government, we do customer deliveries for shipments only up to Rs 5,000, which is for interstate shipments,” a Flipkart spokesperson said in an e-mail.This is another instance of ecommerce companies facing the heat from states over tax issues. Karnataka proposes to impose a 1% value added tax deducted at source on all payments to dealers in the state by ecommerce firms, a move vehemently opposed by the industry.A spokesperson for Snapdeal said online marketplaces provide technological platforms to connect independent sellers and consumers and should be treated as facilitators, as done by the states of Kerala, Delhi, Rajasthan, West Bengal and Tamil Nadu.“The tax-related obligations of marketplaces are assessed as services,” the Snapdeal spokesperson said. “As facilitators, such marketplaces are tasked with providing information returns to tax authorities to augment enforcement and compliance.”Last year, ecommerce companies stopped shipping high-value products to UP localities including Noida and Ghaziabad after delivery boys got mugged and consumers refused to pay for products ordered through cash on delivery. After the situation improved, they resumed deliveries earlier this year.The UP law states that any person who intends to bring or receive goods from outside, other than those specifically exempted, is required to furnish a declaration that must accompany the goods during their movement in the state. This is mandatory for foods of any value being transported by truck, specified goods used in construction such as sand worth more than Rs 1,000 and other goods with a value exceeding Rs 5,000.Although the rule is applicable to all, ecommerce companies that do not have fulfillment centres or use vendors from outside the states have begun to face the heat.“The requirement of the UP government to ask for way bill forms (Form 39) from end-users, even though the consignments that are brought in are for self-consumption, is leading to recurrent incidences of seizure for both prepaid and postpaid cash-on-delivery consignments,” said a senior executive of an ecommerce company, asking not to be identified.“Since the tax liability on these is already being discharged by the seller in the state from where the shipment has originated, such tax demands are unfounded and restricting marketplace deliveries in this market.”The Flipkart spokesperson said Uttarakhand also has similar VAT regulations in place and such restrictions were earlier in place in Bihar as well. “However, the same (in Bihar) is now subject to payment of entry tax,” the Flipkart spokesperson said. Amazon did not respond to an e-mail seeking comment on the issue.Tax experts said states don’t get any tax on goods supplied from outside and are using this system as a deterrent. “This effectively means that without having a local warehouse in these states (and paying local VAT), catering to the customers has become virtually impossible,” said Pratik Jain, partner for consulting firm KPMG in India.He said this problem may finally get resolved under the proposed goods and service tax regime as the benefit of the levy would accrue to the consumption state. Jain said careful drafting of rules under the GST regime is needed to avoid such disputes.Any Inspector Raj is unacceptable. And these levies also mess up the tax system. The problem is also due to the fact that state laws preceded online retail.So, e-commerce transactions do not find a mention in these laws. The only way to change this is for both states and the Centre to quickly adopt GST which offers credit on the taxes paid on inputs across the production chain. A tax on e-commerce sales then will ensure that the GST chain is not broken.Online retailers will benefit as GST will mitigate the cascading of taxes, and also help e-commerce grow.