In a first, Flipkart, India’s largest ECommerce site, has taken state of Uttarakhand to Court for taxing customers when they make purchases online. In January of this year, Uttarakhand went anti-digital and announced that any ECommerce purchases made by people in Uttarakhand will be levied 10 percent ‘entry tax’.

This regressive, totally impartial ‘entry tax’ on ecommerce was introduced by the State of Uttarakhand vide notifications No. 338/xxxvi(3)/2015/52(1)/2015 Dt. 17.11.2015, No. 1035/2015/22xxvii(8)/2008 Dt.10.12.2015, No.977/2015/22(120)/xxvii(8)/2008 Dt.10.12.2015. and No. 4495/Commissioner Tax Uttarakhand/Commercial Tax/Legal/2015-16 Dt.14.12.2015.

Flipkart has called this tax ‘discriminatory’ and has filed a writ petition through their own logistics arm, EKart Logistics in Nainital High Court.

In the petition, the ECommerce company has said that standard rate of entry tax is 5 percent, however, goods purchased through ECommerce companies is subjected to entry tax of 10 percent.

The petition, reviewed by ET, says, “This new scheme is ex facie discriminatory wherein an additional tax burden is imposed on ‘goods’ procured through a different stream of commerce or commercial mobility. This is an aberration from the scheme of the UT Entry Tax Act, which sought to levy entry tax on specified goods irrespective of the entity from where they were procured,”

This petition is keenly watched by everyone, especially the eCommerce players. If the court rules in favour of Flipkart, it will come as a huge relief to various online marketplaces and etailers.

However, if the court does not rule in favour of petition, it may land a big blow to all eCommerce players. One of the major attraction for customers making online purchases is that they get good prices on products compared to offline stores. If such kind of entry tax is charged for eCommerce transactions only, then price competitiveness will take a hit!

What is even more worrisome is that most other Indian state Governments are also planning to levy such taxes. If the court does not rule in favour of Flipkart, doors will be opened to other states to levy similar taxes on ECommerce products. According to ET, the ECommerce players may even approach Supreme Court if the issue becomes larger and other states also decide to levy such taxes.

The Central Government is bringing tons of Digital initiatives and trying to create a thriving Startup Ecosystem in India, however, if these regressive and discriminatory taxes get levied, it will become very difficult for ECommerce startups to stay competitive.

We are keenly watching the developments and will update you as soon as we have more!