Flipkart jubilant after Calcutta HC stays entry tax on online goods

India’s e-commerce giant Flipkart has seen another success in its battle to remove entry taxes from online shipments. After the Uttarakhand High Court ordered a stray over this issue, Flipkart sued the West Bengal government, and managed to get favourable judgement from the Calcutta High Court.
The order by the state government had made the tax a mandatory prerequisite to generate waybills, required for delivery of shipments.
Instakart services which run the logistics arm of Flipkart, eKart, had filed a petition in High Court in the last week of March.
The petition claimed: the West Bengal government is imposing an entry tax of 1 per cent on the value of every consignment that eKart delivers in the state. Flipkart has, in turn, argued that this entry tax is without any “legal” basis.
“It has also resulted in increased cost of goods and materials brought into the State of West Bengal by them for consumption or use by the end customers in the State,” the petition read.
In response to the petition, the court released an order dated April 5, 2016, which said that the state cannot force a company to pay entry tax.
The order read: As a consequence, the petitioner will be entitled to generate waybills in terms of the said rule without payment of any entry tax and if the programme or the system has to be altered for such purpose, the state is directed to do so immediately such that no inconvenience is occasioned to the petitioner in the electronic generation of waybills without payment of entry tax.
Flipkart hopes that the order will act as a deterrent for other states that want to impose similar entry taxes on online goods.
Uttarakhand Before West Bengal
This is not the first time that Flipkart has sued a state. In February, Flipkart dragged the state of Uttarakhand to court for its decision to impose a 10 per cent entry tax on goods purchased through e-commerce. Calling the levy “discriminatory”, the e-commerce giant had filed a writ through eKart Logistics in the Nainital High Court.
Flipkart has argued in its petition – filed in February – that while the standard rate of entry tax is 5 per cent, goods purchased through e-commerce companies were subjected to an entry tax at the rate of 10 per cent.
The Uttarakhand petition had stated: “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.”
Maharashtra, Bihar and Karnataka already have an entry tax on e-commerce purchases and almost half a dozen states are in various stages of imposing similar taxes.
About Flipkart
Flipkart is an e-commerce company founded in 2007 by Sachin Bansal and Binny Bansal. The company is registered in Singapore, but has its headquarters in Bangalore, Karnataka, India.
Flipkart has launched its own product range under the name “DigiFlip” with products including tablets, USBs, and laptop bags.
In May 2014, Flipkart received $210 million from DST Global, in July 2014 it raised $1 billion led by existing investors Tiger Global and South Africa’s media group Naspers and in May 2015 it raised $550 million from some of its existing investors. Flipkart’s last fundraising round in May 2015 had pegged its valuation at $15 billion. In February 2016, Morgan Stanley, marked down its investment value to $11 billion.
Flipkart’s Finances
Initially, they had spent ₹ 400,000 only for making website to set up the business. Flipkart has later raised funding from venture capital funds Accel India (US$1 million in 2009) and Tiger Global (US$10 million in 2010 and US$20 million in June 2011). On 24 August 2012, Flipkart announced the completion of its 4th round of $150 million funding from MIH (part of Naspers Group) and ICONIQ Capital. The company announced, on 10 July 2013, that it has raised an additional $200 million from existing investors including Tiger Global, Naspers, Accel Partners and Iconiq Capital.
Flipkart’s reported sales were ₹ 40 million in FY 2008–2009, ₹ 200 million in FY 2009–2010[41] and ₹ 750 million for FY 2010–2011. In FY 2011–2012, Flipkart is set to cross the ₹ 5 billion (US$100 million) mark as Internet usage in the country increases and people get accustomed to making purchases online. Flipkart projects its sales to reach ₹ 10 billion by year 2014. On average, Flipkart sells nearly 10 products per minute and is aiming at generating a revenue of ₹ 50 billion (US$0.81 billion) by 2015.
On November 2012, Flipkart became one of the companies being probed for alleged violations of FDI regulations of the Foreign Exchange Management Act, 1999.
Flipkart reported a loss of ₹ 281 crore for the FY 2012-13. In July 2013, Flipkart raised USD 160 million from private equity investors.
In October 2013, it was reported that Flipkart had raised an additional $160 million from new investors Dragoneer Investment Group, Morgan Stanley Wealth Management, Sofina SA and Vulcan Inc. with participation from existing investor Tiger Global.
On 26 May 2014, Flipkart announced that it has raised $210 million from Yuri Milner’s DST Global and its existing investors Tiger Global, Naspers and Iconiq Capital.
In early July 2014, it was also highly speculated that Flipkart was in negotiations to raise at least $500 million, for a likely listing in the US for 2016.
On 29 July 2014, Flipkart announced that it raised $1 billion from Tiger Global Management LLC, Accel Partners, and Morgan Stanley Investment Management and a new investor Singapore sovereign-wealth fund GIC.
On 6 October 2014, Flipkart sold products worth INR 650Crore in 10 hours in a special one-day event – “The Big Billion Day”, claiming they had created e-commerce history, but their hard-won reputation for good customer service suffered because of technical problems, and angry reactions on social media from buyers disappointed with the pricing and availability of products.
It claimed to sell a whopping 5 lakh mobile handsets, five-lakh clothes and shoes and 25,000 television sets within hours of opening its discounted sale at 8 AM. In December 2014, After it received $700 million from another funding, Flipkart had a market cap of $11 billion or Rs.66000 crore. In May 2015 Flipkart has raised $550 million from some of its existing investors, in a deal that raises the valuation of the privately held Indian startup to about $15 billion or Rs. 90,000 crore.
On 20 December 2014, Flipkart announced filing application with Singapore-based companies’ regulator ACRA to become a public company after raising $700 million for long term strategic investments in India following which its number of investors exceeded 50. The $700 million fund raised by Flipkart added new investors – Baillie Gifford, Greenoaks Capital, Steadview Capital, T. Rowe Price Associates and Qatar Investment Authority – on company’s board.Its existing investors DST Global, GIC, ICONIQ Capital and Tiger Global also participated in this latest financing round.
By August 2015, after raising $700 million, Flipkart had already raised a total of $3 billion, over 12 rounds and 16 investors.