CAIT levels charges of manipulation against Flipkart
| Date :08-Nov-2019 |
Business Bureau :
In a communication sent to Union Commerce Minister Piyush Goyal on Thursday, the Confederation of All India Traders (CAIT) levelled serious charges of circumventing the law, causing huge GST and Income Tax revenue loss to the Government, gross manipulations for controlling inventory, bypassing the FDI policy of the Government and indulging into sinister game of valuation of the company instead of conducting business in an open and transparent manner.
The charges were levelled citing the balance sheet of Flipkart Private Limited. The CAIT said that it is an open and shut case and has demanded that as a first step, the Government should order for the closure of the Flipkart e commerce business and constitute a high level committee of tax experts, chartered accountants and senior officials of the Government to make an in depth study of the balance sheet, income and expenditure account of the Flipkart, its parent company and other associate or related companies in a time bound manner. In its communication to Goyal, the CAIT said that, “we have submitted that these companies are incurring losses of thousands crores of rupees every year but still they are able to continue their businesses without any problem which is much against the basic fundamentals of economics.
However, a shocking revelation of true facts about Flipkart in a section of media which has analysed balance sheet of Flipkart amply corroborate our charge that its not a market place but in real terms is largest retailing company of the country which is a gross violation of FDI policy.” Citing a media report, the CAIT said that five top corporate retailers of the country bought goods worth Rs 43,374 crore in financial year 2018-19 whereas, the financials of its Singapore parent company Flipkart Private Limited, reveals that Flipkart alone bought goods worth Rs 39,514 crore which is 90 per cent of total goods purchased by five corporate retailers.
The pertinent question is why a market place need to buy and sell goods at such a huge scale? In same financial year Flipkart incurred a loss of Rs 4431 crore due to sale of goods without even accounting for the incidental expenses which were incurred to process the sales. The losses because of discounting rises to 170 per cent hike in financial year ending 2019. As per an estimate the Flipkart is buying goods of Rs 110 crore every day and is selling at a loss of Rs 39 crore per day. CAIT National President B C Bhartia and Secretary General Praveen Khandelwal said that the Flipkart sells product to sellers related or controlled by it.
Companies like SuperCo,.net, Omni Tech Retail and Retail Net are buying from Flipkart’s B2B entity and sell to sellers like Sports Lifestyle Private Limited, Premium Lifestyle, Fashion India Private Limited and Wishberry Online Services Private Limited which is again a gross violation of FDI policy. Both Bhartia and Khandelwal said that this is just a glimpse of the high level manipulations by such e commerce companies and if we go in deeper details of the whole business model such more glaring revelations will crop up which would be quite alarming. Further, by selling goods at a higher discounted price, in fact much below the fair market value of the products, they charge GST on discounted price causing huge GST revenue loss to the Government since GST has to be charged on fair market price and not on under valued price. By posting huge losses every year, they are escaping the liability of paying substantial Income Tax revenue to the Government.
They further said that it is a matter of grave concern that on the one hand such e commerce companies are violating the FDI policy of the Government and on the other hand causing huge revenue loss to the Government by way of large scale manipulations, bypassing the law and not filling the policy in its letter and spirit. How can the small retailers of the country will compete with them who do not have enough resources and following the law and discharging due tax liability? In other words, it is a vicious circle of committing crime, gaining huge market share and valuation of the company. Their business model is based on misplaced logics, funding negative cash flow through investors and monopolising the market. It is an open and shut case for distorting Indian retail market to a large extent and damaging the basic fundamental principles of business and economy.