As per the Consolidated Foreign Direct Investment Policy, 2015 (“FDI Policy”), 100% (hundred percent) foreign direct investment (“FDI”) is permitted only in companies engaging in business-to-business (“B2B”) e-commerce in India and not in any entity involved in retail trading / business-to-consumer (“B2C”) e-commerce. However, as alleged in a writ petition filed before the Delhi High Court (“Court”), by All India Footwear Manufacturers & Retailers Association, an association of retailers in India (“Petitioners”), companies in India that sell goods through the medium of the internet are accepting foreign investment despite engaging in retail trade / B2C e-commerce

The question which has risen for consideration before the Court is whether these entities selling goods through the medium of internet qualify as ‘retailers’. To assess the issue, the Court enquired if sales by such entities through the medium of internet are being taxed by the Government as retail sales. It was pointed out to the Court that the Union as well as the State Governments have been treating such sales as sales by retailers and have raised tax on them, which are however under challenge before different fora.

In its Order dated September 23, 2015, the Court observed that prima facie, the Union as well as the State Governments cannot, on the one hand, for the purpose of tax, treat such sales as retail and on the other hand, for the purposes of investment, not treat the same as retail sale. The Union Government and other respondents have requested for a period of 1 (one) month to respond. The next date for hearing is fixed as October 14, 2015.

E-marketplaces have consistently represented that they serve as mere platforms through which third party retailers can sell their goods to customers and the e-marketplaces do not themselves offer any goods for sale. The e-marketplace structure has been under the scanner for a while now. It will be interesting to see how the Government explains the difference in treatment of sales through these marketplaces, for tax and investment purposes.