Since the day Walmart ventured into the Indian market, it has been facing a bumpy ride. The global retail giant has once again fallen into the legal clutches of the country and this time, it has crosshairs with the service tax department.
An official close the development stated that the unit has got a show-cause notice asking why it shouldn't be taxed for services provided to the foreign parent. The notice has been issued by service tax authorities in Bengaluru where the sourcing entity is based.
The department has slammed a tax liability of Rs 18 crore on the company. The unit serves as an intermediary that facilitates transactions between the parent and vendors in India. Walmart said it's in the process of replying to the notice.
Replying to the media queries, company’s spokesperson said that Walmart has received the notice and is responding. Its sourcing office in Bangalore sources local products from India and the region for its markets around the world. Company is very proud of its contribution in creating thousands of skilled jobs and supporting key government initiatives like Make in India.
However, there are many companies who work on the similar platform and source product from India for their parent firm or other overseas group or domain. Walmart also sources products from India with the help of its Indian sourcing arm and this activity comes directly into the tax radar.
The Indian arm usually carries out sourcing and marketing for the overseas parent and acts as a communication channel between the suppliers and the overseas entity. The parent deals directly with suppliers and the Indian entity facilitates the placement of orders.
For rendering its services for sourcing goods, Indian companies are paid in foreign exchange by its overseas company or group. However, earlier this type of service was treated as exports and hence, they were not taxed. But recently in October 2014, few amendments were made in the rule and thus, this expanded the meaning of intermediaries. The new amendments in the rule brought these services within the domain of service tax.