The Gujarat high court on Thursday issued a notice to the advocate general and the Gujarat state authorities concerned over a petition filed by India's largest online marketplace Flipkart objecting to the state government's law levying entry tax on goods sold in Gujarat through online shopping. This happened after the state government made amendments in its Gujarat Tax on Entry of Specified Goods into Local Areas Act, 2001, on March 31 and came up with a notification the next day.

The state government introduced the entry tax in the state budget 2016-17 on e-tailers to provide a level playing field to local dealers, who claim to be at the receiving end of the competition. The government directed the e-tailers to charge the difference in value added tax (VAT) rates between Gujarat and the state from where a product is supplied as entry tax. Similar mechanism would apply to locally made goods, which are sold in other state.

Flipkart's main objection to this is that it is not engaged in any sale of goods to customers, but merely a service provider — an online platform for sellers and buyers where sellers can list their products and buyers can place orders. Here the buyers purchase goods directly from the sellers and its website makes it amply clear that the goods are for end users and not for resale. While seeking quashing of the provisions recently introduced in the law, the petitioner submitted that the sellers are registered under respective states under VATCentral Sales Tax laws (CST) and it is displayed on the website. In case where goods are situated outside Gujarat, the seller pay appropriate CST on such goods.

Flipkart further argued that a package along with invoice is handed over to the logistics agents by the sellers for the delivery directly to the customers. Thus the service provider's role is nothing more than providing an online platform and managing the logistics. With this argument, the petitioner has urged the court to junk the entry tax provision on goods on which CST has been already paid.