Cloudtail — a joint venture between e-commerce company Amazon and Infosys co-founder NRN Murthy’s Catamaran Ventures — has been served with a service tax demand of ₹ 54.5 crore. According to reports, the company has received a show-cause notice from the Directorate General of Goods and Service Tax Intelligence and interest and penalties for service tax-related matters.
“Cloudtail has disputed the service tax claim by the authorities, and the matter is before the adjudicating authorities. Cloudtail has been disclosing this as a contingent liability in its Annual Report since 2019 as per Indian Accounting Standards. Since this matter is subjudice, we are unable to comment any further. Cloudtail reiterates that it is in full compliance with the laws of India,” Cloudtail said in a statement.
Controversy amidst rising profits
Cloudtail reported revenue of ₹ 11,413 crore for FY20, a rise of 27.76 percent compared to ₹ 8,945 crore of the previous year. The company made a profit of ₹ 67.5 crore for FY20. Cloudtail, which is one of the largest sellers on Amazon India, is owned by Prione Business Services.
Catamaran Ventures had increased its stake in Prione in 2019 to 76 percent from the earlier 51 percent. Subsequently, Amazon’s stake became about 24 percent in the company. Amazon’s stake in Cloudtail has come under fire from several traders’ associations in the country.
Both Confederation Of All India Traders (CAIT) and Delhi Vyapar Mahasangh (DVM) alleged that Amazon had a direct relationship with Cloudtail and was giving it preferential treatment and another seller, Appario. Appario Retail is a subsidiary of Frontizo, a joint venture between Amazon and the Patni Group.
“There seem to be numerous inconsistencies in Amazon’s selling tactics with Cloudtail, and the true picture will emerge if the probe continues. If Amazon is found to be in violation, it will face a significant financial penalty,” said Sonam Chandwani, managing partner at KS Legal and Associates.
Like other retail suppliers and online retail players in India, legal experts said Amazon had exploited policy loopholes. It signed both Cloudtail and Appario deals between 2014 and 2017. However, the revised e-commerce laws restrict marketplace platforms’ shareholdings in direct retail suppliers.
Probe for preferential treatment
Meanwhile, on June 11, the Karnataka High Court dismissed the pleas of Amazon and Flipkart against a probe by the Competition Commission of India (CCI) for alleged violation of competition laws.
In 2020, the CCI had announced an investigation of Amazon and Flipkart deals following a complaint filed by Delhi Vyapar Mahasangh (DVM), representing the small and medium business owners in Delhi. The complaint accuses the two e-commerce giants of favoring some sellers, which is hurting small businesses.
Both companies have managed to get a stay on the CCI probe by saying they had done nothing wrong until now.
