Chinese ecommerce platform ClubFactory is in the crosshairs of the Delhi commissioner of customs over non-compliance with Customs Act 1962.
Goods imported by the company were confiscated by the office of the commissioner of customs (air cargo export) as they were found to be mis-declared as business to business (B2B) shipment while the department found it to be business to consumer (B2C) shipment, according to the preliminary investigations.
Documents reviewed by TechCircle show that Globemax Commerce India, a fully owned subsidiary of Hong Kong-registered holding company of ClubFactory A2Z Trade, has been asked to submit documentation to further the investigation.
Globemax Commerce India has been asked to submit its balance sheets, auditor reports and sale and purchase ledgers dating back to five years as well as the copy of the agreement with its foreign supplier.
If found to be non-compliant under the Customs Act, ClubFactory will be required to deposit the due amount as part of customs duty as well as penalty or, in extreme cases, might lead to criminal proceedings.
“If the documents filed by the company were falsified, the customs officials can ask the company to pay a penalty of up to five times the value of goods under the provisions of Section 114 AA of Customs Act. Key employees and directors of the company can also be criminally prosecuted in extreme cases,” said Sandeep Chilana, managing partner at Chilana & Chilana Law Offices and an expert in commercial and tax litigation.
“Club Factory is witnessing very healthy growth in India and is growing consistently. With our strategy to charge zero commission fee form sellers, we are helping the ecommerce industry grow by empowering local sellers and benefiting consumers by offering the best possible price. Our business in India complies with local regulations and we have strict measures in place to take action against sellers who might violate any local policy,” ClubFactory said in a statement in response to specific email queries.
It will not be the first time ClubFactory has had to face the heat for evading customs duty. Earlier, the Mumbai port had clamped down on the misuse of gift channel by cross border ecommerce players, leading to the temporary suspension of services by SheIn and ClubFactory.
The provision of gift channel exempts gifts to friends and family sent by Non-Resident Indians up to a value of Rs 5,000 from taxation.
“There are two routes of commercial imports - either through an Indian intermediary who clears the goods from customs and pays the required duties or getting the customs clearance done by the courier partner who delivers the goods directly to the end customer,” said Chilana.
Multiple cross-border players were found to be misusing the provision for shipping goods from sellers outside of India to customers in the country. In July, citizen engagement platform LocalCircles had written to the Central Board of Indirect Taxes to fix a flat rate of customs and GST at 42.05%.