by IP Staff

NEW DELHI: The Confederation of All India Traders (CAIT) in a communication sent to Union Commerce Minister Piyush Goyal has invoked his attention towards flagrant violations of the FDI Policy by the LOTS wholesale solution, a wholly-owned subsidiary of Siam Makro Public Company Limited of Thailand, a part of CP Group, which began its business activities in 2017 under Wholesale Cash & Carry provision of FDI policy.

The CAIT has alleged that LOTS is engaged in B2C Retail Trade/Multi-brand retail trading (MRBT) and selling directly to customers for their personal consumption, which is prohibited for foreign entities like LOTS. This unhealthy and law-violative trade practice of LOTS is greatly and adversely affecting the businesses of small traders. The CAIT has sent similar communication to Union Finance Minister Smt. Nirmala Sitharaman also.

CAIT National President Mr. B.C.Bhartia & Secretary General Mr. Praveen Khandelwal said that LOTS is violating the FDI policy by selling goods to end customers who do not have any Tax Registration by making invoices using some GST numbers known to LOTS or by issuing add on cards/ Supplementary Registration Cards with the Primary Registration Number.

They further said that even if one assumes that LOTS is registering all customers with applicable tax registration, the issuance of add-on/ supplementary cards would mean that at majority of their customers are not qualified to procure the goods from them as they do not hold the applicable tax registration and/ or do not hold other registrations as prescribed in the FDI policy. LOTS encourages B2C customers to use this route (using one of the four cards issued to someone else) to make purchases, while knowing that the cardholder is not a bona fide purchaser.

Mr. Bhartia & Mr. Khandelwal said that besides violation of the FDI policy/ FEMA, it is also a serious offence under the GST Act. Based on LOTS’s modus operandi, it is apparent that it is recording sale of goods to merchants under a GST registration of some other business entity and therefore is effectively promoting the unauthorised use of GST registration.

It is further noted that LOTS registers professional/ service providers/ business unrelated to retail/ wholesale trading just because they are GST holders for the purpose of their own business. Such businesses/ individuals who are not engaged in wholesale/ retail trading activities are able to register with LOTS and procure the goods purely for their personal consumption.

These are termed as customers would have a “Tax Registration” but not “Applicable Tax Registration”. LOTS also issues temporary pass/ registration to walk-in customers who do not have any kind of tax registration/ applicable tax registration or registration of their shop/ retail point/ institution etc. Such practice is not only a blatant violation of the FDI Policy but also a business practice that is arbitrary and wholly erroneous in law. To put it mildly, LOTS enables walk-in end consumers to procure goods from a “Cash & Carry” wholesale store and gives such B2C (MRBT) transactions the color of wholesale trading.

The FDI Policy, in Clause 5.2.15, permits 100% FDI via Automatic Route in “Cash and Carry Trade/Wholesale Trading (WT)”. According to the FDI policy, WT means the sale of goods to retailers, other wholesalers, industrial, commercial, institutional, or other professional business users and related subordinated service providers.

The FDI Policy clearly states that the yardstick to determine whether the sale is wholesale or not is the type of customer to whom the sale is made. The policy additionally makes it clear that wholesale trading would imply sale only for the purpose of trade, business and profession and not for personal consumption. The policy further stipulates that wholesale trading would include resale, processing and subsequent sale, bulk imports with ex-port/ex-bonded warehouse business sales and B2B E-Commerce.

Clause of the FDI Policy stipulates that for undertaking wholesale trading, requisite permits/licenses are required under relevant Acts/Rules/Orders. Second, and more importantly, the clause mandates that only such a sale would be termed WT which is done with valid business customers.

Further, valid business customers have been defined to include entities with applicable tax registration (and not simply “tax registration”) directly, entities holding trade licenses under Shops & Establishments Act reflecting that the person holding the license is himself engaged in a business involving commercial activity, entities holding permits/ licenses for undertaking retail trade and institutes incorporated and registered as a society or public trust for their self-consumption.

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