The government has issued new rules that make it compulsory for e-commerce companies with foreign investments to submit an audit report every year, showing that they have been in compliance with the FDI rules for the sector.
According to a notification amending the Foreign Exchange Management Act, 1999, dated December 5, e-commerce companies have to obtain a statutory auditor report by the end of September each year for the preceding financial year.
“Against Sl. No. 15.2.3, for entry (p), the following entry shall be substituted, namely; - “(p) e-commerce marketplace entity with FDI shall have to obtain and maintain a report of statutory auditor by 30th of September every year for the preceding financial year, confirming compliance of the e-commerce guidelines,” the new rules say.
The Department of Industrial Policy & Promotion last December issued a clarification to the existing rules pertaining to foreign direct investment in e-commerce companies. One of the main provisions clarified was that vendors that have any stake owned by an e-commerce company cannot sell their products on that e-commerce company’s portal.
Another provision said any vendor who buys 25% or more of its inventory from an e-commerce group firm will be considered to be controlled by that firm and thereby barred from selling on its portal.
This provision was aimed at ensuring vendors in which marketplaces, such as Amazon, have a stake do not sell the bulk of their items to a third-party vendor who then goes on to sell those items on Amazon’s marketplace.
The rules were also designed to ensure that the e-commerce marketplaces themselves did not influence the prices of the products on sale by providing deep discounts.
Traders’ bodies such as the Confederation of All India Traders have repeatedly approached the government over the past year complaining about how e-commerce firms had been allegedly still violating rules even after the clarification, with deep discounts.
Commerce Minister Piyush Goyal also said several times that violations of the rules would not be tolerated.
