Proxy advisory firm flags Meesho’s GST model, seeks Sebi scrutiny

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Bengaluru: Proxy advisory firm InGovern Research Services has asked the Securities and Exchange Board of India (Sebi) to examine whether Meesho Ltd has adequately disclosed potential investor risks arising from the Goods and Services Tax (GST) position adopted by its logistics subsidiary Valmo Transportation.

In a representation submitted to Sebi chairman Tuhin Kanta Pandey on 20 July, and reviewed by Mint, InGovern argued that Valmo appears to classify freight recovered from customers as a Goods Transport Agency (GTA) service, allowing it to avail lower GST applicable to such services.

According to the Bengaluru-based firm, Valmo appears to classify freight recovered from customers as a GTA service, which attracts 5% GST without input tax credit (or 12% with input tax credit under certain conditions), instead of treating it as a standard transport support/logistics service, which is generally taxed at 18% GST. InGovern argued that this lower tax incidence enables the e-commerce company to subsidise shipping costs, offer lower freight rates, finance discounts and improve unit economics, making the GST position a material component of its commercial strategy.

InGovern stressed that it is not asking Sebi to determine the legality of Meesho's GST position, as such questions fall within the jurisdiction of tax authorities. Instead, it urged the market regulator to examine whether investors have been adequately informed of the legal and financial risks if the tax treatment is eventually found to be unsustainable.

"Basis the West Bengal ruling, a lot will depend on how the GST authorities view it. If they take a negative view, Meesho could have to pay back taxes along with penalties and interest," Shriram Subramanian, founder and managing director of InGovern Research Services, told Mint. "Investors need to be aware that this could be a huge risk for the company." He added that while companies may interpret regulations in ways they believe favour their business, "once they become listed companies, that becomes a contingent risk for public shareholders as well."

Earlier this year, the West Bengal Appellate Authority for Advance Ruling (AAR) overturned an advance ruling obtained by Flipkart on whether certain delivery services qualified as Goods Transport Agency services, holding that the company's logistics operations did not qualify as a GTA merely because consignment notes were issued.

The Authority for Advance Ruling (AAR) is a GST forum that gives legally binding clarifications to taxpayers regarding their tax liabilities, classification of goods and services, and applicability of GST laws to their intended business transactions to prevent potential tax litigation.

The Flipkart matter, however, arose through GST advance ruling proceedings initiated by the company itself, whereas InGovern has approached Sebi over disclosure obligations rather than seeking a determination on GST liability.

Still, “The Flipkart AAR ruling is significant as it confirms that GST classification of e-commerce logistics arrangements depends on the actual legal and commercial substance of the transaction rather than the parties’ business descriptions,” said Sachin Sharma, managing partner at KSV Tax Consultants.

“However, its application is necessarily fact-specific. Differences in contractual terms, invoicing, transportation responsibilities, or consignment-note practices may lead to difference GST outcomes. The ruling therefore reinforces that integrated e-commerce logistics models be analysed on a transaction-by-transaction framework.”

Shares of Meesho settled 3% higher at ₹191.60 apiece on the BSE on Tuesday.

InGovern's representation said that if the GST position is ultimately held to be legally unsustainable, Meesho could face substantial retrospective tax demands spanning multiple financial years, interest on unpaid taxes, penalties, prolonged litigatio...