Amazon's denial of high legal expense in India raises more Qs than As

Amazon has been of late and also for sometime now making some contradictory statements about its legal expenses in India. The company has claimed that it incurred a meagre expense of Rs 52 crore towards legal fees in FY20.

This is out of the total expense of Rs 1,967.5 crore shown as "legal professional charges" in financial statements of Amazon Seller Services Private Limited as sourced from the website of Ministry of Corporate Affairs. Amazon Seller Services Private Limited is among the myriad subsidiaries the company operates in India.

The online retailer has stated that "legal professional charges" incurred by it in FY20 include professional services such as customer research, merchant onboarding services, customer service cost, outsourcing, tax consultants, logistic support services, etc.

This is misleading given that Advertising promotional expenses is a separate line item in the company's financial statements, and it typically includes expenses associated with customer acquisition and marketing. Payment to consultants for taxation matters and audit services are also included in the separate line items in its financial statement.

It is worth noting that Amazon Seller Services Private Limited has spent Rs 2,640.3 crore under Advertising promotional expenses in FY20, up 13.28% from Rs 2,330.7 crore in FY19. The total expenses related to "legal professional charges" for FY19, and FY20 is a stupendous Rs 3,407.6 crore, that is possibly larger than the combined revenues of leading law firms in the country.

The statement made by Amazon with regards to its legal expense in India does not hold water for anyone who is informed. It is incumbent on the company to explain to what effort it has spent Rs 3,407.6 crore from one subsidiary alone towards what it has accounted for as 'legal professional charges'.

Amazon has been at the centre of controversy after reports of bribery charges against its legal representatives and associated legal firms in India. The company is facing an inquiry by the Competition Commission of India (CCI) over alleged anti-competitive practices and a parallel inquiry by Enforcement Directorate for violation of domestic laws.

The Directorate General of Goods and Service Tax Intelligence (DGGI) has also issued a show cause notice to one of its subsidiaries, Cloudtail, for evasion of GST and indirect taxes. Amazon has also legally challenged Future Group's deal with Reliance Retail to sell its retail, wholesale, logistics, and warehouse businesses to Reliance Retail Ventures.