State tax departments have begun issuing VAT recovery notices to several e-commerce firms, targeting alleged unpaid liabilities from the pre-GST era. These notices primarily concern the period when states had differing views on whether marketplaces or individual sellers bore the primary responsibility for VAT compliance. In many cases, e-commerce companies had facilitated transactions on behalf of third-party vendors but are now being held accountable for tax dues that were either under dispute or unresolved due to a lack of clear legislative guidance at the time. This has reignited concerns over retrospective taxation and jurisdictional overreach in legacy tax matters.

E-commerce platforms argue that their role was largely limited to enabling transactions, with tax collection and filing obligations resting with the actual sellers registered under respective state VAT laws. The absence of uniform compliance mechanisms and varied enforcement practices among states prior to GST made it difficult for platforms to enforce VAT compliance on third-party vendors. Now, with the issuance of recovery notices, some companies are facing significant tax demands along with penalties and interest, prompting legal challenges and industry appeals for resolution. This situation is particularly complex because many of the vendors in question have either shut operations or failed to maintain adequate records to validate their tax status.

Industry bodies have approached the central government and finance ministries of concerned states to seek clarity and protection for digital marketplaces that operated in good faith under an ambiguous tax framework. There is also a growing demand for a national-level review of legacy VAT enforcement on digital transactions, especially in light of the significant changes brought by GST. Legal experts suggest that any recovery effort should be proportionate, based on clear liability, and subject to judicial review, to avoid stifling the growth and credibility of India’s rapidly expanding e-commerce sector.