Lack of legal compliance and non-payment of tax by Uber brings to the forefront the lacunae in law and lack in implementation of the existing law

Gaurav Pathak
14 Dec 2014 12:50 PM GMT
Lack of legal compliance and non-payment of tax by Uber brings to the forefront the lacunae in law and lack in implementation of the existing law
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Uber is an international internet based company, based out of San Francisco; it is wholly based on technology. Valued at around 18 billion, various entities have invested in Uber, including big-wigs such as Google ventures, Blackrock, Goldman Sachs and also Jeff Bezos (CEO, Amazon).

Lately Uber has been catching the backdraft of the for the unfortunate rape incident where Cab driver using the Uber application raped a woman in Delhi. This has brought to the forefront a lacunae in the law.However, the truth of the matter is though the law exists there is a lack in implementation.

Uber and Information Technology Act, 2000

Uber, being an internet based company, comes under the Information Technology Act, 2000.Ignorance of Law is no excuse. Further foreign multinational companies seem to be less complaint with the laws in India an example of this is Uber.

Information Technology (Intermediaries Guidelines) Rules, 2011laid down the law for Intermediaries in India. Assuming Uber is an intermediary, it has to be comply with these Rules.

Rule 3 (11) of the Information Technology (Intermediaries Guidelines) Rules, 2011 states“The intermediary shall publish on its website the name of the Grievance Officer and his contact details as well as mechanism by which users or any victim who suffers as a result of access or usage of computer resource by any person in violation of rule 3 can notify their complaints against such access or usage of computer resource of the intermediary or other matters pertaining to the computer resources made available by it. The Grievance Officer shall redress the complaints within one month from the date of receipt of complaint.”

Uber simply does not have any Grievance Officer in India.

Moreover, Delhi High Court on August 23, 2013 passed a landmark order in KNGovindacharya v Union of India wherein it held “ intermediaries…………should immediately publish the names of their  respective Grievance Officers on their websites along with their contact details as well as the mechanism by which any user or any victim who suffers as a result of access or usage of computer resource by any person in violation of Rule 3, can notify his complaints against such access or usage. The same direction must be complied with, if not already done, within two weeks. Mr. Rajiv Mehra, the learned Additional Solicitor General appearing on behalf of the Union of India, stated that, “The Union of India shall also take steps to ensure that the intermediaries comply with the requirement of Rule 3(11).”

While the multinational Uber has now been allegedly banned in Delhi as per news reports, many such companies continue to exist, without complying with the laws in India.

The next and the most important question comes to the legality of Uber and its transactions. The law in India does not recognize any signature other than a digital signature as an electronic signature. So how can an internet based company contract with a person, without obtaining his digital signature? The question has also been addressed by the Delhi High Court, in its order dated February 24, 2014 in the same matter and held that , “the Government does not recognize any signature other than a digital signature as an electronic signature as referred in Rule 3 (4) of the Information Technology (Intermediaries Guidelines) Rules, 2011”.

In addition, it is not that obtaining legal signature is just a technical requirement, an e-contract without a digital signature is ab-initio, and as a result, the claim for any damages or compensationwould be unfounded. Simply put, how can you claim damages when there was no contract in the first place? This is highly problematic.

On the Road

The transport regulator banned Uber to ply on Delhi roads. It also quotes transport department as saying, “The said All India Tourist Permit taxi was provided by Uber on the request of the commuter through the Uber Web application for a local journey within Delhi which was in contravention of the MV Act, 1988 and rules framed there under. Uber also misled the commuter about the nature of the taxi service offered by the ‘Uber App’.”

Meru and Easy cabs continue to ply as they have legal permits while Ola and TaxiForSure, that follow the same business model as Uber, and they also faced the same result, a ban.

Abhishek Goenka, Partner at BMR Legal said, “From the reason that the Delhi regulator has given for the ban, it looks like this is a case of regulators not understanding the business models of cab companies.”

A good part of it seems to be true. As such taxi services are all web based entities, the IT Act automatically comes into picture, with the law regarding electronic signature very clear, does the question of a permit arise at all?

Uber and Tax

The company having a worth of 18 billion dollars has around 3000 drivers in India, it charges (or used to) the user a minimum of Rs. 150 for its low cost ride and Rs. 175 for UberBlack, the version with the higher costs in Delhi. And how much money does Uber pay in taxes? Zero.

As per the statement of Mumbai Service Tax Commissioner SK Solanki, Uber has not paid even a single paisa as service tax. The order passed by the Hon’ble Court on November 28, 2014 in theGovindacharya case said:

“The service tax is being collected as per the provisions of Chapter V of the Finance Act, 1994................ The Internet companies having their fixed establishments or business establishments outside India and providing taxable services in India are not liable to pay service tax themselves. However, the recipients of said taxable services in India are liable to pay services tax under the provisions of said Act.  ………….That as and when it comes to the notice of the Department of Service Tax, that there is a shortfall/non-payment of service tax by any company/entity, necessary action is initiated in accordance with law for effecting recovery etc. from such defaulting entities “.

The Reserve Bank of India too had written to Uber regarding its payment methods and had given such companies time until October 31, 2014 to comply with the regulations. It is clear that Uber has a duty to pay taxes and it is for the government to ensure that they do so.

The outrage over the Uber cab incident is reflected in television shows. People saying we need to effectively control such happenings. The question remains how. Bringing one back to implementation.

The Hon’ble Supreme Court of India in Dipak Babaria & Anr v. State of Gujarat had said, “If the law requires that if a thing should be done in a particular manner, it must be done in that way and not in any other way.” Judgments of the Supreme Court are law of the land as per Article 141 of the Constitution of India. The government is duty-bound to enforce the letter of the law.

However, cancelling the licence of Uber and other service providers is not the answer. What about the larger picture?

Reportedly, “even senior police officers were clueless how to contact Uber since there was no contact number or office details on the website of the company. Reports saySenior official of the Delhi Police had to download the app, book a cab and ask the driver to take them to their registered office, which was operated from a room of Hotel in Gurgaon where no one was present and only way to access data about the cab concerned was to get it from the New York office.”

The way forward

Implementation. It is truly great that the most powerful things can be summed up in a word. We as a country need implementation. It is time that the law is enforced. It is time that offenders, the government and all those responsible are made accountable.If the Company had a Grievance Officer, the Police would not have been able to contact them easily.

KNGovindacharya through his advocate Mr. Virag Gupta had filed an application before Hon’ble  High Court of Delhi. In his plea, he had prayed for “penal  proceedings against Secretary Information and Technology, Union of India for failure to comply with provisions  to place grievance officers by other Intermediaries Companies as per orders dated 23rd August 2013 passed by this Hon’ble Court which is causing huge risk to safety of children, women  and citizens of this country” amongst other things.  However, the Delhi High Court said that it would be appropriate if a Contempt Application is moved against the Secretary IT, and then it will see decide on the application.

Digital India, Tourism and everything will remain a dream if we cannot enforce the law. Anyways, who will tour a ‘lawless’ country that is known for rapes?

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