Electronic commerce in general parIance is defined as transactions conducted over a digital or electronic network. Electronic commerce began traditionally as online retail in the stock and sell model. The traditional model worked like this- the inventory of goods/ category of services were displayed to the customer who could choose and pick the desired goods/ services in his virtual cart. The customer then used to make the payment via different mechanisms available i.e. either Cash on Delivery, Debit card, credit card,etc. The goods/services are delivered to the customers via different modes like courier, hand delivery or option to pick from stores of the supplier etc. In this traditional model, both the platform and the goods/services are owned by the supplier and the supplier needs huge working capital.
The companies then went for the Market place model which required lesser working capital when compared to the traditional model. The model is based on the concept of platform that is owned by one person and showcases the goods/ services of the other persons. Buyers visit the site and chose from a variety of products offered by different suppliers. In this model , the payment is made by the customers to the site either at the time of placing the order or by cash on delivery basis. The site then makes the payment to the supplier after deducting their commission and other charges that may be imposed by them for the services offered by them. In this case, the working capital requirement of the site owner is considerably low as he does not need to invest in the inventory.
What is Market place?
A Marketplace is an e-commerce platform owned by the E-commerce Operator such as Flipkart, Snapdeal and Amazon. Some of the features of a marketplace model are:
- Marketplace enables third-party sellers to register and sell online on their platform.
- Marketplace charges a subscription fees/ commission on sale value from listed sellers.
- Third-party sellers under this model gain access to a larger customer base, registered with marketplace.
- Customer on the other hand gain access to multiple sellers and competitive prices for desired products.
Now let us understand the Tax complexities involved in the e-commerce. The present structure of indirect taxes is complicated and attracts various kinds of taxes on any transaction leading to confusion and hence ,the cascading effect .E-commerce is one of the industries worst hit by the complex indirect tax structure. As can be understood from the excise laws, it is levied on the manufacture and hence, it was thought that e-commerce was out of the purview of the excise. But technically even re-labelling for the purposes of making the product ready for sale amounted to manufacture and hence attracted excise. The services provided by the electronic platform owners like marketing, collection fee and any other charges used to attract the Service Tax on reverse charge.VAT/ CST, as the case may be ,was applicable in case of sale of goods.
'E-commerce' has been receiving special attention from various Ministries of the Government of India, including the Ministry of Finance (MoF). In the run-up to GST, the e-commerce sector has received special attention in as much as specific provisions have been devoted to e-commerce companies, which seems to depart from the current position as well as appears to be an exception to the general principles underlying GST, viz. registration irrespective of threshold limit. Earlier the suppliers who used to supply goods/ services on the sites owned by others were out of the tax regime in case of their turnover was below the threshold limit. To bring all those suppliers into the scope of GST, the GST law has mandated them to take registration irrespective of the amount of their turnover (Compulsory Registration-Sec.24 of the GST Act).
However, this may cause additional hardship for small traders who supply goods and/or services, other than branded services, through e-commerce operators. Further, for some startups whose turnover are not expected to rise above the standard threshold in the initial years, the standard threshold would have provided some relief. Instead, the provision is in contradiction with the 'Ease of Doing Business' initiative of the Government of India.
Provisions related to E-commerce operator in the GST Law
Sec. 2(45) defines the term 'electronic commerce operator' as any person who owns, operates or manages digital or electronic facility or platform for electronic commerce;
And the term ' Electronic commerce' has been defined in Sec. 2(44) which says that ' Electronic commerce' means the supply of goods or services or both, including digital products over digital or electronic network.
1. Registration-No threshold limit: At the outset, no threshold exemption has been provided to the electronic commerce operator or the person supplying through E-Commerce operator . Thus, any person who is an electronic commerce operator or is supplying through an electronic commerce operator (except persons supplying notified services u/s 9(5)) shall be required to levy GST from his first rupee of supply.
Sec.24 provides that the following categories of persons undertaking taxable supplies shall be required to take registration irrespective of the threshold limit:-
a. persons who are required to pay tax u/s 9(5) (Specified Category)
b. persons who supply goods or services or both, other than supplies specified u/s 9(5), through such electronic commerce operator who is required to collect TCS u/s 52.
c. every electronic commerce operator
d. every person supplying online information and database access or retrieval services from a place outside India to a person in India, other than a registered person.
Application for registration shall be filed by the above persons in forms mentioned below:-
Category of Person
Persons who are required to pay tax u/s 9(5)- E- Commerce operator
Form GST REG-07
Persons who supply goods or services or both, other than supplies specified u/s 9(5), through such electronic commerce operator who is required to collect TCS u/s 52
Form GST REG-01
Every electronic commerce operator
Form GST REG-01
Every person supplying online information and data base access or retrieval services
Form GST REG-09A
The Registration Certificate is granted in Form GST REG-06.
Where there is any change in any of the particulars furnished in the above applications either at the time of obtaining registration or as amended from time to time, the registered person shall , within fifteen days of such change, submit an application, duly signed, in Form GST REG-13 along with documents relating to such change. Where the change relates to any particulars other than:-
1. Legal name of business;
2. Address of principal place of business or any additional place of business, or
3. Addition, deletion or retirement of partners or directors, Karta, Managing Committee, Board of Trustees, Chief Executive officer or equivalent, responsible for day to day functioning the certificate of registration shall stand amended upon the submission of the application.
In case, the change relates to the above particulars but which does not warrant cancellation of registration, the proper officer shall approve the amendment within fifteen working days and issue an order in Form GST REG-14.
2. Registration in each individual state from where he is making a supply: Sec.22 says that every supplier shall be liable to be registered in the State or The Union Territory, other than special category states, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a Financial Year exceeds Twenty Lakh rupees. In case of special category states, the supplier shall be liable to be registered in case the aggregate turnover exceeds Ten Lakh rupees. Now the supplier will have to seek registration in every state from where he is making a taxable supply and hence every business involved in E-commerce is required to get registered in each state from where they are supplying goods or services or both.
3. No Benefit under Composition Scheme: Most of these sellers registered with marketplace operators are small and medium businesses. The government has introduced composition scheme under GST law. This scheme is primarily aimed to reduce the burden of compliance for small and medium businesses. Under this scheme, businesses are required to file returns quarterly instead of monthly and pay taxes at nominal rates . Section 10 which deals with composition levy explicitly prohibits any person engaged in making any supply of goods through any electronic commerce operator who is required to collect TCS under section52.Further, Section 10 also prohibits supplier of services other than Restaurant services to opt for composition scheme.
4. Levy and collection: GST would be applicable on both transaction viz., between seller and buyer and between seller and marketplace. While the seller would discharge GST on the entire value of goods/services supplied by him subject to TCS u/s 52, if applicable, the site owner shall discharge GST only on the commission or other service charges earned by him for providing the platform to the supplier. GST shall be continued to be paid as per the normal provisions which indicates that the supplier shall pay the GST collected by him from the customers on the supplies made by them. However, there is an exception to the said provision which states that in case of certain notified services, the tax on intra-State( sec. 9(5) of CGST Act /inter state (S.5(5) of IGST Act) supplies of which shall be paid by the electronic commerce operator (instead of the actual supplier) if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services.
• Where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax.
• Where an electronic commerce operator does not have a physical presence in the taxable territory and also he does not have a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax.
5. Collection of Tax at Source : Sec.52(1) says that every electronic commerce operator ,not being an agent, shall collect an amount calculated at such rate not exceeding two percent (1%+1%) , as may be notified by the government on the recommendations of the council , of the net value of taxable supplies made through it by other suppliers where the consideration with respect to such supplies is to be collected by the operator. With respect to collection of tax at prescribed rates from the amount payable or paid to the supplier, what is to be seen is that the rate at which tax is required to be collected at source should be benign, to ensure that there is no pile-up of unutilized credit in the hands of the suppliers. Further, in case of sales returns, which is common in the e-commerce sector, the treatment of tax already collected by the operator remains unaddressed. The provision for tax collection also brings in cash flows issues for small e-commerce companies and sellers.
TCS @1%+1 % (Maximum) of Net Value of Taxable
Net Value of Taxable Supplies =
Aggregate value of taxable supplies through the operator
Less: Supplies returned
Less: Supplies under Section 9(5)
The amount so collected shall be paid by the operator to the government within Ten days after the end of the month in which such collection is made. Every operator shall furnish a statement, containing the details of outward supplies of goods or services or both effected through it, including the returns effected through it. The operator shall also furnish the details of the amount collected during the month. The said details are to be filed in Form GSTR-8.The details of deduction shall be made available to each of the supplier in Part D of their Form GSTR-2A.the operator has to furnish the Annual Statement before the 31st Day of December following each Financial year. The following details of supplies made through an operator, as declared in FORM GSTR-8, shall be matched with the corresponding details declared by the supplier in FORM GSTR-1:
(a) GSTIN of the supplier;
(b) GSTIN or UIN of the recipient, if the recipient is a registered person;
(c) State of place of supply;
(d) Invoice number of the supplier;
(e) Date of invoice of the supplier;
(f) Taxable value; and
(g) Tax amount
• Any discrepancy in the details furnished by the operator and those declared by the supplier shall be made available to the supplier in FORM GST MIS-5 and to the e-commerce operator in FORM GST MIS–6 on or before the last date of the month in which the matching has been carried out.
• A supplier and operator to whom any discrepancy is made available may make suitable rectifications
• The Electronic commerce operator to whom any discrepancy is made available may make suitable rectifications in the statement to be furnished for the month in which the discrepancy is made available
• Where the discrepancy is not rectified, an amount shall be added to the output tax liability of the supplier in FORM GSTR-3 for the month succeeding the month in which the details of discrepancy are made available and such addition to the tax and the interest payable thereon shall be made available to the supplier in FORM GST MIS –5.
Further, given the quantum of transactions most e-commerce companies deal in, uploading every invoice within the system, coupled a with a deadline of ten days for filling all information sought, does not seem to be realistic and will bring in administrative unrest in the sector.
6. Place of Supply: It is noteworthy that e-commerce companies sell across all states in India dealing with thousands of vendors. GST, being a consumer-based taxation regime, GST is to be paid in the State where the goods or services are consumed. This will lead to huge complexities in record keeping, accounting, and compliance (returns etc.).