The rapidly growing E-commerce industries is one of the major industries that’s having far reaching effect on how the business is to be conducted overhauling the whole business process which are being limited to certain square feet of infrastructure.
When we talk about the E-commerce industries, several issues in relation to taxing crops up which bound the industries to limit their activities to certain states. Every State has their own set of rules/guidelines to tax the E-commerce industries/operators. State of Uttarakhand has imposed additional 10% tax on goods delivered via e-commerce. States like Delhi and Kerala require E-Commerce Operators to provide the information relating to the suppliers selling through their platform. Delhi VAT laws have even gone to the extent of imposing penal provisions on the E-Commerce Operators by treating them as dealers in case of non-provision of information about the suppliers as required by them. In some other cases, the tax authorities have been seeking to fasten the tax liability on the E-Commerce Operators by treating them as agent of the suppliers. Further while States like Bihar, Orissa, Assam have been treating the transporters as "dealer" for paying Entry Tax, Gujarat has fastened the liability of paying entry tax on the E-Commerce Operator itself.
A lack of clarity and different set of rules/guidelines create a legal hassle for the E-commerce industries/operators to carry out their operation smoothly i.e. without the interference of the revenue authorities.
Vijay Shekhar Sharma, CEO of Alibaba backed Paytm, said that lack of clarity and difficulty in compliance has led to companies such as Paytm stopping delivery in crucial markets such as Noida and Ghaziabad. "We have force ourselves to stop delivery in UP, at the end everybody loses," he added.
With GST on the way, E-commerce industries/operators expected that it will help the industry business model to flourish by providing uniformity in tax rates and regulation across the country. This will help doing business in India easier, allow free play to market dynamics and allow deeper penetration to these services. However, the question arises whether GST model law came out by the revenue authority will fulfill above requirement and creates a hassle free and less compliance burden for the industry from the taxation perspective.
As we all know, E-commerce industries worked under various model. It can generally categorized in following categories.
- Business - to - Business (B2B)
- Business - to - Consumer (B2C)
- Consumer - to - Consumer (C2C)
- Consumer - to - Business (C2B)
- Business - to - Government (B2G)
- Government - to - Business (G2B)
- Government - to - Citizen (G2C)
The biggest challenge is to develop the GST model which can comprehensively covers all the paths/models on which E-commerce industries works. There are several issues that’s needs to be address considering the impact of the model GST law on the E-commerce industries/operators which are discussed as follows –
Firstly, what about the provision regarding the goods returned by the customer? As we know, under Model GST law once the goods are being supplied, suppliers need to charge the GST on the bill and the same need to be paid to the Government. But if the goods are being returned back from the customer, whether the assessee can claim the credit of the same or can apply for refund. Certainly, there is no provision enumerated in the model law in this regard. As per section 38 of the Model GST law, refund can be apply only when there is unutilized credit on account of exports or when there is credit accumulation on account of rate of tax on inputs being higher than the rate of tax on outputs. Even debit and credit notes cannot be issued for the adjustment as same can be issued only when there is undercharge or overcharge in the bill as per section 24 of the model law. Taking into fact that around 30% of the products are being returned in online retails, it’s going to hit the sector very hard.
Secondly, do E-commerce operators have to apply for registration in every state? As per section 19 of the Model GST Law, E-Commerce operators are made compulsory to take the registration irrespective of the threshold (Para 5(viii) of schedule III of Model GST Law). However, as per my view, E-Commerce operators is required to take the registration but not in every state but at the principal place of business in order to fulfill the compliances enumerated in section 43C of the Model GST law, which speaks about collecting TCS from the sales proceeds collected by it from the end-consumers and crediting to the account of the supplier. The TCS so collected is to be deposited to the Government. Additionally they will also be required to file a statement giving the details of tax collected and supplies made by the suppliers through their platform. But, in case E-commerce operators are having godowns, warehouses or other facilities for storing of goods in different states, the same needs to get registered in Model GST Law in various states where godowns/warehouses are located. The issue is - the law in this regard is still not clear. At the first meeting of the Empowered Committee of State Finance Ministers, representation had been made by the Flipkart, Snapdeal, Amazon India that they are only “service providers” to the vendors and as such are liable to pay GST only on service income. But WB State Finance Ministers didn’t agree with the above view and asked the e-commerce companies to give in writing how the tax structure for such companies should be under GST regime.
Thirdly, no threshold limit is allowed to the vendors/suppliers supplying their goods or services through electronic commerce operator other than branded services. That means, every supplier before registering in the e-commerce portals needs to get themselves registered under GST first and do all the compliances as and when required. Section 43B( c) defines “branded services” to mean services which are supplied by an electronic commerce operator under its own brand name or trade name, whether registered or not. In today’s scenario, there are lacs of vendors who sell their products through electronic commerce operator and hardly get a turnover of Rs. 2-3 lacs in a year. Imagine the amount of compliance burden, they need to face. Annually atleast 37 returns (12 returns inward supply, 12 return outward supply, 12 monthly returns and 1 annual returns) needs to file once you get registered apart from other compliances burden. Eventually, the amount to spend on compliance burden is more than profit earned. In order to spare the small vendors from the compliance burden, certain threshold limit is required to be introduced for online vendor.
Fourthly, as per section 42 of the model GST law, every registered person shall maintain books of account at his principal place of business and where more than one place of business is specified in the certificate of registration, the accounts relating to each place of business shall be kept at such places of business concerned. Section 2 (75) of the Model GST law defines “place of business” to includes a warehouse, a godown or any other place where a taxable person stores his goods, provides or receives goods and/or services. Since various E-commerce operators provide the facility of storing i.e. warehouse, godowns in the number of states, they have to maintain the record in each such place thereby increasing the compliance burden. Thus the concept of centralized accounting is done away with GST which ultimately increasing the compliances.
Fifthly, Section 43C(1) of Model GST law states that every electronic commerce operator shall, at the time of credit of any amount to the account of the supplier of goods and/or services or at the time of payment of any amount in cash or by any other mode, whichever is earlier, collect an amount , out of the amount payable or paid to the supplier, representation consideration towards supplied of goods or services made through it. Section 43C(4) of the Model GST law states that every electronic commerce operator shall furnish a statement electronically, of all amount collected under subsection (1), towards outward supplies of goods and/or services through it during a calendar month. It’s an additional burden puts on ecommerce operating companies. In case of B2B transaction, to some extent it can be complied in order to tap revenue leakages, but, in case of B2C transaction, it would impose practical challenges for vendors with respect to potential credit accumulation as consequences of tax collection at source.
Sixthly, E-Commerce industries are all about digitalization where various facilities in regard to payment have been provided. One such facility is digital wallet/e-wallet which nowadays customers used in order to make the payment for the purchases made. However, as per section 2(68) of the Model GST Law, “money- means legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal electronic remittance or any such similar instruments when used as consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value.” The above definition creates confusion whether it covers digital wallet/e-wallet and other similar instruments as money?
As the model GST Law is new and every brainstorms is working, it’s an appropriate time to make a representation in order to bring hassle free law for the industries, consultants etc. The issues address above is only the few among many which come to the mind of the author while reading the subject. But, considering the hassles, industries are currently facing, GST is a positive sign for the E-Commerce.
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