Inverted Tax Structure rules for Supplies through E-Commerce

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Sanath Kumar S

23 Points Posted on 22 January 2024

A Taxpayer makes taxable supply of goods attracting 5% GST through E-commerce operators. The input being goods such as Raw material and other consumables in production attract 5% GST as well while significant portion of sale will be E-Commerce platform fee, commission and shipping charges which attract 18% GST which are input services forming almost 50% of his sale value. For e.g he makes Rs. 1 Crores sales and 5 Lakhs being Output Tax, he will have almost 50Lakhs as commission, shipping charges, and platform fee from E-commerce operator thereby leading him to pay 9 Lakhs as input tax, so will the inverted Tax structure rule for refund apply here so that he can refund the difference portion. If not, what is the alternative solution for this scenario?

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Quick Summary

This discussion explores the application of the inverted tax structure rules for businesses selling goods through e-commerce operators. The core issue arises when the GST rate on input materials (e.g., 5%) is lower than the GST rate on crucial e-commerce services like platform fees, commissions, and shipping charges (e.g., 18%). This creates a situation where input tax credits accumulate significantly. The content clarifies that the inverted tax structure refund provision typically applies when input and output supplies are different, and thus, may not cover scenarios where the higher-taxed input service (e-commerce fees) is directly linked to the sale of goods.

Saravanan nagaraj

332 Points Posted on 23 January 2024

The term ‘Inverted Tax Structure‘ refers to a situation where the rate of tax on inputs purchased is more than the rate of tax on outward supplies. That means Inverted Duty Structure arises when tax paid on Inward Supplies is higher than tax payable on outward supplies.

It may be noted that refund of accumulated ITC in terms clause (ii) of sub-section (3) of section 54 of the CGST Act is available where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. It is noteworthy that, the input and output being the same in such cases, though attracting different tax rates at different points in time, do not get covered under the provisions of clause (ii) of sub-section (3) of section 54 of the CGST Act. It is hereby clarified that refund of accumulated ITC under clause (ii) of sub-section (3) of section 54 of the CGST Act would not be applicable in cases where the input and the output supplies are the same.

Firstly, you should notice that you pay GST to E-commerce operator when you sell your finished goods through E commerce operator to B2B or B2C. You are obtained a service to sell your finished good. Inverted tax is applicable zero rated supply, concessional rate supplies or any changes in GST rates.

Sanath Kumar S

23 Points Posted on 23 January 2024

Since the GST paid to E-Commerce operator forms significant part of sale value and is of higher GST Rate (18%), and it being paid after finished good is produced, so it cannot be eligible for Refund under Inverted tax structure? Any alternative solution to such credit accumulated?