GST on E-Commerce

GST on E-Commerce
04 July 2020

GST on E-Commerce

E-commerce i.e Electronic commerce which simply means the supply of goods and services through electronic mode over the internet moreover, in legal term Electronic Commerce has been defined in Sec. 2(44) of the CGST Act, 2017 to mean the supply of goods or services or both, including digital products over a digital or electronic network.

E-commerce Operator (ECO) i.e. Electronic commerce operator is a person providing any information or any other services incidental to or in connection with such supply of goods and services through electronic platform would be considered as an Operator moreover, in legal term Electronic Commerce Operator has been defined in Sec. 2(45) of the CGST Act, 2017 to mean any person who owns, operates, or manages digital or electronic facility or platform for electronic commerce.

Every E-commerce transaction involves below 3 parties:

  1. Seller
  2. Buyer
  3. ECO i.e. E-commerce Operator
Normally the E-commerce Transaction was of Two Models:
  1. One where the supplier is supplying the goods or services himself through E-commerce medium in such mode it is normal sale and purchase of goods or services, and no other party is involved (i.e where seller and operator is one of the same people) and there is only one transaction (i.e. between buyer and seller) hence, we can say that in simple words where there is no involvement of E-commerce operator as such and in this case the applicability of GST laws will remain same as it is a normal sale and no other specific provision will prevail. e.g. Titan is selling watches through its own website.
  2. Another model is the new emerging model of normal sale and purchase which is quite different from the previous one, there is the involvement of third-party as well which is other then seller and buyer which one is commonly known as a marketplace, fulfillment, or aggregator model of e-commerce the role of a third party (which is commonly known as an aggregator or the operator) is to build the relationship between buyer and seller and to link the supply chain between buyer and the seller and to provides a platform to various suppliers. e.g. Titan is selling watches to the customer through its Flipkart here in this case Flipkart will act as an operator which establishes the link between customers and provide a marketplace to Titan.

The applicability of Goods and Service tax on the aggregator model of the e-commerce where there is the involvement of operator or aggregator in this emerging model two separate and distinct transaction was involved to execute the sale:  

  1. Supplier supplying goods or services to the consumers, and
  2. The e-commerce operator supplying services to the supplier for using its platform 

In furtherance of the above example there were two transactions one is where the Titan is supplying the watches to the customer and the other one is where the Flipkart is supplying service to the Titan for using its platform.

Applicable provisions of Goods and Service Tax Act, 2017 on the E-commerce transactions

“Section 9(5) of the CGST Act, 2017 which deals with the changeability of some aspects of e-commerce transactions as per this section government through notification specify categories of services specify the tax on which shall be paid by the electronic commerce operator 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.

Note: The above provisions are applicable to inter-state supply as well as per similar provision of section 5(5) of the IGST Act, 2017 shall mutatis-mutandis apply on the e-commerce operators.

Note: Three services, namely (i) Motor Cab (ii) Hotels and accommodation* and (iii) Housekeeping* services have been notified under Section 9(5) of the CGST Act, 2017. 

*if a person dealing in this service and liable for registration under section 22(1) of the CGST Act,2017 then this notification shall not apply to them”

Registration under the Goods and Service Tax Act, 2017

Under Section 24 (ix) of the Central Goods and Service Tax Act, 2017 every person supplying goods or services through electronic commerce operators is required to be compulsorily registered, without any threshold exemption limit.

However, the Government has the power to exempt specified suppliers from registration and moreover, Vide Notification No. 65/2017-C.T., dated 15-11-2017; the Central Government, exempted persons making supplies of services, other than supplies specified under sub-section (5) of section 9 of the said Act through an electronic commerce operator and having an aggregate turnover, to be computed on all India basis, not exceeding an amount of twenty lakh rupees in a financial year.

Note: Section 9(5) of CGST ACT, 2017 refers to some services where e-commerce operators are liable to pay GST instead of suppliers. 

Thus, final position after notification is, If a person supplying services other than those mentioned in Section 9(5) of the CGST Act are required to register and collect GST only if his turnover is more than the threshold limit and for those service providers who were covered under section 9(5) were not liable to be registered under GST, as a liability to pay GST is on the e-commerce operator and If a person supplying goods through e-commerce operator is compulsorily required to get themselves registered under GST irrespective of turnover.

Moreover, As per Section 24(x) of the CGST Act, 2017 the benefit of threshold exemption is not available to e-commerce operators and they are liable to be registered irrespective of the value of supply made by them.

Who is liable to pay Goods and Service Tax?

As per general rule, the liability to pay GST is on the supplier of goods or services but in the case where the supply is executed through e-commerce operators than some specific provisions also apply along with the normal provisions unless and until contrary with the specific provisions.

In case of services notified under Section 9(5) of the CGST Act, 2017 provided through e-commerce operator then in that case e-commerce operator is liable as if he is a supplier of the service even if payment is not directly received by the e-commerce operator.

In the rest of the cases suppliers of goods or services as the case may be liable to pay the GST on such supply.

Liability in the case where Commission Charged from Suppliers by the e-commerce operator then, supplier i.e. operator is liable for GST and normal provision shall apply in this particular case, the supplier will issue an invoice to the receiver for using its service and shall levy GST on such supply.

Tax Collection at Source

“Before discussing the provisions of the TCS, I would like to discuss the mischief of this provision as we all know whenever a sale is executed through an e-commerce platform operator collect the payment and remits the same to the seller, in some cases, it has been found that sellers are not properly reporting the sale to the government.

Now in the GST regime, the government has now placed the responsibility of collecting TCS on operators, once the operator has submitted the details of TCS the government would have the accurate information of the sales and they would be able to check if the seller has properly reported all the sales”

This is one of the most important provisions of the GST which is specifically for the e-commerce transactions Section 52 of the CGST Act, 2017 deals with the TCS provisions according to this section every e-commerce operator will deduct 1% TCS before making payment to the supplier or vendor and such value shall be computed on the net value* of taxable supplies.

*The “net value of taxable supplies” means the aggregate value of taxable supplies of goods or services or both, other than the services on which entire tax is payable by the e-commerce operator, made during any month by all registered persons through such operator reduced by the aggregate value of taxable supplies returned to the suppliers during the said month.

TCS deducted is reflected in the electronic cash ledger of the supplier. However, the Government has clarified that TCS shall be deducted only when the supplier is liable to pay GST therefore, TCS is not required to be collected on exempt supplies. For the purposes of TCS, an e-commerce operator has to obtain separate registration for TCS, irrespective of the fact that it is already registered under GST as a supplier or otherwise and has GSTIN.