‪‎‪CA Dr Arpit Haldia

Arpit HaldiaGSTUpdates-7:- Business models under which E-Commerce Platforms operate and implications in GST:-

‪In the previous update, I had discussed definition of electronic commerce. In this update I have discussed various business models under which E-Commerce portals engaged in or facilitating buying or selling of goods or engaged in providing or facilitation of services work.

For understanding taxation aspect of the E-Commerce portals, it’s imperative that we understand how E-Commerce portals operate under various business models:

1.      E-Commerce Portals engaged in or facilitating buying and selling of goods: Some of the business models under which e-commerce portals engaged in or facilitating buying or selling of goods work are as follows:

Scenario-1:- E-Commerce Portals involved in buying and selling of goods on their own behalf:-Under this type of business model, E-Commerce Portals buys the goods themselves, hosts the details of the goods on the portal and supplies it directly to the customers. This is the simplest model and is often known as direct selling. Under this case, sales invoice are raised by the Portal and Purchase invoices are also in the name of the E-Commerce Portals as they are engaged in buying and selling of goods on their own behalf.

Scenario-2: E-Commerce Portals providing Market Place for other persons to sale the goods: These Portals allow facilitating exchange between the buyers and the sellers. Craftsvilla, Ebay, Pepperfry, Amazon, Flipkart, Snapdeal etc. are some of the business players working under this type of business model. Following is the seller policy available on the webportal of Craftsvilla.com which showcases the given business model:

“Please note that we are a marketplace platform like Ebay and provide marketplace services to you. We help Buyers and Sellers connect whereby as Sellers you are selling to customers via our platform and we are charging commission for services associated with it. Therefore invoicing and shipping to customer is your responsibility. Also any taxation related to sale of your products like VAT, CST etc is your responsibility. Also liabilities arising from the use, consumption and/or interaction with your products is solely yours and Craftsvilla.com will not be responsible for any loss or damage due to your products.”

The general modus operandi of operation of such E-Commerce Portals is that they allow sellers of the goods to upload their product details. Prospective buyers visit these portals, select the products and place order with them. The order details are then forwarded to the seller by E-Commerce portal and seller then sends the goods directly to the purchaser. Invoice towards supply of goods is raised by the seller however; payment of the goods is received by E-Commerce portal. E-Commerce portal then raises the bill of service charges towards the seller and after deducting the amount due to them towards their service charges, remits the balance amount to seller of the goods.

2. E-Commerce Portals engaged in providing or facilitation of services: Some of the business models under which e-commerce portals engaged in providing or facilitation of services work are as follows:

Scenario-1:-E-Commerce Portal involved in supplying of services on their own behalf: Under this type of business model, E-Commerce Portal hosts the details of services supplied by them on the web portal and supplies services to the customers on their own behalf. This model is also known as the direct business model. This is the simplest of the models and under this case invoice is raised by the Portal of the services supplied to the customer on his own behalf. For e.g. E-commerce portal created by a legal professional, providing legal services to its clients directly.

Scenario-2:-E-Commerce Portals operating as market place wherein service is supplied by the service provider on his own behalf but under the brand name or trade name of the Market Place:

Let’s take an example of the policy followed by Ola on their web portal which is as follows:

“We shall collect the fare on behalf of the driver or CSP who will be responsible for providing the transportation services. You acknowledge that collection of the fare on behalf of the driver or CSP in no way implies that the transportation services are being provided to You by Us.”

It further provides that

“We will generate an invoice on behalf of the driver servicing your offer request, which will be sent across to Your Original ID after the completion of the Ride. The Invoice shall be indicative of all applicable charges including but not limited to the surcharge, toll charges, right time charge, wait time charge, service tax. Any payment made is non-refundable.”

Example: Let’s take an example of a cab service e-commerce operator, wherein various taxi owners have registered themselves on the E-Commerce portal. The customer through app selects one of the nearest cabs and travels in the cab. Thereafter, once the journey is finished, bill is generated for the taxi ride, by cab service e-commerce operator in its own brand name and using its own logo, but on behalf of the taxi driver.

Thus, services are being supplied by taxi drivers on their own behalf but under the brand name of cab service ecommerce operator. Further, bills are being raised by cab service e-commerce operator using its brand name, but on behalf of the taxi driver servicing offer request of customer.

Conclusion: Thus, in the given business model, E-Commerce Portals operate as a market place where service providers are allowed to register themselves and prospective recipient of service visits the E-Commerce portal, places order with the E-Commerce portal. Order details are then forwarded to service provider by the portal and he then supplies service to the service recipient on his own behalf but under the brand name or trade name of the said Market Place and subsequently bill is also raised using the brand name or logo of the E-Commerce Portal.

Scenario-3:-E-Commerce Portals operating as a Market Place wherein neither the service is delivered by the service provider on behalf of the E-Commerce Portal and nor brand name or trade name of the Market Place is used while delivering the service:  E-Commerce Portal provides only a place to connect service providers and service recipient and charges fees for the said activity separately:

Example-I:– Under this business model, let’s take an example of online movie booking website. Customer visits E-Commerce Portal of online movie booking website and selects the movie and the place. Once movie and place is selected, then payment method is selected. Online movie booking website collects entire price of the movie ticket and alongwith the movie ticket collects its own convenience charges. Further, it has been provided that once payment is made of entire amount, a code would be generated, which would have to be shown at the ticket counter of the movie hall, wherein movie ticket would be generated.

Thus, movie ticket is generated only by Movie Hall Operator and not by online movie booking website. What online movie booking website is doing is that they are collecting ticket amount and in addition to the ticket amount, service charges from the customer. The ticket charges are remitted back to the Movie Hall Operator who in turn issues the final movie ticket. The convenience charges are kept by the online movie booking website.

This shows that Movie Hall Operator is using his brand name and not of online movie ticket website for rendering of entertainment service and raising of the bill of the entertainment i.e. final ticket to the consumer. Further, online movie booking website does not claim that they are in the field of providing entertainment service.

Example-II:-In the above example, entire charges are collected by the E-commerce Portal and in another example part consideration may be collected by E-Commerce Portal and part by the service provider. Say a plumber has been listed on E-Commerce portal and customer visits and selects plumber and at the time of selection of plumber, the portal charges Rs 100/- as its fees. The services are not supplied by the plumber under the brand name of the E-Commerce Portal and nor the final service bill raised by the plumber contains any reference to the brand name or logo of E-Commerce Portal.

In the given example, E-Commerce portal is operating as intermediary for arranging exchange between service provider and service recipient and service provider would be providing services and raising bill for plumber services without any reference of logo or brand name of E-Commerce portal.

Conclusion: Under this business model, E-Commerce Portals operate as a place where the service providers are allowed to upload their details and prospective recipient of service visit the web portal, select the service provider and places order with the web portal. The details are then forwarded to the service provider by E-Commerce portal and service provider supplies service directly to service recipient without using the logo or under the brand name of the E-Commerce portal.

Bill to the service recipient is raised by service provider without using the brand name of e-Commerce Portal. E-commerce portal charges service charges by raising its own bill.

The mode and time of collection of service charges and consideration towards the provision of service may be decided as per the terms of agreement. These terms may vary in different situations.

Differences and Similarity in Scenario-2 and Scenario-3 above: The cases in Scenario-2 and Scenario-3 are different only with respect to use of brand name of the E-Commerce Portal by service provider. In the former case, services are supplied and bills are raised to the customer under the brand name of the E-Commerce Portal and in the latter case neither the services and nor bills are raised to the customer under the brand name or logo of E-Commerce portal. However, in both the cases, services by service provider were supplied on his own behalf and not on behalf of the E-Commerce Portal.

From the author: In the next update, I would be further discussing what is meant by branded services, aggregator and brand name as per the definition provided under the draft GST Law.

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Category : GST (2077)
Type : Articles (10799)