CA Dr Arpit Haldia

Arpit Haldia

GSTUpdates-4: Brief description about definition of “Electronic Commerce” and “Electronic Commerce Operator” under Draft GST Law and “Electronic Commerce” under OECD Guidelines:

In the previous update, I had discussed about brief background and challenges being faced by the Electronic Commerce Sector in the present scenario. In this update I would be discussing briefly about the definition of Electronic Commerce, Electronic Commerce operator under Draft GST Law and definition of Electronic Commerce under OECD Guidelines.

An entire Chapter XIB has been dedicated for Electronic Commerce although it contains only two sections i.e. Section 43B and Section 43C. However, definitions provided in the chapter forms the backbone of the taxation of electronic commerce transactions in GST.

a) Definition of Electronic Commerce: The definition of electronic commerce as provided under the draft GST Law is as follows:

(d) ‘electronic commerce’ shall mean the supply or receipt of goods and / or services, or transmitting of funds or data, over an electronic network, primarily the internet, by using any of the applications that rely on the internet, like but not limited to e-mail, instant messaging, shopping carts, Web services, Universal Description, Discovery and Integration (UDDI), File Transfer Protocol (FTP), and Electronic Data Interchange (EDI), whether or not the payment is conducted online and whether or not the ultimate delivery of the goods and/or services is done by the operator;

The definition can be further divided for better understanding as follows:

1. What is the activity covered under the definition: The activity covered under electronic commerce is “supply or receipt of goods and / or services, or transmitting of funds or data”

2. What is the platform on which such activity is conducted: The activity should be conducted “over an electronic network, primarily the internet, by using any of the applications that rely on internet”

3. What are the applications through which the activity should be conducted: The list provided is only illustrative and includes “like but not limited to e-mail, instant messaging, shopping carts, Web services, Universal Description, Discovery and Integration (UDDI), File Transfer Protocol (FTP), and Electronic Data Interchange (EDI)”

4. Payment condition: “whether or not the payment is conducted online”: Thus even if payment is not made online i.e. COD (Cash on Delivery) or other manual payments, transaction would be covered under the definition.

5. Delivery Condition: “whether or not the ultimate delivery of the goods and/or services is done by the operator”: Thus even if the delivery is not done by the operator but some other person then also the activity would be covered under electronic commerce.

This now takes us to the question what is covered by operator and the same needs to be analyzed alongwith above definition to have an overall view of definition of electronic commerce transactions.

b) Definition of Electronic Commerce Operator: The definition of electronic commerce operator under the Draft GST Law is as follows:

(e) ‘electronic commerce operator’ shall include every person who, directly or indirectly, owns, operates or manages an electronic platform that is engaged in facilitating the supply of any goods and/or services or in providing any information or any other services incidental to or in connection there with but shall not include persons engaged in supply of such goods and/or services on their own behalf.

The definition of electronic commerce operator can be further divided for better understanding as follows:

1. What are the persons covered under the definition: The persons included under electronic commerce operator would “include every person who, directly or indirectly, owns, operates or manages an electronic platform”

2. What are be the activities of electronic platform owned, operated or managed by the person covered under the definition: The electronic platform should be “engaged in facilitating the supply of any goods and/or services or in providing any information or any other services incidental to or in connection there with”

3. Whether electronic platforms engaged in supply of goods and/or services on own behalf covered: No, the definition specifically provides that “but shall not include persons engaged in supply of such goods and/or services on their own behalf”.

The most important take away from the above definition is that the persons engaged in the supply of goods and/or services on their own behalf are not covered under the definition of Electronic Commerce Operator. Thus only the persons i.e. commonly known as Market Place, which are not engaged in supply of goods and/or services on own behalf but are limited to activities facilitating supply of any goods and/or services or providing any information or any other services incidental to or in connection therewith are covered under the definition of electronic commerce operator.

c) Definition of Electronic Commerce as per OECD Guidelines

It would be appropriate here to analyze how OECD (Organisation for Economic Co-Operation and Development) Guidelines has defined E-Commerce Transaction. This analysis provides an insight as firstly definition of electronic commerce transactions as provided in the draft GST Law partly resembles with it and secondly the definition of electronic commerce as provided under OECD Guidelines is very detailed and easy worded. However, there are some differences between the two definitions, which we would discuss later.

The definition under OECD guidelines for Electronic Commerce is as follows:

An e-commerce transaction is the sale or purchase of goods or services, conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders. The goods or services are ordered by those methods, but the payment and the ultimate delivery of the goods or services do not have to be conducted online. An e-commerce transaction can be between enterprises, households, individuals, governments, and other public or private organisations. To be included are orders made over the web, extranet or electronic data interchange. The type is defined by the method of placing the order. To be excluded are orders made by telephone calls, facsimile or manually typed e-mail.

The definition in OECD ((Organisation for Economic Co-Operation and Development) of Electronic Commerce can be divided for better understanding as follows:

1. What is the activity covered under e-commerce transaction: Electronic Commerce Transaction would cover sale or purchase of goods or services.

2. How e-commerce transaction should be conducted: It should be conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders.

3. Whether payment or delivery of the goods and /or services has to be made online: The goods or services should be ordered by the methods as provided above, but the payment and the ultimate delivery of the goods or services need not be conducted online.

4. Who can be the party to an ecommerce transaction: An e-commerce transaction can be between enterprises, households, individuals, governments, and other public or private organisations.

5. How are the orders to be placed in case of e-commerce transactions: The orders should be made over web, extranet or electronic data interchange.

6. What orders are excluded from e-commerce transactions: The orders to be excluded are orders placed by telephone calls, – facsimile or manually typed e-mail.

Some of the conclusions from the above definition of electronic commerce as provided under OECD can be carved out as follows:

1. An Electronic Commerce transaction involves three stages:

a) Placement of Order

b) Payment of the Order

c) Delivery of the Order

It is clearly laid down in the above definition that e-commerce transactions are defined by the method of placing of the order and it’s not at all necessary that the payment and the delivery of the order has to be made online. The delivery can be made physically and payment is also not mandatorily required to be made online i.e. payment can be made as COD (Cash on Delivery) or cheque or any other manual method.

A similar condition regarding payment has been provided in the definition of electronic commerce under draft GST Law.

2. The orders excluded from being treated as e-commerce transactions are orders made by telephone calls, facsimile or manually typed emails. However, definition of electronic commerce under draft GST Law covers emails under the definition of electronic commerce.

3. The E-Commerce transactions these days can be between B2B (Business to Business), B2C (Business to Customers), C2C (Customer to Customer, i.e. people trying to sell their old and used goods) and C2B (Customer to Business, i.e. business buying goods from customers).

4. The E-Commerce transactions are conducted over computer networks: The definition covers order placed over Internet, EDI and Extranet.

From the Author: In the next update, various terms used in the definition of electronic commerce under draft GST Law would be discussed in detail i.e. electronic network, shopping cart, instant messaging, UDDI, FTP, and EDI, and how wide based is the definition of electronic commerce in GST and what are the probable transactions which would be covered in the definition.

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Category : GST (2070)
Type : Articles (10788)