CA Dr Arpit Haldia

Arpit Haldia

GSTUpdates-9: Liability to register and pay taxes under different business models in E-Commerce

In the previous update, I had given a brief description about certain key terms in Draft GST Law i.e. brand name, branded services and aggregator. Further, the terms electronic commerce and electronic commerce operator were analyzed in detail previously.

In this update I would be classifying and analyzing determination of responsibilities of registration, payment of taxes vis-a-vis various business models discussed in Business models under which E-Commerce Platforms operate and implications in GST.”   

♣ Classification of Various Business Models under E-Commerce as Electronic Commerce Operator, Aggregator or otherwise

I had classified general activities of E-Commerce portals under the following two broad categories as E-Commerce platforms engaged in or facilitating buying or selling of goods and E-Commerce platforms engaged in providing or facilitation of services. The detailed analysis vis-a-vis two broad categories and further sub-categories is as follows:

1. E-Commerce platforms engaged in or facilitating buying or selling of goods

a) Scenario-1:- E-Commerce Portals involved in buying and selling of goods on their own behalf: The activity of such persons would be classified as business carried out through E-Commerce however; they would not be classified as Electronic Commerce Operator as they are engaged in supply of goods on their own behalf.

b) Scenario-2: E-Commerce Portals providing Market Place for other persons to sale the goods: These persons would be classified as Electronic Commerce Operator as they are not engaged in carrying out supply of goods on their own behalf but are engaged in and are limited to activities of facilitating supply of any goods or providing any information or any other services incidental to or in connection therewith on an electronic platform owned, managed or operated by them.

2. E-Commerce platforms engaged in providing or facilitation of services

a) Scenario-1:-E-Commerce Portal involved in supplying of services on their own behalf: The activity of such persons would be classified as business carried out through E-Commerce however; they would neither be classified as Aggregator nor as an Electronic Commerce Operator as they are engaged in supply of services on their own behalf.

b) 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: These persons would be classified as aggregator as they own or manage an electronic platform and by means of application and communication device enable customers to have a connect with the service provider (i.e. a third person or a person other than the aggregator) and allows the service provider to use his brand name.

The aggregators for services have been covered but the aggregators for goods have been spared off. These are spared off today as well as “Quickr” and “Olx” although do not sell the goods owned by them but provide the facility to buy and sell goods under their brand name. However, they are not liable to pay VAT like “Ola” and “Uber” pay service tax for the services not rendered by them but provided under their brand name.

This continues to be the trend in Draft GST Law as aggregator for goods would be paying GST only on the service charges collected by them but would not be paying any taxes on the goods traded under the facility for buying and selling of the goods under their brand name.

c) 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. These persons would be classified as Electronic Commerce Operator as they are not engaged in carrying out supply of such services on their own behalf but are engaged in and are limited to activities of facilitating supply of such services or providing any information or any other services incidental to or in connection therewith on an electronic platform owned, managed or operated by them. Secondly, they are not allowing the service providers to provide service under their brand name.

♣ Classification disputes to arise between activities carried out by aggregator and electronic commerce operator:

There is a thin line of difference between classification of the activities as an aggregator and as an electronic commerce operator and one would have to be very careful while classifying persons under either of the categories. The nature of responsibilities casted under the law for registration, payment of taxes, filing of returns under either of the categories are very different.

A person carrying out activity of electronic commerce operator can easily be classified as aggregator and vice versa with a minor shift in the activities which cannot be ruled out looking to the ever changing nature of business model these days.

It would be apt to refer here to the statement of Internet and Mobile Association of India which has Google, Twitter, Microsoft and Linkedin as its members. The statement by the association referred about the classification issues which could arise between electronic commerce operator and aggregator under the Draft GST Law:

“The deeper challenge is the imprecise and overlying definitions failing to take into account the different business models that exist in this sector,”

“This definition would mean a company such as naukri.com would not be an aggregator. Online classifieds like naukri do not list ‘persons providing service of a particular kind under the brand name or trade name of the said aggregator’. The jobs listed on naukri are actually offered by other companies in their name, so there is ambiguity in terms of how this will be seen for the purpose of taxation.”

“The services provided by online classifieds such as olx and quikr also does get recognised in the GST definition as it only defines ‘aggregators’ for services.”

 “Companies such as makemytrip.com and yatra.com, who are identified as online travel operators, do not fall under the GST definition of aggregator. In addition, they also facilitate payments and supply of services, which could wrongfully qualify them as ‘operators’ rather than ‘aggregators’ under the new GST Bill.”

“Ola and Uber make the cut for being “aggregators”, but they also facilitate payments which could cause such service providers to be misidentified as ‘operators’.”

♣ Registration Provisions under Draft GST Law for persons engaged in E-Commerce

Schedule III of the draft GST Law provides that

a) Aggregator: A person classified as aggregator would be required to be registered under GST irrespective of the threshold limit.

b) Electronic Commerce Operator: Every electronic commerce operator would be required to be registered under GST irrespective of the threshold Limit. Thus, all persons owning, managing or operating electronic platform for the purpose of 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 shall be liable to be registered irrespective of the threshold limit. Some of the example would be people carrying out activity similar to like Craftsvilla, Amazon, Flipkart, Snapdeal etc.

c) Persons who supply goods and/or services, other than branded services, through electronic commerce operator: Persons who supply goods and/or services, other than branded services through electronic commerce operator, would be required to get themselves registered irrespective of the threshold limit.

♣ Liability of payment of taxes in the above cases:

Section 9 of the Draft GST Law provides that

Taxable Person means a person who carries on any business at any place in India /State of ___ and who is registered or required to be registered under Schedule III of this Act:

Thus, the persons required to be registered under the above mentioned three categories would be deemed to be taxable person without any threshold limit and would be required to obtain registration.

Section 7(2) of the Draft GST Law provides that

The CGST/SGST shall be paid by every taxable person in accordance with the provisions of this Act. Thus, every taxable person would be required to pay taxes in accordance with the provision of the law.

Thus, any person once covered under any of the above three category would be required to be registered under the law irrespective of the threshold limit and once required to be registered under the law, would be required to mandatorily pay taxes under the law.

From the Author: In the next update I would be discussing the provisions regarding Tax Collection at Source by Electronic Commerce Operator.

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