CA Vinod Kaushik
Background of e-commerce Taxation in India: In recent time a new concept called e-commerce has been very famous in modern India with the availability of internet and smart phones with every class of citizens. As compared to developed countries like United States, Europe this concept was new for all of us and also for the lawmakers who have drafted indirect tax laws without considering the presence of this unique business model. Looking at the share and popularity of this model in Indian market it is now desired that our taxation system must have some transparent, simplified and stable taxation regime for e-commerce which can help this sector to grow with its full potential. This industry is also facing many challenges under existing systems like double taxation due to entry tax and VAT, ambiguity in taxation and entry permits etc. In order to overcome all these concerns Model GST Law contained a separate chapter-XIB with the name “electronic commerce” which is centre point of this technical paper. This sector is one of the fastest growing sectors in India today hence a clear, stable and simple law is really desired.
Meaning of e-commerce (Under common use): Electronic commerce is the trading or facilitation of trading in products or services using computer networks, such as the Internet. E-commerce model employs online shopping websites for B2C retail sales, provides online marketplace for B2C or C2C sales, B2B sales and data interchange and marketing to prospective consumers through emails and newsletters. Typically e-commerce is an electronic platform where one can list his/her goods and services and these products can be bought by customers as per their requirements and specification and additionally delivery is also made to them at their doorstep with option of payment once delivery is made.
Challenges for e-commerce under existing law: India is a federal country where State Govt. has got power through constitution to impose a tax on sale and purchase of goods inside the state, impose tax on entry of goods and prescribe certain road permit to avoid revenue loss to exchequer. One of the important factors which played a critical role in success of this model was competitive price due to lower tax burden. Today in India we have origin based taxation system which means tax is attributable to a State from where goods have been originated causing loss to the consumption States where goods are actually consumed. Say certain auto accessories have been manufactured in Rajasthan and actually consumed in U.P sale through Delhi then in this case both Rajasthan and Delhi benefited from this transaction but revenue accrued to U.P is zero. Looking at this revenue loss most of the States have started to impose an additional entry tax on e-commerce transactions causing increase in price of products. Certain States have issued rules to classify these operators as proper dealers as per States VAT Laws and required to obtain registration and pay tax accordingly. All of the above issues have adversely affected this model and it is the need of hour to have simple and transparent provisions for e-commerce under Model GST Law. Keeping into mind the difficulties and instability under existing law Model GST Law have come up with a detailed chapter on e-commerce.
Definition of e-commerce and e-commerce operator under Model GST Law:
Electronic commerce shall mean supply of goods and/or services, receipt of goods and/or services, transmitting of funds or data over an electronic network primarily the internet or using any application that rely internet.
Examples of mode of connection: Emails, instant messaging, shopping carts, web services, universal description discovery and integration (UDDI), file transfer protocol (FTP), Electronic data Interchange (EDI) and not limited to these options which means it may include other modes of connectivity.
Mode of payment: It can be online or through any other option like COD, cheque etc.
Delivery of goods: It can be done by operator directly or by the supplier himself. Most of the time delivery of goods is done by operator on behalf of supplier to ensure smoothness in entire process.
The meaning of e-commerce under model law is defined in such a way so that it can cover almost all kinds of activity which are possible under current scenario. Those persons who directly or indirectly own, operates, manages an electronics platform which is engaged in facilitating supply of goods and/or services or providing any information or any other services incidental to or in connection there with. It shall not include persons engaged in supply of goods and services on their own behalf. Say if a person owns a website with the name abc.com and showcases his own products on this website and makes delivery to customers directly, although this model is e-commerce but abc.com is not an e-commerce operator. In my opinion abc.com has to take proper registration under GST like other traders and pay GST accordingly.
E-commerce operators are not proper taxable persons under GST: At the time of drafting of provisions for e-commerce model, policy makers could classify these operators as proper taxable persons like any other trader who takes delivery of goods and sells further to customers. If this model was adopted it would have necessitated operators to book every transaction through their platform as supply of goods and services and pay taxes accordingly. Looking at this difficulty it was decided that though registration will be required to be taken by these companies as per schedule III but they will not be considered as proper dealer.
Additionally Information related to supply of goods and services by vendors will be furnished by these companies to GSTN. This information after cross checking will give desired results to Govt. whether complete information of supply is reflected in the returns of vendors or not. In case of mismatch in information filed by supplier of goods & services and reported by operators a demand will be generated on suppliers of goods & services.
Concept of ‘aggregators’ continued in Model GST Law: In existing service tax law an aggregator is required to collect service tax directly from the consumer of services and pay tax to Govt. and file the returns. On the same lines model law has defined term aggregators which means any person who owns, manages and electronic platform and by means of some device connects the customers with providers of services of a particular kind under brand name and trade name of said aggregators. Term brand name, trade name and branded services are specifically defined in law to avoid ambiguity. This provision practically brought for radio taxis like OLA, UBER, and MERU which are leading aggregators now days. Govt. might face some difficulty in collection of taxes from local cab driver therefore this provision of aggregator is brought in.
Place of supply in case of B2C transactions: Under GST Law identification of correct place of supply becomes critical as the payment of taxes whether IGST or CGST/SGST will depend on it. Place of supply of goods by vendors to customers through logistics of e-commerce operators shall be the place where movement of goods terminates for delivery. This has come as great relief for suppliers of goods since place of supply would be easily identifiable.
Place of supply in case of B2B transactions : Supply of services from e-commerce operators to suppliers of goods and/or services shall be the location of recipient of services and this is applicable for all kinds of services being provided by operators to these suppliers. This is again a welcome move both for supplier and recipient of services irrespective of which kind of services being provided like listing services, payment collection services, logistics services and so on.
Fungibility of input tax credits under the proposed GST regime: Under the existing regime of VAT and Service tax both operators and suppliers of goods suffers huge loss of Input Tax Credit. The operators make investments in various assets on which VAT is charged whereas input tax on services received by vendors from operators is again nonadjustable. The proposed law has allowed such cross offsetting of ITC for both operators as well as vendors which is good news for industry as a whole. Further availability of ITC will make industry more profitable and prosperous.
Tax collected at source by e-commerce operators: Though the rate of TCS would be kept at very low but still it is not desired as it will increase the compliance burden on e-commerce operators and block the working capital of suppliers of goods & services. This provision in case of narrow margins may invite situations of credit buildup in the books of suppliers resultantly situation of refunds can also arise. This provision of TCS might cause certain problems for operators as well as suppliers of goods and services hence require reconsideration.
No more freebies are exempt under Model GST Law: Since schedule I of model law bring certain transactions under ambit of supply even if there is no consideration like gift, free sample etc. The popular sales strategy of “buy one get one free” will be taxable under GST. This will adversely impact the business strategy of certain companies which are using this as promotional activity to increase the sales. Again actionable claims will also be taxable as supply of services at the time it is offered to customers and apprehensions cannot be ruled on taxability of recharge of cash wallets whether it is covered by term money or not.
Conclusion: It is a welcome law for e-commerce industry as the era of double taxation by State Govt. will no longer be continued. Due to the complexity and taxation burden some big e-commerce operators have started to discontinue delivery in certain States like U.P, Karnataka etc. Now the model law has clearly drawn a line between compliances to be done by an e-commerce operator and its vendors who supply goods and services through their platforms. In totality Concept of TCS is one which needs very serious consideration and adequate representation to policy makers would be panacea to this issue.
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