The advancement of 4G and 5G networks in India has resulted in affordable internet packages and multiple pro-E-Commerce policies of the government have catalyzed the growth of electronic commerce sector in India, which has now pierced to the sub-urban and rural areas of the subcontinent. Resultantly, the government realized the revenue potential in the e-commerce sector and caused amendment in tax legislations.
In respect of Article 265 of the Constitution of India, the constitutional amendment[1] paved the way of enactment of 4 cardinal legislations governing taxation on goods and services under a unified umbrella namely, Central Goods & Services Tax Act, 2017 (CGST Act), State Goods & Services Tax Act, 2017 (SGST Act), Integrated Goods & Services Tax Act, 2017 (IGST Act) and Union Territory Goods & Services Tax Act, 2017 (UT-GST Act). Multiple amendments since its inception have been promulgated for smooth functioning of the legislation.
Section 2(44) of the CGST Act defines as
“(44) “electronic commerce” means the supply of goods or services or both, including digital products over digital or electronic network”.
Section 2(45) of the CGST Act defines “electronic commerce operator” (ECO) as
“(45) “electronic commerce operator” means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce;”
The CGST Act under Section 9(5) levy tax liability on such ECO which reads as follows:-
“(5) The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra-State supplies of 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:
Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax:
Provided further that where an electronic commerce operator does not have a physical presence in the taxable territory and also he does not have a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax.”
The Government of India on recommendations of the Council has listed the services for which the ECO is liable to pay tax instead of actual supplier of goods and/or services through the following notifications:-
1. Notification No. 17/2017 – Central Tax (Rate) dated 28.06.2017, w.e.f. 01.07.2017[2];
2. Notification No. 23/2017 – Central Tax (Rate) dated 22.08.2017[3];
3. Notification No. 17/2021 – Central Tax (Rate) dated 18.11.2021, w.e.f. 01.01.2022[4].
As a result of the aforesaid notifications, the present list of services in consolidated form is provided as below for reference:-
(i) services by way of transportation of passengers by a radio-taxi, motorcab, maxicab motor cycle, omnibus or any other motor vehicle. For example – OLA, UBER, MERU Cabs etc.
(ii) services by way of providing accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes, except where the person supplying such service through electronic commerce operator is liable for registration under sub-section (1) of section 22 of the said Central Goods and Services Tax Act. For example – makemytrip.com, goibibo.com, trivago.com, yatra.com etc.
(iii) services by way of house-keeping, such as plumbing, carpentering etc, except where the person supplying such service through electronic commerce operator is liable for registration under sub-section (1) of section 22 of the said Central Goods and Services Tax Act. For example – Urban Company (Formerly known as Urban Clap), JustDial etc.
(iv) supply of restaurant service other than the services supplied by restaurant, eating joints etc. located at specified premises. For example – Zomato, Swiggy, etc.
The GST Council in its 45th meeting held on 17.09.2021 recommended which was duly accepted by the Government of India and vide Notification No. 17/2021, clause (iv) was inserted in Notification No. 17/2021, which came into effect from 1 January 2022. Resultantly, the ECO is required to pay the taxes on the invoices generated against the supply of goods and/or services to the buyer, irrespective of the supplier is registered under the provisions of CGST Act, 2017. This amendment has caused on taxing of the restaurant which are below the threshold limit of Rs. 20 lacs, as prescribed under Section 22(1) of CGST Act.
The circular No. 167/23/2021 – GST dated 17.12.2021 issued by the Department of Revenue, Ministry of Finance, Government of India provided clarification with regard to the issues pertaining to the modalities of compliance of GST in respect of supply of restaurant service through ECO. The clarificatory circular in its issue no 5 stated that the ECO shall not be regard to reverse charge The issue no. 7 in the aforesaid circular raised an interesting query – “Can ECO utilize its Input Tax Credit to pay tax w.r.t ‘restaurant service’ supplied through the ECO?” which was answered as – “No. As stated above, the liability of payment of tax by ECO as per section 9(5) shall be discharged in cash.” The circular highlighted the issue of reverse proportional ITC which was clarified as issue no.6 as – “… Accordingly, it is clarified that ECO shall not be required to reverse ITC on account of restaurant services on which it pays GST in terms of section 9(5) of the Act. It may also be noted that on restaurant service, ECO shall pay the entire GST liability in cash (No ITC could be utilised for payment of GST on restaurant service supplied through ECO)“.
The CGST Act under Section 52 prescribes the Tax Collectible at Source (TCS) which is another mode of tax liability under the GST law over the ECO. Under this modality, the trader selling goods and services online will get the payment after deduction of tax at the prescribed rate which shall not exceed 1%. Resultantly, the mega e-commerce websites like Amazon and Flipkart falls within the purview of this provision.
CONCLUSION
The entire system of taxation under the modified regime of GST law has resulted in plugging the tax evasion avenues which shall significantly protect and safeguard the interest of revenue. The revamped regime also ensures ease of doing businesses for small and medium scale as the burden of compliance of tax provisions is presently upon the tech giants with deep pockets. Hence, the measures are commendable, however, due to levy of same tax rate, the cost of goods and services from such small and medium businesses shall be equal (or less difference) to the cost of goods and services supplied by mega business.
- Team Majesty Legal[5]
[1] 101st Constitutional Amendment Act, 2017
[2] https://taxguru.in/goods-and-service-tax/cgst-on-intra-state-supplies-of-certain-services-by-e-commerce-operator.html
[3] https://taxguru.in/goods-and-service-tax/cgst-eco-pay-gst-services-housekeeping.html
[4] https://taxguru.in/goods-and-service-tax/notification-no-17-2021-central-tax-rate-dated-18-11-2021.html
[5] Majesty legal is law firm, established in 2013 and aim of the present article is to provide recent legal development as on 13.04.2022. The opinions presented in the article are personal in nature and not to be deemed as legal advice.
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