From Cart to Compliance: A Deep Dive into E-commerce and GST

Imagine waking up in the morning, ready to tackle the day and realizing you are out of coffee. You log into your favorite online marketplace to order your daily essentials, feeling like a modern-day wizard conjuring goods with a click. As you dash out the door, you book a cab through a ride-hailing app, only to find yourself at the office, where lunch is just a few taps away on a food delivery platform. Afternoon slump hits and you’re suddenly researching used cars on another platform. By evening, you are checking into dating apps (life goals), and booking a deep-cleaning service for the weekend. Planning a holiday? You log into a portal that lines up hotel rooms and flight options better than your travel agent ever could.

From grocery to getaways, your day begins and ends with online platforms. But are all these “e-commerce”? Do hotel booking sites count? What about cab apps or food delivery services? The digital world is seamless, but GST law draws some fine lines. So, who exactly qualifies as an E-commerce Operator under GST? Let’s untangle the tax behind your taps and clicks to decode the tax twist behind your digital life.

Definition of E-Commerce and E-Commerce Operator (ECO) Under GST

Before diving into the GST implications for e-commerce businesses, it’s important to understand a few key definitions as per the CGST Act, 2017. These form the legal backbone of GST compliance in the online business space.

Electronic Commerce – Section 2(44), CGST Act, 2017

“Electronic commerce” means the supply of goods or services or both, including digital products over digital or electronic network.

This definition sets the scope for what qualifies as electronic commerce under GST law. Electronic Commerce Operator (ECO) – Section 2(45), CGST Act, 2017

“Electronic commerce operator” means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce.

This includes all digital platforms facilitating commerce, whether for goods, services, or both. Levy and collection of tax under E-commerce

Section 9 of the CGST Act, 2017 deals with the levy and collection of tax, and outlines the circumstances under which an electronic commerce operator (ECO) becomes liable to pay GST. In these specific cases, the ECO is treated as if they were the supplier and is responsible for paying the tax on the services provided.

A key provision here is Section 9(5), which states:

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.

Interpreting Section 9(5): What Does “Supplied Through” Really Mean?

The phrase “services supplied through an electronic commerce operator” has been subject to legal interpretation, particularly regarding the extent of the ECO’s involvement in the supply process.

Karnataka Authority for Advance Ruling (AAR) – Case Analysis

The Karnataka AAR has provided important clarifications on how Section 9(5) applies in practical scenarios.

Case: M/s. Multi-Verse Technologies Private Limited (Karnataka AAR)

In this case, the AAR examined whether the applicant, acting as an ECO, was liable to pay tax under Section 9(5). The AAR clarified that the term “through” in the context of Section 9(5) implies that the services must be supplied by the ECO from beginning to end.

Since the applicant only facilitated connections between drivers and passengers without collecting payment or controlling the delivery of services, the AAR concluded that the services were independent of the ECO. Therefore, the conditions for tax liability under Section 9(5) were not satisfied.

Case: M/s. Juspay Technologies Pvt. Ltd. (Karnataka AAR)

A similar ruling was issued in this case. The applicant connected auto drivers and passengers but had no control over the actual service provision. Although the applicant qualified as an ECO, the AAR held that it was not liable under Section 9(5) because it was not supplying the service “through” its platform in the sense required by the Act.

Key Takeaway

The word “through” in the phrase “services supplied through electronic commerce operator” is crucial. It signifies that services must be supplied:

• by means of,
• by the agency of,
• or from beginning till end via the ECO’s platform.
  Marketplace model vis-à-vis Inventory model

ECOs typically operate through two models: the marketplace model and the inventory model and generally, most of the ECOs through Marketplace model.

Marketplace Model

• ECO acts as a facilitator between buyers and sellers providing a platform for buyers and sellers.
• Supplier owns and supplies goods/services, issuing invoices in their name.
• ECO processes transactions from start to end and charges commission for listings.
• Separate invoice is raised by ECO for its income.
• Supplier → ECO → Customer
• ECO is not the owner of goods/services.
• Platform must conduct services “through” it and settle consideration to fall under Section 9(5) and Section 52 of CGST Act, 2017 as captured below.
• If ECO merely lists or connects parties without further involvement, it doesn’t qualify under these provisions.

Inventory Model

• Company is the owner of the goods/services and selling them to ultimate customer in their own name unlike marketplace model
• Principal-to-principal transaction structure.
• Margin is charged as consideration.
• Supplier → Company → Customer
• Company is the legal owner and seller of goods/services. Given this, person selling on his own account is not ECO.

As the landscape of e-commerce continues to evolve, understanding these distinctions is crucial for businesses and consumers alike, ensuring compliance with regulatory frameworks while navigating the complexities of digital commerce.

Section 52 of CGST Act, 2017

Under Section 52 of the CGST Act, 2017, every ECO, not being an agent, is required to collect Tax Collected at Source (TCS). This TCS is calculated at a rate not exceeding 0.5% (i.e., 0.25% each for CGST and SGST, with effect from July 10, 2024), as notified by the Government based on recommendations of the GST Council.

When is TCS applicable?

TCS comes into play only when the following two conditions are met:

1.The supply of goods or services is made through the ECO, and

2. The payment for these supplies is also collected by the ECO.

In simple terms, if the e-commerce operator handles both the transaction and the payment, they are required to collect TCS.

What is the “Net Value of Taxable Supplies”?

To determine the amount on which TCS is to be calculated, we refer to the “net value of taxable supplies”, which is defined as:

The total value of taxable supplies of goods or services (excluding those services notified under Section 9(5)) made through the ECO during a month by all registered suppliers, minus the value of any returned supplies within the same month.

So, only actual taxable supplies processed and paid for through the ECO are considered, and returned orders are excluded from this value.

When is TCS Not Applicable?

TCS is not required in the following cases:

• When the ECO is located outside India, since the net value of taxable supplies made through such an operator would be considered zero under Indian GST law.
• On exempt supplies, as these do not attract GST.

This has also been clarified by the Government in various FAQs issued over time.

Real world example for Hotel Booking

If a customer books a hotel room for ₹10,000 per night through an e-commerce platform, and the payment is collected by the platform, it becomes liable to collect TCS on the taxable supply. The platform retains its commission and remits the remaining amount to the hotel. Here, the ₹10,000 paid by the customer forms the taxable value for TCS purposes.

Registration Requirements under the CGST Act for E-Commerce

Under the CGST Act, 2017, specific provisions make it compulsory for certain individuals and businesses involved in e-commerce to register under GST, regardless of their turnover.

1.Suppliers Selling Through E-Commerce Platforms

As per Section 24(ix) of the CGST Act, any person who supplies goods or services (except those specified under Section 9(5)) through an electronic commerce operator (ECO) that is required to collect Tax Collected at Source (TCS) under Section 52, must compulsorily register under GST, regardless of turnover.

2. Electronic Commerce Operators Themselves

As per Section 24(x) of the CGST Act, every ECO that is required to collect TCS under Section 52 must also obtain GST registration compulsorily, regardless of turnover.

Services Covered Under Section 9(5)

The government, via Notification No. 17/2017 – Central Tax (Rate) dated 28th June 2017, has specified certain services for which the e-commerce operator is directly liable to pay GST on intrastate supplies. These services fall under Section 9(5). Hence, in some cases as per the notification, who pays the GST depends on whether the supplier is registered under GST. The responsibility to pay tax can shift based on this status. The following table outlines who is liable in each scenario.

Compliance requirements for ECO

As per Section 52 of CGST Act, 2017, ECO, who collects Tax Collected at Source (TCS) must deposit the collected amount with the government within 10 days after the end of the month in which it was collected.

The ECO is also required to file Form GSTR-8, providing details of:

• Outward supplies made through the platform, and
• The TCS amount collected.

Based on the GSTR-8 statement, the TCS details become visible in the respective supplier’s GST portal. The supplier must accept these details, after which the TCS amount is credited to their electronic cash ledger and can be used to offset GST liabilities.

Conclusion

In the dynamic world of e-commerce, GST compliance isn’t just a checkbox, it’s a moving target. The term “through” in Section 9(5) is deceptively small but legally massive, covering a wide range of transactions, whether payments flow through the platform or not. As the ECO landscape evolves, clarity remains a work in progress, with many industry players still scratching their heads (and filing representations). In this tech-driven age, new platforms will keep emerging, but one thing’s certain, GST will be watching. Stay updated, stay compliant, and remember: in e-commerce, even the fine print has tax implications!