Introduction
In this article, we would touch upon a comprehensive analysis of the Electronic Commerce industry along with the relevant aspects which are likely to impact their business operations.
As per Section 2(45) of CGST Act, 2017, “electronic commerce operator means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce.”
As per above, a person who is providing a virtual platform for others to sell goods or services is considered an e-commerce operator. Some examples include Amazon, Flipkart, Snapdeal and operators selling services are Uber, Ola, Swiggy, Urban Clap.
Note: a person selling goods or services through his own website is NOT an E-commerce operator. Thus, the below provisions do not apply to them.
GST Registration of Sellers selling through Ecommerce Platforms
1) Sellers of goods – Sellers are required to get registered under GST irrespective of their turnover, i.e., even if it’s less than the threshold limit. They are required to be registered for selling through the e-commerce platform as all e-commerce platforms require GSTIN at the time of registration as a seller on the platform.
2) Sellers of services mentioned in Section 9(5) – Such sellers are not liable to register under GST.
The categories of such services and their registration requirements are explained as follows:
1. Services involving transportation of passengers by a radio-taxi, motor cab, maxi cab and motorcycle, for example – Ola, Uber. A person providing transportation services is not liable for registration irrespective of turnover.
2. Services of providing accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes.
3. Housekeeping Services, such as plumbing, carpentering.
For Point no. 2 & 3, two types of situations may arise: –
- Where the actual supplier is not liable to get registered-
This is the case where the actual supplier is not liable to get registered due to the threshold limit prescribed. Thus, the e-commerce operator will be treated as the supplier of services due to notification issued by the government pursuant to Section 9(5) of the CGST Act, 2017. A single invoice will be issued by the e-commerce operator to the recipient of services.
- Where the actual supplier is liable to get registered-
This is the case where the actual supplier is registered under GST, but he is provisioning his services through the electronic platform provided by the e-commerce operator. So, there will be two transactions of the tax chargeability;
The First will be between the actual supplier and the recipient for accommodation services or housekeeping services & the second will be for the commission amount services; the invoices shall be issued by the e-commerce operator to the actual supplier.
3) Sellers of services other than mentioned in Section 9(5)
Such sellers selling through e-commerce platforms are required to register and collect GST only if their turnover is more than the threshold limit of 20/10 lakh. In case they are not registered, then GST is not liable for such transactions.
GST Registration for E-commerce Operators
1. Compulsory Registration
Every e-commerce operator, irrespective of his turnover, has to compulsorily register as per provisions of section 24(x) of CGST Act, 2017, in addition to and separate from the registration obtained as a normal supplier under GST.
2. Restriction on a Composition Scheme
As per 10(2), e-commerce operators are kept out of the composition scheme. Hence, the benefits of composition scheme cannot be fetched by e-commerce operators.
3. Foreign E-Commerce Operator-
Such a person would be liable to collect TCS on such supply and would be required to obtain registration in each State/UT. If he does not have a physical presence in a particular State/UT, he may appoint an agent on his behalf. (Sr. No. 8 of FAQ released by Law Committee of GST Council on 28-9-2018)
4. State/ UT- wise Registration-
An e-commerce operator is required to obtain GST Registration in each State/UT if he has suppliers in different states/UTs of the country. However, the Head Office can be indicated as the place of business, and all the returns can be filed through HO, even if there’s no place of business in that state/UT. (Sr. No.s 5 to 7 of FAQ released by Law Committee of GST Council on 28-9-2018.)
Place of Supply
Before we discuss who bears GST liability, we’ll discuss the concept of Place of Supply in the case of e-commerce. Taxability depends on the last destination of goods. The state where the goods are consumed has the right to collect GST.
This rule is applicable to all suppliers, including e-commerce operators. Determination of place of supply in case of E-commerce is discussed below:
- When the shipping address is the same as the billing address, the place where goods are delivered is the place of supply.
- Where shipping address is different from the billing address, the location of the buyer will be considered as the place of supply and point of taxation as well, i.e., the billing address.
How is GST levied
The liability to pay GST is usually on the supplier of goods or services, but in the case where supply is executed through e-commerce operators, some additional provisions also apply along with the normal provisions.
- In case of services notified under Section 9(5) of CGST Act, 2017 provided through e-commerce operator, the e-commerce operator is liable to pay GST even if payment is not directly received by the e-commerce operator.
- In all other cases, the suppliers of goods or services are liable to pay the GST on their supplies.
- Liability in the case where commission is charged from Sellers by the e-commerce operator, then the operator (who is the supplier in this case) is liable for GST, and normal provision shall apply in this particular case, he will issue an invoice to the receiver for using its service and shall levy GST on such supply.
The above discussion can be understood better with the help following summary:
| Nature of Activity | Turnover | Seller Registration | GST Collected by |
| Selling Goods | Irrespective of turnover | Registration Required | Seller |
| Cab Aggregator | Irrespective of turnover | Registration not required | Ecommerce operator |
| Hotel | Less than 20/10 Lakh | Registration not required | Ecommerce operator |
| More than 20/10 Lakh | Registration Required | Service Provider | |
| House Keeping Services | Less than 20/10 Lakh | Registration not required | Ecommerce operator |
| More than 20/10 Lakh | Registration Required | Service Provider | |
| Other Services | Less than 20/10 Lakh | Registration not required | GST not applicable |
| More than 20/10 Lakh | Registration Required | Service Provider |
TCS Provision
In the GST regime, the responsibility of collecting TCS is on e-commerce operators.
Section 52 of the CGST Act, 2017 deals with the TCS provisions for e-commerce transactions. Every e-commerce operator is required to deduct 1% TCS before making payment to the supplier or vendor. This value shall be computed on the net value of taxable supplies.
The operator is required to submit the details of TCS to the government. This provision enables the government to check whether the seller has properly reported all the sales.
Procedural Formalities
Followings are the forms to be filed by E-commerce operators and suppliers.
- GSTR 1 details of outward supply (sales)
- GSTR 2A details of inward supply (purchase)
- GSTR 3B monthly return along with payment
- GSTR 8
- GSTR 9B
GSTR – 8 is applicable for e-commerce operators only. It is the monthly return containing the details of supplies processed and the amount of TCS collected. The information provided by the e-commerce companies is made available to suppliers on their GSTR 2A.
Problematic areas causing inconvenience to ECOs
- Under the TCS mechanism, an e-commerce company is required to collect tax at the rate of 1% of the net value of taxable supplies. The same tax has to be deposited with the government. Although the GST regime unifies multiple indirect taxes and e-commerce companies will not have to bother about state governments imposing an entry tax on goods sold online or VAT on non-declaration of warehouses, etc. but the proposed tax collection has created ambiguity in the minds of e-commerce companies.
- Moreover, accounting for cash on delivery (COD), returns, and cancelled orders shall influence the cash flows of the operator. Return or cancellation rate in India is approximately 15-18%, and more than two-thirds of the transactions are on COD, reconciliation for which happens about 7-15 days later. This would feign a difficulty on the operators for seeking a refund in case of cancelled or returned orders on which tax has already been deducted. Besides, the operators shall have to handle their accounting and reconciliation subsequently.
- Additionally, there shall arise certain situations wherein the goods are returned due to cancellation or defect on whose supply TCS has been levied although the supply did not materialize adequately. With the increase in the volume of transactions and submissions of various statements, the compliance cost for the operator shall unquestionably rise.
- Under GST, the e-commerce players will have to initiate a stock transfer of goods from vendor to a warehouse or one warehouse to another. Under GST, interstate stock transfers will be liable to IGST. This could have a drastic impact on Micro, Small and Medium Enterprises (MSMEs) owing to their minimal working capital and additional funds.
Conclusion
To sum up the entire study thoroughly, the country is eagerly looking out for the rollout of GST, which focuses on unifying the taxes and building one nation, one tax for every citizen of the country. However, the government must take steps that lessens the regulatory norms and benefits the e-commerce companies by stimulating their growth and productivity and attracts more foreign direct investments in the country. The government must also consider some approaches to make the law clear and industry-friendly so that the industry and the economy profits as a whole.
Though the compliance under GST has increased for the E-commerce industry, still it improves the market for the local suppliers as they can sell in any state with the same tax rates. This will encourage more sellers to go online and provide the best services to the customers.
In simple terms, it can be understood that the state will be able to make revenue from this sector, but some practical implications are there, but the overall implementation of GST on e-commerce is appreciable.
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Authored by CA Manish Gupta & CA Rahul Pareva, assisted by Vrinda Sharma & Ashish sharma
For any queries or suggestions, email at [email protected]
Author Bio
Sir, supplier selling own products through a web site hosted by him, will fall under E COMMERCE OPERETOR, though provision of TCS won’t be applicable