In re Changejar Technologies Pvt. Ltd (GST AAR Karnataka)
In the case of Changejar Technologies Pvt. Ltd, a critical examination of their business model and its alignment with GST laws has been undertaken. The central questions revolve around their classification as an e-commerce operator and their tax obligations under Section 52 of the CGST Act, 2017.
Analysis:
1. Nature of Business: Changejar operates an online platform facilitating the sale of digital gold, acting as a conduit between customers and Digital Gold India Private Limited (DGIPL).
2. Interpretation of Law: The applicant argues that they function as a mere agent for DGIPL, citing clauses from their agreement. However, the Authority for Advance Ruling (AAR) refutes this claim, asserting that the applicant qualifies as an e-commerce operator under Section 2(45) of the CGST Act, 2017.
3. Applicability of Section 52: Section 52 mandates tax collection at source by e-commerce operators. Despite the applicant’s assertions of acting solely as an agent, the AAR concludes that they fall under the purview of Section 52 and are thus required to collect tax.
4. Registration Obligation: As an electronic commerce operator liable for tax collection at source, the applicant is mandated to obtain registration under Section 24(x) of the CGST Act, 2017.
Conclusion:
The ruling establishes that Changejar Technologies Pvt. Ltd is deemed an e-commerce operator rather than a mere agent, necessitating compliance with tax collection obligations outlined in Section 52 of the CGST Act, 2017. Consequently, registration as an e-commerce operator is imperative to fulfill statutory requirements.
This analysis underscores the nuanced interpretation of GST laws concerning digital platforms and the classification thereof, providing clarity on the tax obligations of entities operating in similar domains.
This comprehensive analysis elucidates the intricacies of Changejar Technologies Pvt. Ltd’s GST AAR in Karnataka, shedding light on their classification as an e-commerce operator and associated tax responsibilities.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, KARNATAKA
ORDER UNDER SECTION 98(4) OF THE CGST ACT, 2017 & UNDER SECTION 98(4) OF THE KGST ACT, 2017
M/s. Changejar Technologies Pvt. Ltd., (herein after referred to as Applicant), # 752, 18th Main Road, Bengaluru – 560095, having GSTIN 29AAJCC2513L1ZI, have filed an application for Advance Ruling under Section 97 of CGST Act, 2017 read with Rule 104 of CGST Rules, 2017 and Section 97 of KGST Act, 2017 read with Rule 104 of KGST Rules, 2017, in form GST ARA-01 discharging the fee of Rs.5,000/- each under the CGST Act, KGST Act.
2. The applicant stated that theirs is a company engaged in the business of providing an online micro-saving and investment platform by way of an application named “Jar”; they entered into a distribution agreement (hereinafter referred to as “Agreement”) with Digital Gold India Private Limited (hereinafter referred to as “DGIPL” or “seller”) for offering sale of DGIPL’s gold on its platform. DGIPL is a company which offers Digital Gold products and distributes through a wide range of channel partners such as Tanishq, Axis Bank, Tata Neu, Bajaj Fiserv, Airtel Payments bank, Fino payments bank, Amazon, Flipkart, Phone pe and such other large players; the users of applicant’s platform can save and invest money in digital gold offered by DGIPL; Digital gold is a non-custodial form of owning gold which is vaulted by the seller. The applicant, at present, has been offering only Digital Gold offered by Digital Gold India Private Limited on their platform from the launch of their platform and have not been offering any other product offered by any other player.
3. In view of the above, the applicant has sought advance ruling in respect of the following questions:
a. Whether applicant, who only collects a commission as a percentage of the value of digital gold sold through its platform and the entire sale proceeds are paid directly to seller of Digital gold through an Escrow account would qualify him as an ‘Agent’ for the purpose of GST law and is therefore not covered by applicability of Notification No. 52/2018 – Central Tax dtd 20.9.2018, read with Section 52 of Central Goods and Services Tax, 2017 and corresponding state Notification 20/2018 (Karnataka) read with Section 52 of Karnataka Goods and Services Tax, 2017?
b. Whether applicant is required to obtain registration as an E-commerce operator as per provisions of Rule 12 of Central Goods and Services Tax Rules, 2017?
4. Admissibility of the Application: The applicant claimed that the questions on which advance rulings have been sought are with regard to “Applicability of a notification issued under the provisions of the CGST/KGST Act 2017” and “Whether applicant is required to be registered under the CGST/KGST Act 2017” which are covered under Sections 97(2) (b) and (f) respectively of the CGST Act 2017 and hence the instant application is admissible.
5. BRIEF FACTS OF THE CASE: The applicant furnishes the following facts relevant to the issue:
5.1 As per Clause 2.2.1 of the Agreement, the applicant provides an icon or link on the platform allowing its Customers pursuant to the terms of the agreement, to transact in Gold owned by DGIPL and other products as may be offered by DGIPL . When a customer makes payment for the purchase of gold, the applicant confirms the transaction on the platform after receiving the money from the customer. The money received from the customer is credited to an escrow account maintained with a scheduled bank, in accordance with the Escrow agreement; the money is transferred directly from Escrow account to the account of DGIPL at the end of each day without any deductions whatsoever. The applicant does not have any discretion over use of funds received from customers in the Escrow account.
5.2 As per the Clause 2.2.7, DGIPL and not the Applicant, shall be responsible for the authenticity and quality of gold being provided to customers on the platform; As per Clause 2.2.7, the Applicant merely provides the platform to customers for selling DGIPL’s gold, thus any dispute pertaining to such transaction is to be between the customer & DGIPL. The Applicant is not responsible for any such transaction in any respect. Further as per the Clause 2.2.8.1, the applicant shall receive a commission from DGIPL at the end of each month; applicant issues a Tax invoice on DGIPL for receipt of commission. The said commission is calculated based on a percentage of the monthly transactions undertaken on the platform instead of a flat fee. The applicant collects and pays GST in respect of their commission income.
6. Applicant’s Interpretation of Law:
Question 1:
6.1 In the given case, the applicant is only providing a platform facilitating transaction of sale of digital gold. Gold and other products transacted on the platform are owned and offered for sale by DGIPL and not by applicant. As per clause 1.1.10 of the agreement, platform means and includes the application by the name and style of “Change Jar” or “Jar” App, that the Customer accesses for the transactions, i.e. for the purchase and sale of gold, including all other contents, services and technology offered through the Platform. It is relevant to analyse the following sections to conclude on the applicability of the provision of collection of tax at source.
6.2 From the plain reading of Section 52, we note that it specifically refers to e-commerce operators, the compliance to be met by them i.e., collection of tax at source, and that, an “Agent” is excluded from the purview of the said compliance.
6.3 An Electronic Commerce Operator is defined under sub-section (45) of Section 2 of the CGST Act which reads as:
“electronic commerce operator” means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce;
According to Article 2.2.1 of the agreement, the Applicant’s obligation is to only provide a platform for transactions between DGIPL and the Customers.
6.4 The difference between an E-Commerce operator and an agent can be co-related with tour operator and travel agent. A tour operator assumes complete responsibility for the package that they offer to sell. They do not sell anybody else’s packages, they sell only the package, they themselves have created or put together. And a tour operator is what in law is referred to as a “principal”, meaning they take responsibility for the package that they create and cover that liability with (usually) an ATOL licence and/or some form of bonding to ensure that the consumer gets their money back if the tour operator fails, or is flown home if they are abroad when a tour operator fails. A Travel Agent offers the consumer a range of holiday packages that have been put together by a tour operator. They do not, in theory, put together any of their own packages; they sell lots of different holidays put together by lots of different tour operators. They do not usually design or create the holidays they sell, and they do not act as a Principal; the tour operator whose product they sell takes the responsibility for the holiday; the travel agent does not.
6.5 The terms and conditions for sale of digital gold by Digital Gold India Private Limited through ‘Jar’ platform is governed by terms and conditions which are listed on the Jar website at link: https: / /www.myiar.app/terms-and-conditions
Below is an extract of the relevant terms for ready reference:
a. The Platform is an online portal that facilitates the Users to purchase/sale/transfer gold in digital form from a brand named ‘Safe Gold’ (“Gold”) operated and managed by Digital Gold India Private Limited (“Safe Gold”), a company incorporated under the laws of India with corporate identification number U74999MH2017PTC293205, and Safe Gold provides for purchase and sale of Gold, and providing services of safe keeping, vaulting, delivery and fulfilment of gold and related services (“Services”).
b. YOU EXPRESSLY UNDERSTAND AND AGREE THAT COMPANY IS ONLY A DISTRIBUTOR THAT FACILITATES USERS TO BUY GOLD FROM SAFE GOLD. YOU UNDERSTAND THAT BY REGISTERING TO THE PLATFORM AND / OR ACCESSING SERVICES DIRECTLY OR INDIRECTLY FROM THE PLATFORM, YOU ONLY RECEIVE THE ABILITY TO USE THE PLATFORM FOR PURCHASE OF GOLD FROM SAFE GOLD OR SUCH OTHER PRODUCTS OFFERED BY US FROM TIME TO TIME. WE SHALL NOT INCUR ANY LIABILITY IN RELATION TO ANY DISPUTE RELATING THAT ARISES IN RELATION TO PURCHASE OF GOLD OR SERVICES OFFERED BY SAFE GOLD. YOU EXPRESSLY AGREE THAT WE ARE NOT RESPONSIBLE FOR CUSTODY, QUANTITY AND QUALITY OF PHYSICAL GOLD THAT YOU PURCHASE THROUGH THE PLATFORM AND HENCE WE SHALL NOT BE LIABLE IN CASE OF ANY DISPUTE THAT ARISES IN RELATION TO CUSTODY OF PHYSICAL GOLD WITH THE CUSTODIAN AND TRUSTEESHIP WITH THE TRUSTEE ADMINISTRATOR.
6.6 E-commerce operators such as Amazon and Flipkart take the responsibility for delivering the product to ultimate consumers and they also will instantly grant refunds to the customers, if the customers are not satisfied with the quality of product delivered to them. It is up to the E-commerce operators to recover the loss, if any, from the seller of goods in respect of customer returns; E-commerce operators also have made provision for compensating losses of sellers through seller protection fund, if there is any damage to the products due to the acts or omissions of E-commerce operators. Also E-commerce operators list products sold by multiple sellers on their platform. These E-commerce operators also charge fixed fee / platform fee from sellers for providing E-commerce services to sellers of goods. Your applicant on the other hand, does not assume any responsibility for quality or delivery of digital gold offered to be sold by Digital Gold India Private Limited on its platform; your applicant does not collect any fixed fee /platform fee from DGIPL; it only charges a commission as a percentage of value of digital gold sold. Your applicant offers only the digital gold sold by DGIPL on its platform and is not offering digital gold sold by any other player. In view of the above facts, your applicant could be clearly distinguished from other E-commerce operators, in terms of scope of services rendered and qualify to be a “Selling Agent”, intended to be excluded from the purview of Sec. 52 of CGST Act, 2017.
6.7 In respect to determining the applicability of Section 52, to the transaction, the following clauses of the agreement establish that the applicant is merely acting as an agent for DGIPL, and the operation carried out by the applicant is beyond the scope of Section 52.
6.8 The following clauses in the agreement show that the applicant is merely acting as an agent for DGIPL, and the operation carried out by the applicant is beyond the scope of Section 52.
– Clause 2.2.8.1-, the service commission of the applicant is calculated as a percentage of the Monthly Transaction Value of all gold purchase transactions by a Customer on the Platform.
– Clause 2.2.4, DGIPL ensures that the Gold purchased by the users of the Platform is stored with a reputed custodian appointed for this purpose (“Custodian”) under the charge of an independent trustee who is responsible for protecting the Customer interests (“Security Trustee”).
– Clause 2.2.5, DGIPL provides the price of Gold (both the buy price and sell price) on a 24/7 basis.
– Clause 2.2.7, DGIPL is responsible for the authenticity and quality of gold being provided to customers on the Platform. The applicant is only providing a platform to DGIPL to sell its gold to the customers, thus any dispute pertaining to such transaction shall be between the customer and DGIPL. The applicant is not responsible for any such transaction in any respect.
6.9 The consideration for provision of supply to Jar is in the form of a commission” paid by DGIPL; DGIPL also deducts Income Tax TDS under Section194H of the Indian Income Tax Act, 1961, which applies to payment of commission to an agent [a person acting on behalf of another person for services rendered, not being professional services].
6.10 Further, it is evident from the invoice that, it is DGIPL and not the applicant issuing invoice upon the customer. It is clear from the interpretation of the observations made in Para 6 86 7 that DGIPL, not the company, bears the risk and reaps the gain of the sale of gold. The applicant is under no obligation to participate in the sale or quality control. The applicant’s responsibility is restricted to platform management. This clearly demonstrates that, the applicant’s platform is merely a conduit for conducting the transaction without having any ownership of the asset i.e., gold.
6.11 With an escrow arrangement in place and daily money transfers to DGIPL directly from Escrow account without intervention or instruction from Jar to banker, it is abundantly clear that the applicant has no influence or control over the exchange of money between customers and DGIPL and the applicant is acting as an Agent for and behalf of DGIPL. Hence, applicant is of the view that, it is operating as an Agent for DGIPL and, as a result, is not required to comply with the provisions of Section 52 of CGST Act.
6.12 To further substantiate our stand, applicant place reliance on the following advance ruling,
Humble Mobile Solutions Private Limited ITS-834-AAR-2019-NT1
Section 52 of the CGST Act provides for the conditions on the fulfillment of which an electronic commerce operator will be required to collect tax at source. The provisions of TCS would be triggered in the event of the following:
