E Commerce is one of the fastest growing sectors in world. The same can be defined as action of commercial nature using Internet as a medium. The coding by Programmer throughout world makes it continuously expanding and dynamic in nature.  The term was unknown a decade back by most of the people in India, there has been sudden rise in this with new start-ups. They are on rise and especially companies like Uber, Flipkart, Snapdeal, Lifestyle, OLX, BigBasket, Zomato, Food Panda, 99acres, Myles etc are the flag-bearers of e-commerce in India. They are majorly responsible for converting millions of Indians into online shoppers. Thus, people start referring them as “Ghar ki Dukaan”, especially after the advent of BigBasket which delivers grocery at home. Every item from a pin to stars is available to shop online. Just like the Amazon title say which has an arrow connecting A to Z in its logo referring everything is available.

India is one of the largest internet markets after China. According to the Study Paper contributed jointly by ASSOCHAM- Forrester, India’s e-commerce revenue is expected to jump from 30 Billion USD in 2016 to USD 120 Billion in 2020. The computer as a resource, and specially Smartphone have lead the exponential growth of Online Marketplace. The rules of customer buying products have drastically changed with availability of Smartphone at affordable price as this digital savvy consumer can personally explore multiple options in online marketplace. The online marketplace model is success in India is evidenced from the fact foreign direct investment (FDI) inflow. One reason behind is the weak regulatory norms prevailing presently.

E-commerce sector faces challenge in Taxation across the world. The same is not confined only to Direct Tax, but it stretches to Indirect Tax as well. The fiscal legislations are greatly debated on this sector. The scope of this paper is limited to Indirect Tax, so directly coming to that point- Indirect Tax in India are multiple in numbers, which are being imposed both by Centre and State as they form part of both Union List and State List. The situation further complicates with complexity and dynamic business model followed by these player in performing transaction.

Comprehending the e-commerce sector requires to understand the types of E commerce. They are similar to normal business model just set up online.

A. The model as per involvement of parties are as followed-

1) B2B Electronic Commerce –Eg.   Inventory Management, Channel Management, Distribution Management, Order fulfilment and delivery, and payment management.

2) B2C Electronic Commerce – Eg. Transaction involving selling and purchasing of goods or service

3) C2B Electronic Commerce – Eg. Consumer has specific demand and has fixed price range, the business entity can contact and meet consumer demands.

4) C2C Electronic Commerce- it provides consumer to transact goods or service like OLX or ebay

B. The model as per transactions are-

1) Aggregator Model- Under this model, three parties are involved aggregator, service provider and service recipient. Eg. Ola, Uber etc.

2) Operator Model- Under this model also three persons are involved market place, logistic company and ultimate consumer. The same can be further sub divided into-

a) Drop-shipping Model, also known as Marketplace Model

b) Fulfilment Centre Model.

c) Inventory-led Model.

In the proposed GST, the comprehensive indirect tax regime, e commerce has been separately dealt under Section 56 of the Revised Model Draft. This will have fundamental impact on ecommerce setup in India.

Present System

The e-commerce in India flourished in recent past. The baby steps converted into horse gallops. The present regime of indirect tax based on physical movement across jurisdictions and physical presence. There was and still huge confusion and ambiguity on tax treatment for the aggregators and online market due to the federal setup and different tax legislation in different states. These lead imposition of arbitrary levy some times.

Due to involvement of number of transaction, certain officials are under impression that there is high possibility of pilferage and revenue leakages. Most Operator claim that they are just facilitating the transaction and not buyer or seller. Thus sometime it proves an obstacle for these setups.

The various kind of tax that are levied are Service Tax, VAT or CST, Excise, local Entry Tax and Custom Duty. Another tax named Equalization Levy was imposed from 1st June, 2016 to tax Digital Ad. The levy is popularly termed as “Google Tax.” Under this levy, if an online store or brand pay a consideration value of Rs 1 lakh or more in a year to non resident for B2B Service or Digital Advertising, or similar service, then online store or brand has to withhold 6% from invoice amount to pay as tax to government.

Redirecting to Indirect Taxes, the taxes levied are discussed as per models, the reason being establishment try to use the structuring in such manner to make their compliance simpler. In the Aggregator Model, they generally get registered under Service Tax and pay Service tax under Reverse Charge. Under Drop Shipping Model, they online companies just provide their Information Technology services and pay service tax on their service charge or commission. Other taxes are to be paid by vendor. Under Fulfilment Centre Model, they are presently paying only Service Tax, although some VAT authorities have claimed VAT as they get covered under definition of “Dealer”. In Advance Ruling received by Amazon, its warehouse model, the act was considered a part of service thus, they received favorable ruling and no VAT liability. In another AAR, repackaging of goods for purpose of courier doesn’t amount to manufacture under Excise Act. Under Inventory led model the online hubs are covered under definition of dealer and thus have to get registered and pay VAT. Similarly, Kerala High Court in matter of Flipkart Pvt Ltd. held that Flipkart is just online portal, the dealer is WS Retail which is registered under KVAT, so no penalty arises.

In context of Entry Tax that is imposed by local authority of certain states to protect safeguard of local dealer, the tax is being imposed on Ecommerce portals. Some states have made special amendment in this regard. For Eg. J&K, the non registered dealer has to pay tax on goods above Rs 4999, Bihar impose tax on shipment below Rs 10000, Sikkim, West Bengal, Uttrakhand, Maharasthra have imposed tax.

Gujrat High Court, in a case has upheld the imposition of Entry Tax relying on judgment of Honorable Supreme Court in Jindal Stainless Ltd. & Anr. vs. State of Haryana & Ors. However, in Ecommerce Marketplaces vs Gujarat State Entry Tax, the Gujrat High Court granted some relief by reducing the tax liability to the extent of CST paid in the state of origin. Recently, honorable Patna High Court, held the entry tax levied on ecommerce goods as ultra vires as they were unconstitutional for being violative of Article 304(a) of the Constitution read with Article 303, following its earlier decision. The law doesn’t prohibit imposition of entry tax on ecommerce it only prohibits different rate of taxes. Thus, bringing the “mortar and brick shop” in equivalence to “ecommerce”. Although the online platform are contesting that entry tax is incident not on goods for personal use but for goods acquired in course of business.

Defects in present System

The defects in present system –

1) Online platform involves multiple transactions in a deal. Thus, such activities are often misconstrued by tax authority as activity of “seller” under local laws and “dealer” under VAT laws.

2) Lack of special provision for e commerce under state VAT’s law.

3) The activity of packing, repacking, freight etc as intermediary requires huge compliance work, for which he’s not recognized as intermediary. These activities may qualify as “manufacture” and require registration under Excise Act. Although, in Advance Ruling received by Amazon, its warehouse model, the same act was considered a part of service thus, they received favorable ruling.

4) Due Diligence from perspective of Legal Metrology Act, 2008 and rules framed under the Act.

5) Waybill compliance is another headache for vendor as there are a number of interstate movements. The documentation and tracing of goods is essential. For low cost consignment it is not feasible. State of Gujrat has however issued specific clarification to address the issue.

6) As entry tax is applicable in lot of states, they might qualify definition of ‘dealer’ under various state entry tax legislations, thus registration in every state and compliance is an issue. Some states have tried to transfer the burden of entry tax on courier agenciesby contending them to be dealer.

7) Valuation in case of Discount Funding is done inappropriately by authorities. The “burning cash for promotion” is included by them on sale price of goods on behalf of buyer.

8) VAT legislation have provisions for deduction and turnover. They have provision for cancelled and returned goods. As most of e-commerce goods are delivered on Cash on Delivery, it becomes difficult to maintain the record of this huge quantum for claiming the adjustments.

9) Digital Content is ambiguous under law, customized or branded, by following the principle laid down in TCS case, they are liable to VAT, but then it is difficult to comprehend place of supply and person liable for payment of tax.

10) In case of combo offer goods sold in bundle form for a single consideration, different tax rate may apply. As tax authorities prefer higher duty rate this will increase cost of product even the online platform may prefer same to avoid litigation.

11) In case of goods and service combo, the issue of classifying them as works contract may arise.

12) Credit Blockage happens as movement in different states is involved with complex transaction structure. This leads to increase in price of good or service.

13) Double taxation on certain transaction as classified as both goods and service under their legislation.

14) Cascading effect of tax due to multiple form of levies like Excise, VAT, Service Tax, Entry Tax.

15) Litigation on issues whether they qualify certain definition eg. Aggregator, intermediary service, health service etc.

GST System

The upcoming new regime of GST is a promising feature for simplicity of tax regime for E Commerce Sector. It is hoped will help in reducing compliance work and litigation issues. As number of taxes will be subsumed and seamless flow of credit will be there it will reduce tax burden and reduce cascading effect. The cross utilization of credits will reduce price as earlier traders were denied using credit for various input services. It will harmonize the sector and bring uniformity, simplicity and clarity. This will further help in reducing the price. Further, certain e commerce player didn’t supply good in certain states due to entry tax and other compliances, now with removal of this barrier, it will promote seller to sell in those states.  Although, the tax rate will be higher, the price impact can be positive for consumer, considering that lot of tax will be subsumed under GST and there will be higher credit pool. The consolidated tax rate will promote market players to sell in all states and reduce litigation on classification disputes. Compliance work may reduce if centralized registration is permitted. The GST model will make it similar European Union. It will promote transparency and balance supply chains. The GST model takes into cognizance the element of “sales return”.

As per the CGST Act,2017 it has done away with concept of aggregator and widened the definition of terms “electronic commerce” and “e commerce operators”.

(44) “electronic commerce” means the supply of goods or services or both, including digital products over digital or electronic network;

 (45) “electronic commerce operator” means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce

Thus, the aggregators who are an intermediary entity, i.e. neither service provider nor service receiver will also get covered under GST Regime under the wide definition of electronic commerce operator as “owns, operates or manages digital or electronic facility” but not as aggregator under Service Tax regime which was introduced by 2015 budget to tax Uber, Ola etc. This revision was made in Act after receiving recommendations from various institution and market player’s with respect to old model which made it deemed supply of said service. The Act thus tries to save the litigation on issue whether such service fall under terminology of aggregator. Apart, from these now the definition further covers

  • Platform providers where invoicing and supply are done by the actual supplier. (Eg. Amazon)
  • Goods/services provided by vendor himself online. (Eg. Lifestyle, Fabindia)
  • Service Provider is different from person who raise invoices for supply of others’ services (Eg. Apple Store, Google Play)

As per the CGST Act the registration has been made compulsory for all kind of ecommerce under Section 24 of the Act. There is no discrimination between Inventory-led Model or Fulfillment centre or Aggregator or Drop Shipping or database access or retrieval services provider. Section 25 provides for registration in all states and union territories in which he is so liable.

The overseas suppliers are also required to take registration. Where 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, if no representative then it shall appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax.

The revolutionary change brought by the CGST Act is in form of compulsory levy of 1% tax on “net value of taxable supplies” which has to be collected by e commerce operator in form of Tax Collected at Source (TCS) under Section 52 of Chapter X of the Act and paid to the government by 10th of next month. The tax is not to be levied on Agents. Further the “net value of taxable supplies” will not include value of services which have been notified under Section 9(5) and reduced by the aggregate value of taxable supplies returned to the suppliers during the said month. This increases compliance work in form of required paper trail which can be reconciled.

Section 52(1) has tried to clear the ambiguity which was prevailing in market after the first draft was circulated in context of peer to peer supplies. These P2P websites just act as medium and the consideration is never received by operator and is transferred directly between the peers. This is because Section 52(1) clearly outlines that “net value of taxable supplies” will include only those considerations which are directly collected by the operator. Thus, website like OLX or Quickr or JustDial or 99acres has no statutory obligation to collect 1% tax.

The assessment authorities will allow rectification within a period of time after communication regarding same has been made. The tax payer will then have to pay tax along with interest. The Authorities have power to ask for information from concerned suppliers. If information is not provided the authorities may impose penalty of Rs 25,000.

Issues and Lack of Clarity in the CGST Act

The CGST with its promising feature and clarity on ambiguous point that were present in Old Model GST is welcomed. But still certain issues remain unresolved. Further certain features are being opposed by e commerce operators. The following are some major concerns-

1) The registration does not grant any relief to e commerce operator i.e. there is mandatory registration. They are further required to collect TCS from every supplier. They don’t distinguish for small service provider, which are exempted from tax payment in general as their turnover is below threshold limit. Thus, there is ambiguity whether this TCS will be refunded for these small service providers.

2) The explanation in Section 52(1) for “net value of taxable supplies” doesn’t clarify that the value of goods will be inclusive of GST or not. If included this will lead to cascading and increase in price of goods.

3) There is further ambiguity that whether operator for depositing TCS will have to register in all states where their suppliers are located.

4) Lack of clarity whether non resident taxable person supplying taxable service are also liable to TCS.

5) Credit blockage in stock transfer.

6) The SGST has not completely eradicatedthe issue of valuation in cases of discount which are recorded in invoices. The pre or at same time supply discount is not to be included. The post supply discount is not included if discount is known at time agreement before or at time of supply and the recipient has reversed the credit for it. The reason being authorities not accepting the agreement.

7) Although, GST provides for seamless flow of credit. There might be issue in claiming Input Credit as the ecommerce operator may be charging for numerous services whose place has to determined by the place of supply rules and the vendor may be registered and paying tax in different state.

8) E Commerce Operator will face unnecessary compliance burden. TCS will harm small companies with additional burdenas both operator and supplier will have to maintain records, specially the operators who have to keep record for thousands of suppliers. Further there will be duplication of information which need to be reconciled, it will create additional burden on authorities.

1. UNESCOPRESS, China, India now world’s largest Internet markets, 15.09.2016, available at isited on 4/2/2017

2. ASSOCHAM-Forrester study, India`s e-tailing growing fastest in the world, updated on 08/05/2016, available at last visited 3/2/2017

3. Sumit Dutt Majumdar, Will Tax Collection at Source  really Spoil E-Commerce, updated on 18/2/2017, available at last visited 1/3/2017

4. It is a part of Direct tax thus discussed briefly.

5. Advance Ruling, Amazon Seller Service Pvt Ltd., available at;jsessionid=C40885FB4F950BBF68E6753985ADA44C visited on 11/2/2017

6. M/s Amazon Wholesale (India) Pvt, New Delhi Versus Commissioner of Central Excise, Bangalore-I – 2016 (3) TMI 70

7. ET, Packaging is not manufacturing says authority for Advance ruling in Amazon Case, available at visited on 12/2/2017

8. Flipkart Internet (P.) Ltd. Vs State of Kerala, Kerala High Court, Writ Petition (c) nos.5348 & 6916 of 2015, judgment dated 13/10/2015


10. M/S Flipkart Internet Pvt Ltd. Vs State Of Gujarat & 1, Special Civil Application No. 7019 of 2016, High Court Of Gujarat, Order Dated 1/12/2016

11. Jindal Stainless Ltd. &Anr. vs. State of Haryana & Ors, Supreme Court of India, Civil Appeal No. 3453 of 2002, judgment dated 11.11.2016

12. Ecommerce Marketplaces vs Gujarat State Entry Tax,

13. Gujrat High Court Passes Verdict Against Entry Tax, available at visited on 15/2/2017

14. Flipkart Services Pvt. Ltd. vs. State of Bihar, Patna High Court,  Civil Writ Jurisdiction Case No.6155 of 2016, judgment dated 27/10/2016

15. Food Corporation of India vs. State of Bihar And Ors, Patna High Court,  Civil Writ Jurisdiction Case No.6379 of 2014, judgment dated 20/07/2006

16. Advance Ruling, Amazon Seller Service Pvt Ltd., available at;jsessionid=C40885FB4F950BBF68E6753985ADA44C visited on 11/2/2017

17. Section 9A in the Assam Entry Tax Act, 2008, Uttar Pradesh, Uttrakhand, Maharasthra etc

18. But, they have failed as can be seen from case of E-Com Express Pvt. Ltd., in Revision No.48 of 2015, decided by Hon’ble Allahabad High Court on 24.2.2015 which quashed the seizure order and held that the courier company is not dealer and not covered under Section 2h(v) of the VAT Act.

19. Tata Consultancy Services Vs.State of Andhra Pradesh AIR 2005 SC 371

20. Section 2 of CGST Act, 2017

21. Abhishek Gupta, E Commerce under GST, available at visited on 6/3/2017

22. Section 3(4) of Old Model GST –“ Notwithstanding anything contained in sub-section (1), the supply of any branded service by an aggregator, as defined in section 43B, under a brand name or trade name owned by him shall be deemed to be a supply of the said service by the said aggregator

23. Section 24(v) of the CGST Act, 2017

24. Explanation 9(5) of the CGST Act, 2017

25. Explanation, Section 52(1) of the CGST Act, 2017

26. Section 52(5) of the CGST Act, 2017

27. Section 52(6)  of the CGST Act, 2017

28. Section 52(11) of the CGST Act, 2017

29. Section 52(14) of the CGST Act, 2017

30. Trilegal, India: GST Impact: E-commerce Sector, available at, visited on 3/3/2017

31. L Badri Narayanan, Meghna Mohapatra, Big GST Problem For Small E-Commerce Vendors, available at visited on 5/3/2017

32. Ecommerce firms like Flipkart, Snapdeal, Amazon India seeks exepmtion from GST Bill available at visited on 8/3/2017

33. Chavvi Tyagi, Flipkart, Amazon & Snapdeal come together to oppose GST provision available at, visited on 8/3/2017

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