With the lockdown being imposed due to Covid-19, online business has grown manifold. Many traditional businesses are selling their goods online, whether through their own websites or through E-Commerce portals like Amazon. To push online business further, portals like Amazon come up with different models to ensure faster delivery of goods to the customer. One such model is the fulfillment model of E-Commerce wherein sellers store the goods at the warehouse managed by Amazon and as and when orders are placed, Amazon ships the products directly to the customer. While fulfillment model proved to be a huge success for Amazon and sellers alike, it came with its own drawbacks, the major one being high storage costs, high order fulfillment cost charged by Amazon to the sellers. This, in turn made the products expensive and thus making online purchase less attractive for the customer.
To address this issue, Amazon came up with another new model known as Seller Flex Model. This model is basically an extension of fulfillment model of E-Commerce. Under this model, the products of the seller are shown on the Amazon portal as fulfilled by Amazon. However, the inventory of the products are maintained at 2 locations- one at the Amazon warehouse and one at the warehouse managed by seller. As and when orders are received on the Amazon portal, the warehouse which is closest to the location of the customer ships the products to the customer. Even when the goods are shipped from the warehouse of seller, the goods have to be packed in Amazon branded packaging material, so that the goods are still seen by the customer as Fulfilled by Amazon. This is a new program brought by Amazon and is designed to ensure timely delivery of the products from the warehouse closest to the customer, while effectively managing the seller storage costs, packing cost, pick up fees which is otherwise charged by Amazon. This program brought considerable savings for sellers whose products weighed about 1 kg to 5 kg, by allowing them to store the goods at their own warehouse while still having the tag of ‘Amazon fulfilled’ on the products on the Amazon portal.
To encourage this Seller Flex program among sellers, Amazon brought a seller rewards program for vendors following the Amazon Seller flex program. The purpose of this article to analyse the GST implications on such rewards given by Amazon.
Understanding of Seller Rewards
Let us take an example, of Mr. A who is selling goods through Seller Flex model. For every order shipped through this program, Amazon is giving the following rewards:
|Item Price including Shipping Charges||Reward|
These rewards will keep on getting accumulated in the account of Mr. A for every order shipped. As and when Mr. A deems it appropriate, Mr. A can login to the Amazon portal and redeem whatever amount of rewards he deems fit. Let us say Mr. A has accumulated rewards of around 20,35,000 as on 30 June 2021. Now, if Mr. A wishes he can redeem rewards of any amount, let us say, 15,00,000 and the balance rewards can be redeemed as per his convenience in future. The redeemed amount of 15,00,000 shall be shown as a payable by Amazon to Mr. A in their monthly statement. In this regard, we need to understand the following:
> Whether Mr. A has to pay GST on the rewards redeemed?
> If yes, what shall be rate at which GST shall be paid. If GST is payable on the products of Mr. A at the rate of 5%, then will GST be payable on the rewards redeemed at the rate of 5% or will GST be payable at the rate of 18% being the general rate applicable to all services?
The relevant extract of Schedule III for the subject transaction is given below for ready reference:
[See Section 7]
Activities or transactions which shall be treated neither as a supply of goods nor a supply of services
6. Actionable claims, other than lottery, betting and gambling.”
Thus, Actionable claims other than betting, gambling and lottery shall be treated as neither supply of goods nor services and GST shall not be levied.
As per Section 2(1) of the Act,
“actionable claim” shall have the meaning assigned to it in section 3 of the Transfer of Property Act, 1882.
As per section 3 of Transfer of Property Act,
“actionable claim means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in possession, either actual or constructive, of the claimant, which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent.”
Basically, actionable claim means a claim for any amount receivable (debt) or claim for benefit of any movable property not in possession for which relief can be claimed in Civil Court.
Black’s Law Dictionary defines ‘beneficial interest’ as follows– “A right or expectancy in something (such as a trust or an estate), as opposed to legal title to that thing. For example, a person with a beneficial interest in a trust receives income from the trust but does not hold legal title to the trust property”. Therefore ‘beneficial interest in movable property’ is a right or expectancy in a movable property like right to receive income accruing from a movable property.
(The author is a practicing Chartered Accountant based in Delhi and can be reached at firstname.lastname@example.org or 9811933762)
Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. The author does not accept any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied without express written permission of the author.
excellent article.. informative
Value Addition 👍
Thank you for sharing the article. Really informative.