CA Ruchika Mehta

The ecommerce industry in India is growing with leaps and bounds and is one of the major pillars of Indian Economy.

Let us envisage the possible repercussions of Model GST Law on the Ecommerce Industry:

1. Collection of TCS and consequent impact on liability to be registered :

As per Clause (ix) and (x) of Schedule III of Model GST Law, every e commerce operator and every aggregator who supplies services under his brand name or his trade name irrespective of the threshold limit of turnover specified (9 lakh and 4 lakh in case of north eastern states including Sikkim) will be required to get registered.

Aggregator is basically a person who supplies goods and services under his own brand name/trade name, for instance: Ola, Uber etc. However, ecommerce operator is a person who simply facilitates supply of goods and services but not under his own brand name/trade name. For Instance: Myntra, Amazon etc.

As per Section 43C “Collection of TCS” of the Model GST, every ecommerce operator shall at the time of credit of payment in cash or any other mode to the account of the supplier of the goods whichever is earlier collect an amount out of the amount payable to the supplier representing consideration towards the supply at the rate notified by Central/State Govt. The amount shall be paid to the credit of government by the ecommerce operator and the aggregator can claim the credit for the same.

It will be unjustified for the small scale vendors who would be required to obtain a registration even there turnover falls below the threshold limit because tax will still need to be collected at source by ecommerce operator from such small scale vendors. This will unnecessarily increase the onus and compliance burden on such vendors.

Also the availability of refund of tax paid to such small suppliers is still unheard of.

2. Value of taxable supply

As per clause (h) of sub-section (2) of section 15 of Model GST, transaction value shall include any discount or incentive that may be allowed after the supply has been effected. Provided that such post supply discount is known at or before the time of supply and specifically linked to relevant invoices shall not be included in the transaction value. Further as per sub-section (3) transaction value shall not include any discount allowed before or at the time of supply provided it is in the course of normal trade practice and duly recorded in the invoice issued.

It will be noteworthy to know whether the promo codes, cash backs, gift coupons and other discounts offered by the ecommerce operators in the nature of post supply discount will continue to be included in the transaction value and thereby attract GST.

3. Impact of TCS on Sales returns and cancellation of orders-

In case of sales returns and cancellation of orders placed online at a later stage, ecommerce operators will have to bear the brunt of paying the taxes from their own pockets and later claiming refund. This will have a momentous impact on the cash flows and reconciliation of the ecommerce operators. Another key area is the voluminous “Cash on delivery” transactions which will lead to working capital issues and cash flow blockages of the operators and the implications will be all the more grave if such transactions are cancelled at a later stage.

4. Stock transfer

Inter and Intra state Stock transfer between the branches and warehouses of a single ecommerce entity would be deemed supply and will attract GST though seamless credit is available down the line.

Tax liability would arise at the first stage but the same can be offset at the time of final supplies by ecommerce entity. Also e-commerce companies would need to obtain registration in each state where they have their place of business, again resulting in increased compliances.

5. Determination of Place of Supply

As per section 6 of model GST, POS shall be location of service recipient in case if supply of services is made to a registered person.

If supply of services is made to a person other than registered, POS shall be the

(i) the location of the recipient where the address on record exists, and

(ii) the location of the supplier of services in other cases.

Impact: B2C transactions will be fraught with complexity if address on record does not exists of the end customer then POS shall be the location of supplier.

6. Matching of Returns

As per section 43C of Model GST, it will be the responsibility of e-commerce operator to file the monthly and annual returns. Also, the supplies reported by the e-commerce operator needs to be matched with the details given by the supplier in his return for outward supplies and in case of any discrepancies, it will be added in the output liability of the supplier. This will lead to litigations between the aggregators and suppliers.

7. Reduction in Cascading effect

Currently, traders are denied credit of service tax paid by ecommerce operators on input services such as warehousing, logistics etc and are also not allowed to claim credit of VAT paid on goods that are used for providing output services.

The idea of facilitating the cross utilisation of credits in the Model GST both for goods and services has tremendous appeal.It will certainly lead to reduction of cascading effect of taxes and bring down the overall cost of supplies.

8. Equalisation levy

As per the equalisation levy rules,2016, any Indian company will have to deduct 6% if it pays more than 1 lac per year on or after 01.06.2016 to a company not having a permanent establishment in India and being a Non Resident for provision of specified services .

Specified service means online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement and includes any other service as may be notified by the Central Government

Equalisation levy is introduced to tax the ecommerce transactions and will be crippling for the startups since they are the key users of digital advertisement platforms. Apart from tentative 18% GST, this extra cost of 6% levy will be passed by the foreign advertisers on the ultimate customers being startups etc who sustain through such digital advertisement.

9. Onus of depositing tax shifted from aggregator to ecommerce operator-

Currently, if a customer places an order with a supplier through any ecommerce platform, the customer makes the payment either at the time of purchase or COD and the ecommerce operator after deducting the amount of fees pays the balance amount to the supplier. However the responsibility to deposit VAT/CST to the government is that of the supplier.

However as per the Model GST Law, the ecommerce operators need to collect a portion of tax from the sellers and deposit it with the government so that the suppliers listed on such ecommerce platforms cannot getaway scot free from the tax liability.

GST rate chart

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January 2021