CA Dr Arpit Haldia
GSTUpdate 6- Key Takeaways from the definition of Electronic Commerce under Draft GST Law
In the last update, I had discussed certain specific terms used in the definition of Electronic Commerce. Though, they were technical terms but since they form part of the definition of e-commerce, a brief description of them was required to have a better understanding of the definition.
In this update, I have attempted to discuss definition of electronic commerce comprehensively, keeping in background technical terms used in the definition. The definition assumes importance as the entire taxation of the electronic commerce sector in general and also as aggregator or electronic commerce operator under GST is based upon this definition only.
The key derivations from the definition of E Commerce in the Draft GST Law:
1. Coverage of Transactions executed using applications such as email and Instant Messaging under E-Commerce: The coverage of applications such as email or Instant Messaging under the definition of electronic commerce for the purpose of transactions of supply of goods and/or services or transmitting of funds and data raises serious repercussions.
As has been discussed earlier, a transaction involves placing an order, remittance of money and delivery of the goods. Thus, if an order is placed through an email or instant messaging app, it seems that it would be covered under electronic commerce transaction. Here it would be pertinent to refer definition of OECD for electronic commerce transaction which provides that manually written emails would not be considered as electronic commerce transactions.
Email and instant messaging apps are the mode for day to day communication in today’s world. Unless the same is clarified, each and every order placed through manually written communication via email or instant messaging applications would be covered under electronic commerce. Further, merely placing an order through email or instant messaging app wherein entire business is carried physically should not result in the transaction being termed as electronic commerce transaction.
Manually written communications through e-mail and instant messaging should not be covered under the definition of electronic commerce. There is strong case for amending the definition in the final law and bring in the exceptions as provided under the definition of OECD Guidelines relating to manually written communications in electronic commerce transactions to make it more realistic.
2. Inclusion of UDDI: UDDI as an application has lost its relevance and its use has become negligent since the late 2010. It seems that the definition of electronic commerce has not been considered aptly. The official webportal of UDDI i.e. uddi.xml.org hosted by OASIS contains following disclaimer
“The UDDI XML.org web site is not longer accepting new posts. Information on this page is preserved for legacy purposes only.” Some of the other companies like Microsoft, IBM and SAP closed their public UDDI nodes in January 2006. Thus, how far use of UDDI is relevant needs to be considered.
3. Transactions executed on Electronic Networks, Primarily Internet would be covered under the Electronic Commerce: The supply of goods and/or services and transmitting of funds or data should be made on electronic network using primarily internet. As has been discussed earlier that electronic network includes network of computers and also internet. The words “primarily internet” assumes significance as it means that electronic network would also include other networks other than internet. The clue regarding the same can be taken from the definition of electronic commerce in OECD wherein they have included extranet, EDI in the definition of computer network, which is considered part of electronic network. Thus, the term electronic network is a very broad term and would not only include internet but other networks like extranet etc.
4. Application used for executing the transactions on Electronic Network should rely on Internet: The transactions should be executed on electronic network by using applications that rely on internet. Thus, only those transactions of supply of goods and/or services or transmitting of funds and data, which have been executed on the electronic network using the applications which rely on internet, would be covered under the definition of electronic commerce.
5. Illustrative list of applications provided in the definition: The applications which have been specifically covered under the list of applications which if used on an electronic network using internet for the purpose of transactions of supply of goods and/or services or transmitting of funds and data includes emails, instant messaging, shopping carts, Web services, UDDI, FTP and EDI. The list is not exhaustive but an illustrative list.
6. Payment condition: Even though payment is not made online i.e. COD (Cash on Delivery) or other manual payments, transaction would be covered under the definition.
7.Delivery Condition: Even though order has been placed with the electronic commerce operator and delivery is not made by the operator but some other person then also the activity would be covered under electronic commerce.
8. E-commerce activity would include supply or receipts of goods and/or services or transmitting of funds or data: Specific mentioning of phrase transmitting of funds or data alongwith supply or receipt of goods and/or services raises certain issues and would be good if the same is clarified in the final law.
The issue arises is why transmitting of funds or data has been considered to be a part of definition of electronic commerce separately and not deemed to be covered under the definition of services.
In my view both these phrases are more clarificatory in nature rather than adding something new to the definition and are only to clarify that funds transferred online or data exchanged online alongwith satisfaction of other conditions as specified in the definition, would also be part of electronic commerce. However, definition needs clarification under the final law.
In the final conclusion, it seems that definition of electronic commerce has been very loosely drafted under the law and needs to be specific with a lot more clarity. The clue for making the definition specific can be taken from the definition of electronic commerce under OECD. The need of the hour is to be very specific as going further activity through e-commerce is going to increase by leaps and bounds and loosely drafted definition would only increase legal complications and hassles.
From the author: In the next update, I would be discussing about how E-Commerce Portals engaged in or facilitating buying and selling of goods operate and how provisions of Draft GST Law would be applicable on such portals.
can return filed 14-15 and accepted be reopened in 2019 stating purchase shown was incorrect and tried to evade sales and thus tax.