K. Srinivasan (IRS)
Who Is Liable To Pay GST?
Before starting a business with the C2C business model, you must have an idea about the entities liable to pay GST.
♦ Businesses or sellers registered under tax regimes even before GST
♦ Normal taxable people
♦ Ecommerce operator or regulator
♦ Agents of a supplier
♦ Any individual whose annual turnover is above INR 40 lakh (or INR 20 lakhs for Northern India and hilly regions)
♦ Anyone who deals with the interstate supply of goods.
♦ Non-resident taxable person
♦ Payers under reverse charge mechanism.
What is the Consumer-to-Consumer (C2C) business model? How does it work?
The C2C business model enables the customer to sell the products to other customers. The customer who is selling across these sites can sell products and services; there is no restriction upon it.
C2C is often referred to as the C2C ecommerce model, which clarifies that the business takes place on the digital platform.
The classified listing sites are also based on a similar idea. You can call it a resell-when-used sort of model in laymen’s language.
The company that enables the selling of products across such a portal may allow the monetary transactions through the website or be the source of connecting the customers.
In such a case the C2C interface will charge GST on the Listing charges/Intermediary [Sec 2(17) of the IGSTA refers] and Agency [Sec 2(5) of the CGSTA refers] Commission/Shipping if any undertaken.
It will be either treated as a composite Business Support Service under SAC 9985 or individually as stand-alone services as the case may be at applicable rates, all of which however squarely attract GST.
C2C business sites have the dashboard that’s easier to use, even for non-tech people. The customers selling across these platforms are mostly unregistered and don’t have any inventory.
The marketplaces do charge the fixed listing fees for selling through the platform, and customers prefer to purchase, as the prices are less in comparison to that of the market price.
Used goods sales C2C and TCS/GST
GST deals with supplies in the course or furtherance of business and therefore unless selling is not somebody’s business, GST will not apply to sales made by them.
Though the definition of business under Sec 2(17) of the GST Act treats by default any trade regardless of its volume and frequency or continuity, yet the said definition is not to be strictly interpreted if the context requires otherwise, as per the opening line of Sec 2 definition clause of the Act.
Recently, in a clarification, the central government stated that sale of second hand Jewellery from a consumer to the Jeweller is not in the course of business.
Rationale underlying the clarification above
Section 9(4) of the said Act mandates that tax on supply of taxable goods (gold in this case) by an unregistered supplier (an individual in this case) to a registered person (the jeweller in this case) will be paid by the registered person (the jeweller in this case) under reverse charge mechanism.
This provision, however, has to be read in conjunction with section 2(105) read with section 7 of the said Act. Section 2 (105) defines supplier as a person supplying the goods or services. Section 7 provides that a supply is a transaction for a consideration by a person in the course or furtherance of business.
Even though the sale of old gold by an individual is for a consideration, it cannot be said to be in the course or furtherance of his business (as selling old gold jewellery is not the business of the said individual), and hence does not qualify to be a supply per se. Accordingly, the sale of old jewellery by an individual to a jeweller will not attract the provisions of Section 9(4) and jeweller will not be liable to pay tax under reverse charge mechanism on such purchases.
Similarly, if someone sells any of his used furniture /Bedstead / used household articles, it will not be treated as in course of furtherance of business. Accordingly, the said transaction is not taxable to GST.
Unlike large e-commerce companies where the seller on the platform is usually a small and medium size entrepreneur, on C2C websites, the goods sold are largely second hand by individual sellers.
These goods range from furniture to electronic items, from toys to baby goods besides other household products.
This basically means that if consumers (people not engaged in selling and buying as trade) sell their old products on online portals, the latter will pay them the full amount and not deduct any TCS of 1% as most other E-Commerce Portals like Amazon, flipkart or Snapdeal would do.
This is mainly the C2C customers have been exempted from this tax because it is not their business activity to buy and sell as a one off transaction their own used goods for a residual valuable consideration though.
Regarding applicability of composition scheme to E-Commerce Supplies?
Persons making any inter-State outward supplies of goods and persons engaged in supply of goods through an Electronic Commerce Operator (ECO) who is required to collect Tax at source under section 52 of the CGST Act, are not allowed to opt for the scheme.
Regarding GST law which requires mandatory registration irrespective of turnover in the case of a) E-commerce-operator b) Inter-state supply, a C2C E-commerce Portal, suppliers have no tax liability on the second hand goods supplied via this Portal, not being in the course of furtherance of business.
Further, the suppliers being not engaged in the furtherance of any business, the taxability of their supplies through the C2C second hand goods Portal is not found to attract any GST.
They don’t fit into the regular E-commerce Portal definition with mandatory registration requirement, applicability of registration and tax doesn’t arise, in the stated circumstances of the above case.
Is the C2C ecommerce business model profitable?
C2C business models are expecting the year on year growth in the ecommerce market, due to the ways of business conduct.
The C2C model allows one set of customers to meet another set of customers with the demand-oriented goal, which is not possible from other marketplace ideas.
Another most important reason is the ease of the usage of the platform. The platform’s goal is to connect the people who are looking for certain types of products and services to another set of audience.
When the demand is met with the supply of an adequate product, and appropriate pricing, more customers will be attracted to the website.
Listing products on these sites will get you a good exposure. The businesses also list the classified ads on C2C platforms to enable direct reach to the audience.
The best thing about the C2C business model is that you can reach other sellers and customers.
Other than quality control, there is nothing as critical about these ecommerce channels.
They enable easy payment options and help create the best deal for customers to the products delivered at the best price, and ease shopping across ecommerce platforms.
Since all the C2C ecommerce models aren’t attracting GST and there are no additional liabilities, it is easier for people to start selling online through C2C Platforms.
If your customers are the ones trying to figure out online selling options as of now, they can register themselves on the C2C platforms, and start listing their products now.
However, if you are planning to start your own ecommerce business of buying and selling and dealing in goods and services of your own, C2C will not be enough for you, for tomorrow is another day.