E- Commerce, a term unheard of a few years ago has now become “Apnidukaan” in the words of Amazon. On one hand, consumers get the advantage of comparing wide variety of products and their prices from the comfort of their homes, while on the other, E Commerce provides the seller an opportunity to grow their businesses beyond the brick and mortar stores that can cater to consumers of limited geographical locations. While as revolutionary E Commerce might seem, the tax implication relating thereto are equally complex and have often been in the newspaper headlines. The Article below summarizes the provisions applicable to E commerce industry under Central Goods and Service Tax Act, 2017 (‘Act’).
- Concept of E- Commerce Operator
The Act envisages the concept of E Commerce operator to cover within its ambit the various models of e commerce transactions. As per the Act, any person who owns, operates or manages a platform for the supply of goods or services over a digital or electronic network shall be an electronic commerce operator. Thus, companies like Flipkart, Amazon, Uber, Paytm, Alibaba, etc should fall under the definition of e commerce operator.
It is pertinent to note here that online retailers who are engaged in the supply of goods and services through their own platforms shall not be covered under the definition of an e commerce operator.
For Example- Mr. A sells a product, let us say an Apple MacBook through the electronic platform maintained by him, then he shall not be an e commerce operator as per the Act.
- Levy of tax
Under the CGST Act, 2017 the threshold exemption that is granted to a supplier is 20 Lakh and for special category states the limit is INR 10 lakh. However, for an e commerce operator, these limits are not applicable and he shall be liable to take registration and pay taxes on the very first rupee of supply made by it. Further, it is also pertinent to note that such limits are also not applicable for a supplier of goods or services, who executes the supply through the E Commerce operator.
For Example- Mr. A has an electronic platform for supply of books, which is used by various book sellers to sell their books to customers all over India. For all supplies made though the electronic platform Mr. A charges a commission of 10%. In this case, the limit of 20 lakh / 10 lakh is neither applicable for Mr. A nor for the suppliers that supply books on the electronic platform owned and operated by Mr. A.
Currently, e-commerce companies discharge their output service tax liability through centralized registration. However, under GST, a person shall be liable to get registered in all the States from where he makes a taxable supply of goods and services. The location of the supplier shall determine the place from where the taxable supply of goods and services is made.
As per the Act, the location of the supplier covers all places of business like offices, warehouse, godowns or any other place of storage of goods. Hence, registration will be required to be obtained for all the states where there is a place of business. This shall multiply the compliances undertaken presently, especially for companies like Flipkart and Amazon which maintain warehouses in almost all states to reduce the delivery time to consumers
- Person liable to pay tax
Under the current indirect taxes regime, VAT is payable by the supplier on the sale of goods and service tax is payable on the commission earned by the e commerce operator. Further, under the service tax laws, there is a concept of an aggregator under which service tax has to be paid by the aggregator, notwithstanding the fact that an aggregator is neither the provider nor the supplier of service. An aggregator is a person who owns and manages a web based application and enables a potential customer to connect with persons providing services of a particular kind under the brand name of the aggregator. Thus, for an e commerce company to qualify as an aggregator the services that providers of service provide though it should be under the brand name of e commerce company. For example- Cab Aggregators like Ola and Uber enable customers to book cabs through their applications and these services are provided under the brand name of the Ola and Uber and not of individual cab drivers. Therefore, Ola and Uber are aggregators under the service tax laws and service tax on such services of renting of motor vehicle shall be payable by Uber and Ola.
similarly, under GST, in case of intra state supplies of services, through an e commerce operator, the Government may notify such services, tax on which shall be payable by an e commerce operator. As against the current regime, the Act, as of now, does not provide any requirement for services to be provided under the brand name of the e commerce operator, to be eligible for payment of tax by an e commerce operator. It empowers to Government to notify any services, the intra state supplies of which shall be subject to payment of tax by the e commerce operator. It is pertinent to note that such power has been given only with respect to services and not goods. Therefore, tax will not be payable by the e commerce operator on supply of goods through its platform.
Further, apart from the services notified for payment of tax by the e commerce operator, any other supply of goods and services shall be subject to tax collection at source which is explained in detail below.
- Mechanism of Tax Collection at source
- As per the Act, every e commerce operator shall collect an amount not exceeding 1% on the net value of taxable supplies made through it, where the consideration is collected by the e commerce operator. The net value of taxable supplies shall be computed by deducting the sales returns made and the supply of services in respect of which tax is payable by an e commerce operator under reverse charge.
- It is pertinent to note that on such supplies, the supplier of goods and services must have charged CGST and SGST or IGST depending upon the nature of supply. Hence, the amount of tax collected by the e commerce operator has to be bifurcated into CGST, SGST and IGST. Where the supplier has charged IGST, the amount of tax collected shall be deposited by the e commerce operator under IGST. However, where CGST and SGST has been charged, the amount of tax collected has to be divided in the ratio of the rates of CGST and SGST and deposited accordingly.
- The amount of tax so collected during a month shall be paid by the e commerce operator by the 10th of next month and the same shall be eligible as credit to the supplier supplying goods or services through the e commerce operator.
- Filing of Returns
Apart from the monthly and annual returns, E Commerce operator will be required to file monthly TCS returns viz., an electronic statement, containing the details of supplies of goods and service made through it, the returns of such supplies, and the amount of tax collected during a month, in GSTR-8, within ten days after the end of the month. Further, an annual statement is also required to be filed containing similar details by the 31st December following the end of the financial year.
It is also pertinent to note that these returns shall be filed for every state in which the e commerce operator has taken registration, thus creating a huge compliance burden.
- Revision of Returns
If an e commerce operator notices any error or discrepancy in the monthly TCS returns furnished by him, the same can be rectified in the TCS return for the month in which such an error or discrepancy in noticed.
However, such a rectification for any of the returns furnished for a financial year can be done before filing the relevant annual return of furnishing the TCS return for the month of September of the next financial year, whichever is earlier.
While, under the current laws, any such error or discrepancy can be remedied only by revising the original return, that too, if the time limits permit; under GST, the return forms have specific table to incorporate any changes to the details furnished for any previous period.
- Matching of TCS returns with the returns of outward supplies furnished by the supplier of goods and services
- The TCS returns furnished by the e commerce operator in GSTR-8 shall be matched with the corresponding details of outward supplies furnished by the supplier of goods and services in GSTR-1.
- The discrepancy, if any, in this regard shall be communicated both to the supplier of goods and services as well as the e commerce operator.
- Such discrepancies which are communicated must be rectified in the respective return (GSTR-8 or GSTR-1) that is to be furnished by the supplier or the e commerce operator for the month in which the discrepancy is communicated. Where the same is not done, and value of outward supplies furnished by the supplier is less than the value of supplies furnished by the e commerce operator, tax in respect of such supply shall be added to the output tax liability of the supplier, for the month succeeding the month in which the discrepancy is communicated.
- The concerned supplier for whom output tax liability has been added such deposit such tax along with interest.
- These measures are likely to result in huge compliances and constant correspondence between the e commerce operator and the supplier of goods and services.
- Requisition of Information
Any authority, not below the rank of Deputy Commissioner, may serve a notice, either before or during any proceedings under the Act, requiring the e commerce operator to furnish details relating to:
- Supplies of both goods and services made by any supplier of goods and services through the e commerce platform, or
- Stock of goods held by the suppliers making supplies through the e commerce operator at the warehouses managed by such operators and which are declared as additional place of business by the supplier.
The information which is so requisitioned, must be furnished by the e commerce operator within 15 days, failing which a penalty which may extend upto 25,000 may be levied on the e commerce operator.
As a measure to check tax evasion by suppliers of goods and services who use e commerce platform, various provisions like tax collection at source and filing monthly and annual returns with respect to such tax collected have been introduced under GST.
The Input Tax credit facility for a supplier has been linked to the reflection of the TCS amount in the statement furnished by the E commerce operator. Any error at the end of operator or the supplier may result in discrepancies, and solving of the same may require continuous correspondence between the supplier and the E-Commerce operator, thereby increasing the tax compliance cost and administrative issues.
Further, there is also requirement for registration in each of the states they operate. The concept of centralized registration shall no longer be a savior and thus, such e commerce companies would be required to register themselves in each of the state where they have their presence. It is also pertinent to note that both the supplier of goods and services and the e commerce operator are not eligible to avail the threshold limit of INR 20 lakh and must get registered and pay GST on the very first rupee of supply. The purpose of such special treatment is best known to the policy makers.
While all the provisions are in place to check tax evasion, there is no difference in the compliances required for established E-Commerce operators like Flipkart and Amazon and new E-Commerce operators that are striving to make their mark.
Thus, compliances are expected to multiply and only time will tell whether such increased companies are rational and righteous and whether GST is a step towards a simpler tax regime or not.
(The author is a practicing Chartered Accountant based in Delhi and can be reached at email@example.com or 9811933762)
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