Advocate Sanjiv M. Shah has studied the law relating to the levy of GST on online retailers like Amazon, Flipkart etc and its consequences for customers. He has explained all the nuances of the law in the context of the statutory provisions, notifications and also the FAQs issued by the CBEC
Electronic Commerce Operator – GST
Essential Principles
1) Ordinarily, tax legislation is founded to impose tax on an event which triggers the fundamental charge. Accordingly, Section 9 read with Section 7 of Central Goods and Services Tax, 2017 [CGST] and corresponding sections of State Goods and Service Tax, 2017 [SGST]/Integrated Goods and Service Tax, 2017 [IGST] respectively, as the case may be, mandate that there shall be levied a tax called the central goods and service tax on all intra state supplies of goods or services or both………………………………….. and collected in such manner as may be prescribed and shall be paid by the taxable person. Therefore, it follows that basic charge of the tax is always on the supplier of goods/services or both, but manner of collecting said tax can be tweaked by legislature for convenient, easy and efficient realisation of taxes so as to mitigate burden on the implementing machinery.
In other words, instead of gathering the tax from the “supplier” who is primarily chargeable, law makers can as a measure of rationalisation mobilise tax from the recipient of supplies or any other person involved in the chain to seal collection at the first available and earliest opportunity so that tax collector does not have to chase the ultimate “supplier” who as such may be inaccessible/untraceable to revenue by virtue of the remote and complex logistics of goods/service distribution/rendition in the rigmarole of digital transactions. In this connection, reverse charge mechanism is a classic example of shifting collection of tax from who, in law, is the supplier to a person who receives such supplies. It must be remembered that what is transposed is the collection not the rudimentary levy which continues to remain on the supplier and cannot be altered but by legislation, whereas collection can be drifted by a non-legislative change. If the shift of collection is withdrawn, supplier would again be accountable for payment of tax. Such a reverse mechanism of collection is inevitable to plug revenue leakage and evasion as also commercially expedient and a business exigency to somehow bring marginal, small and other unorganised sector into the mainstream tax system. One variation of such a system is termed as “Base Erosion and Profit Shifting [BEPS]” coned by The Organization for Economic Co-operation and Development (OECD) and embraced through an equalisation levy introduced under Income-tax Act, 1961 vide Chapter VIII of Finance Act, 2016 encompassing Sections 163 to 180 thereof.
2) Notwithstanding recipients/middlemen may not be root cause of occurrence of the taxable event interdicted in Section 9 of CGST, they have to comply with all obligations, functions, responsibilities and duties that are in law prescribed for a supplier, for example, Section 24 posits compulsory registration in certain cases including persons who are required to pay tax under reverse charge or every electronic commerce operator. Therefore, in this context, the electronic commerce operator has to register irrespective of whether he satisfies elementary conditions of registration or not, in other words, mandatory registration albeit his turnover may be below prescribed threshold limit. In my opinion, such a need for adjustment of collection machinery is more pronounced and warranted in case of e-commerce market in order to exercise control and regulate digital mode of conducting transactions.
Statutory Provisions of cgst in relation to Electronic Commerce Operator
3) Section 2(45) of CGST sets out that "Electronic Commerce Operator" as any person who owns, operates or manages digital or electronic facility or platform for electronic commerce. Moreover, "electronic commerce" is elaborated as the supply of goods or services or both including digital products over digital or electronic network. However, an online retailer who possesses his own self-contained paraphernalia in form of digital platform is not, in my opinion, an electronic commerce operator.
4) In addition, Section 52 contemplates that notwithstanding anything to the contrary contained in this Act [CGST], every electronic commerce operator not being an agent shall collect an amount calculated at such rate not exceeding 1% as may be notified by the Government on the recommendations of the Council of the net value of the taxable supplies made by it through it by other suppliers where the consideration with respect to such supplies is to be collected by the operator. Tax is to be collected only on the net value of the taxable supplies and hence no tax is to be collected on value of goods returned in conformity with Explanation to sub-section (1) of Section 52 of CGST. Thus electronic commerce operator is a masterly example of bending the collection machinery to garner revenue from the earliest possible source saving time and cost. Aforesaid way of stockpiling revenue is justified because in electronic commerce spread across the globe through web and other media, it is virtually impossible to ascertain where the transaction conducted on such a platform jurisdictionally in terms of physical territory took place/belongs due to lack of identification of a specific and particularized area in cyberspace. Furthermore, it is practically difficult if not impossible to apply the governing parameters as to what constitutes "supply" vis-a-vis concept of intra state and inter-state transactions and hence to tap potential revenue loss it is incumbent to engraft such a medium of collection. It must be remembered that invocation of various tests of “supply” even to regular, routine and normal transactions is not an easy task by any standard and no less challenging in terms of interpretative process as also linking of such consequential proposed construction with connected sections, rules and statutes in the same breath and concurrent and simultaneous mental flow of thoughts more particularly, in the light of the fact that concept of “supply” is evolving, wide ranging and sweeping. Thus to avoid disputious and palpably several simultaneous, convincing, plausible and logical theories from armour of seasoned tax lawyers; a pragmatic step is adopted by Parliament to put a quietus to these thorny issues without much heartburn on either side by imposing a token tax on most active fulcrum in the whole chain of digital link being electronic commerce operator. Stage is now opportune and best to deal with the specific provisions of electronic commerce.
5) Section 52 is inapplicable where electronic commerce operator is not an agent inasmuch as where he is already an agent such an arrangement is treated as a deemed supply by virtue of Entry No 3 of Schedule 1 to CGST. In such a hierarchy, large electronic commerce operator acts as an agent for the seller stocking products of latter in their warehouses from where, on receipt of the order on website, goods are packed and transported to online buyer. In such cases consideration is received by the electronic commerce operator which is remitted to the seller after deducting actual costs and commission. Section 52 covers the most common case where platform of an electronic commerce operator is employed as a liaison point by the seller to hunt for buyers who after the order is placed on website which is notified to former is delivered goods directly by the seller without any further connection with electronic commerce operator except getting his consideration minus commission due to such operator.
6) Section 52(2) further provides that authority to collect tax at source is without prejudice to any other mode of recovery from the operator. Sub-section (3) mentions that tax collected at source shall be paid within 10 days from the end of the month in which such collection is made in such manner as may be prescribed. Every operator who collects tax collected at source shall furnish statement electronically containing the details of outward supplies of goods or services or both effected through it including supplies of goods or services or both returned through it and the amount collected as tax collected at source during a month in such form and manner as may be prescribed within 10 days after the end of the month [sub-section (4) of Section 52]. Section 52(5) postulates that every operator who collects tax at source shall furnish an annual statement electronically containing the details of outward supplies of goods or services or both effected through it including supplies of goods or services or both returned through it and the amount collected as tax collected at source during the financial year in such form and manner as may be prescribed before 31st December 2010 following the end of such financial year. Sub-section (6) avers that statement filed under sub-section (4) may be rectified if operator discovers any omission or incorrect particulars therein other than as a result of scrutiny, audit, inspection or enforcement activity by tax authorities, but not after due date for furnishing of statement for the month of September following the end of the financial year or actual date of furnishing the annual statement, whichever is earlier.
7) Section 52(7) declares that every supplier who has supplied the goods or services or both through the operator shall claim credit in his electronic cash ledger of the amount collected and reflected in the statement of the operator furnished under sub-section (4) in such manner as may be prescribed. Sub-section (8) of Section 52 stipulates that details of outward supplies furnished by every operator do not match with the corresponding details furnished by the supplier under Section 37, the discrepancy shall be communicated to both persons in such manner and within such time as may be prescribed. Sub-section (10) read with sub-section (11) of Section 52 says that if the value of outward supplies reported by operator exceed the same furnished by supplier then unless rectified either by the operator or supplier the same shall be added to the output tax liability of supplier for the month succeeding the one in which discrepancy was communicated which the supplier shall pay with interest.
8) Sub-section (12) of Section 52 lays down any authority not below the rank of Deputy Commissioner may serve a notice either before or during the course of any proceeding under CGST Act requiring the operator to furnish such details relating to supplies of goods or services or both effected through such operator during any such period or stock of goods held by the suppliers making supplies through such operator in the go-downs or warehouses by whatever name called managed by such operator and declared as additional places of business by such suppliers as may be specified in the notice. Every operator to whom such notice has been served shall furnish such information within 15 working days of the date of service of such notice.
Note of scattered provisions by way of notifications, etc., and recent developments
9) Present article will be seen to have not dispensed justice if delegated legislation and news on this topic is not considered. These are listed as under:
a) Press note dated 26-6-2017, in a temporary reprieve, postponed operation of tax collection at source vide Section 52 of CGST/SGST to a later date to be communicated in future to enable inter alia electronic commerce operator to prepare for historic tax reform and with the object to ensure smooth roll out of GST and take into account feedback from trade and industry concerned with those sections. It is further provided that registration by electronic commerce operator is compulsory, but liability to collect tax will arise from date the section is brought into force. Moreover, registration of persons supplying goods or services or both through electronic commerce operator vide Section 24(ix) of CGST/SGST except those supplies falling under Section 9(5) thereof is also postponed till the provision of tax collection at source is brought into force.
b) Notification No. 14/2017 dated 28-6-2017 issued under Section 5 of IGST postulates that services by way of transportation of passengers by a radio taxi, motor cab, maxicab and motor cycle and services by way of providing accommodation in hotels, inns, guest houses, campsites or other commercial places meant for residential or lodging purposes… …shall be paid by the electronic commerce operator. Similar but a separate identically numbered Notification No. 17/2017 dated 28-6-2017 covers UTGST and CGST respectively.
c) Frequently answered questions issued by Central Board of Excise and Customs, 2nd Edition, on 31st March 2017 [EXHIBIT A TO THIS ARTICLE].
EXHIBIT A TO ARTICLE
FAQs – Electronic Commerce
Q 1. What is Electronic Commerce?
Ans. Electronic Commerce has been defined to mean the supply of goods or services or both, including digital products over digital or electronic network.
Q 2. Who is an e-commerce operator?
Ans. Electronic Commerce Operator has been defined to mean any person who owns, operates or manages digital or electronic facility or platform for electronic commerce.
Q 3. Is it mandatory for e-commerce operator to obtain registration?
Ans. Yes. The benefit of threshold exemption is not available to e-commerce operators and they would be liable to be registered irrespective of the value of supply made by them.
Q 4. Whether a supplier of goods or services supplying through e-commerce operator would be entitled to threshold exemption?
Ans. No. The threshold exemption is not available to such suppliers and they would be liable to be registered irrespective of the value of supply made by them. This requirement, however, is applicable only if the supply is made through such electronic commerce operator who is required to collect tax at source.
Q 5. Will an e-commerce operator be liable to pay tax in respect of supply of goods or services made through it, instead of actual supplier?
Ans. Yes, but only in case of certain notified services. In such cases tax shall be paid by the electronic commerce operator if such services are supplied through it and all the provisions of the Act shall apply to such electronic commerce operator as if he is the person liable to pay tax in relation to supply of such services.
Q 6. Will threshold exemption be available to electronic commerce operators liable to pay tax on notified services?
Ans. No. Threshold exemption is not available to e-commerce operator who are require to pay tax on notified services provided through them.
Q 7. What is Tax Collection at Source (TCS)?
Ans. The e-commerce operator is required to collect an amount calculated at the rate not exceeding one per cent of the net value of taxable supplies made through it, where the consideration with respect to such supplies is to be collected by such operator. The amount so collected is called as Tax Collection at Source (TCS).
Q 8. It is very common that customers of e-commerce companies return goods. How these returns are going to be adjusted?
Ans. An e-commerce company is required to collect tax only on the net value of taxable supplies. In other words, value of the supplies which are returned are adjusted in the aggregate value of taxable supplies.
Q 9. What is meant by “net value of taxable supplies”?
Ans. The “net value of taxable supplies” means the aggregate value of taxable supplies of goods or services or both, other than the services on which entire tax is payable by the e-commerce operator, made during any month by all registered persons through such operator reduced by the aggregate value of taxable supplies returned to the suppliers during the said month.
Q 10. Is every e-commerce operator required to collect tax on behalf of actual supplier?
Ans. Yes, every e-commerce operator is required to collect tax where consideration with respect to the supply is being collected by the e-commerce operator.
Q 11. At what time should the e-commerce operator make such collection?
Ans. The e-commerce operator should make the collection during the month in which supply was made.
Q 12. What is the time within which such TCS is to be remitted by the e-commerce operator to Government account?
Ans. The amount collected by the operator is to be paid to appropriate Government within 10 days after the end of the month in which amount was so collected.
Q 13. How can actual suppliers claim credit of this TCS?
Ans. The amount of TCS deposited by the operator with the appropriate government will be reflected in the cash ledger of the actual registered supplier (on whose account such collection has been made) on the basis of the statement filed by the operator. The same can be used at the time of discharge of tax liability in respect of the supplies by the actual supplier.
Q 14. Is the e-commerce operator required to submit any statement? What are the details that are required to be submitted in the statement?
Ans. Yes, every operator is required to furnish a statement, electronically, containing the details of outward supplies of goods or services effected through it, including the supplies of goods or services returned through it, and the amount collected by it as TCS during a month within ten days after the end of such month. The operator is also required to file an annual statement by 31st day of December following the end
of the financial year in which the tax was collected.
Q 15. What is the concept of matching in e-commerce provisions and how it is going to work?
Ans. The details of supplies and the amount collected during a calendar month, and furnished by every operator in his statement will be matched with the corresponding details of outward supplies furnished by the concerned supplier in his valid return for the same calendar month or any preceding calendar month. Where the details of outward supply, on which the tax has been collected, as declared by the operator in his statement do not match with the corresponding details declared by the supplier the discrepancy shall be communicated to both persons.
Q 16. What will happen if the details remain mismatched?
Ans. The value of a supply relating to any payment in respect of which any discrepancy is communicated and which is not rectified by the supplier in his valid return for the month in which discrepancy is communicated shall be added to the output liability of the said supplier, for the calendar month succeeding the calendar month in which the discrepancy is communicated. The concerned supplier shall, in whose output tax liability any amount has been added shall be liable to pay the tax payable in respect of such supply along with interest on the amount so added from the date such tax was due till the date of its payment.
Q 17. Are there any additional powers to tax officers available?
Ans. Any authority not below the rank of Deputy Commissioner may issue a notice to the electronic operator to furnish specified details within a period of 15 working days from the date of service of such notice.
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