Goods and Services Tax Imperatives for E-Commerce

A cashless economy, and thereby, e-commerce, is considered a beacon of hope for a better tomorrow

‘Digital India’-driven start-ups have been touted as the next

driving force for the Indian economy, by the Government of

India on several occasions. During the recent demonetization

drive, the role of the digital economy for eradication of

black money and corruption was frequently stressed upon.

This strongly indicates as to how the cashless economy,

and thereby, electronic commerce is considered as a beacon

of hope for a better tomorrow by the Government, and

accordingly, influences the policy and legislative decisions.

In India, increased Internet penetration through availability

of smartphones and data network has led to a new world of

opportunities for start-ups through e-commerce. According

to NASSCOM’s latest estimates, India’s e-commerce market

is estimated to be USD 33 billion in the financial year 2017.

For the financial year 2016-17, e-commerce sales reached

USD 16 billion with a projection of a sevenfold growth

within the next two fiscals as estimated by Morgan Stanley.

By 2020, online commerce sales are expected to cross USD

120 billion mark. The number of consumers who purchase

goods and services online is expected to cross 100 million

by 2017 end with the e-retail market likely jumping 65% on

y-o-y in 2018.

The rise of electronic commerce in India has resulted in

conception of online marketplaces among other things.

Online marketplace is an e-commerce platform owned by

the e-commerce operator such as Snapdeal, Myntra, and

Amazon etc., where vendors of any scale can sell directly to

the end consumers. Thus, electronic commerce opened new

avenues for small-to-medium vendors to sell their goods to

a larger base of consumers at a much lower cost.

The bright performance of electronic commerce sector made

it imperative for the taxman to focus on plugging any tax

leakages and to provide a level-playing field to offline

retailers.

E-commerce in India has witnessed a sudden boom since

the late 90s with the advent of Internet, technology, and

entrepreneurship. Accordingly, keeping in sync with the

technology and to reduce corruption and red-tapism, the

legislature moved to implement GST which is completely

premised on information technology and has a futuristic

approach with a focus on minimum human intervention and

maximum efficiency. GST aims to usher an era of broader

based indirect tax with organized business structure.

The new indirect tax regime has an inbuilt incentive for

compliance abidance, for example, GST regime has the

provision of ‘GST Compliance

Rating’ which will add value to

the business of the honest tax

payer.

GST in Principle

In the GST regime, all of indirect

taxes are subsumed and tax is

levied on ‘supply’ of goods and/

or services. GST is a destinationbased

consumption tax as

opposed to erstwhile origin-based

tax like Central Excise.

India has adopted a dual GST

model wherein both Centre

and States have simultaneous

power to levy GST on ‘supply’.

Intra-state supply is subject to

Integrated GST (IGST), whereas

inter-state supplies are subject to

both Central GST (CGST) and State

GST (SGST) or Union Territory GST (UTGST). However, rate

of GST for a particular ‘supply’ is same, be it interstate or

intrastate.

For implementation of GST, the Central and State

Governments along with private entities have jointly

registered Goods and Service Tax Network (GSTN) to provide

IT infrastructure services to Central and State Governments,

taxpayers, and other stakeholders. GSTN is responsible to

build and operationalize the GST system.

Taxability of E-Commerce

Taxability of the e-commerce transaction differs from

other trade transactions. Generally, in such transactions,

though the impression is that the e-commerce operator is

the provider of goods/services, the actual provider of goods/

services are third-party vendors. Now these vendors may

either belong to the organized or unorganized sector and

may operate at different scales. Accordingly, taxability

of this bunch is challenging, wherein the legislature is

required to apply intelligible differentiators so as to achieve

substantive equality.

Further to this objective, GST has special provisions with

respect to e-commerce operators and vendors selling through

them, such as, special category of return in Form GSTR-8,

mandatory registration, tax collection at source from the

vendors, tax payment on behalf of vendors in certain case

of supplies notified under Section 9(5) of the Central Goods

and Services Tax Act, 2017 (CGST Act), among others.

GST: Special Provisions for E-Commerce

Mandatory Registration for E-commerce Operators and

their Vendors: Under the GST regime, a specific threshold

limit of aggregate turnover is prescribed for registration,

i.e., INR 20 lakhs in general and INR 10 lakhs for specified

States. However, the threshold limit is not applicable in

case of e-commerce operators.

Further, even the sellers who

supply goods and/or services

through an e-commerce operator

are required to get registered

under GST, irrespective of the

threshold limit. However, there

are two exceptions whereby

suppliers selling through

e-commerce operators may

avail threshold exemption:

(a) where e-commerce operators

are liable to pay tax on behalf of

the suppliers, or

(b) if the supply is made through

such e-commerce operator that

is required to collect TCS.

GST provides for state-specific

registration, and therefore,

all e-commerce operators will

have to register in each state

from where it is making a taxable supply of goods and/or

services.

Tax Collection at Source (TCS): The e-commerce operator is

required to collect an amount at the rate of one percent (0.5%

CGST + 0.5% SGST) of the net value of taxable supplies

made through it, where the consideration is collected by

such operator. The amount so collected is called as TCS.

TCS is required to be deducted in each state and deposited

accordingly. This brings in significant compliance challenges

to sellers and may discourage sales through online portals.

The key purpose of this particular provision is to encourage

compliances under GST and provide a mechanism for the

Government to track suppliers who sell through e-commerce

operators.

No benefit of composition scheme: Sellers who are supplying

goods and/or services through an e-commerce operator are

not allowed to opt for composition scheme under the GST

regime.

Matching Concept and Increase in Compliances: The

e-commerce operator is required to report all supplies made

by the seller and the TCS collected on a monthly basis. TCS

collected by the e-commerce operator from the vendors can

be set-off against the overall GST liability of such vendors.

The sales reported by the e-commerce operator will have to

match with the sales declared by the supplier himself at the

end of every month, and difference, if any, will be added to

the turnover of the supplier and consequently be liable to

discharge GST on such additional turnover.

Efficiency of elaborate GST provisions depends upon the

efficacy of GSTN, more so for the e-commerce sector as “the

Internet economy does not pit the big against the small. It’s

about the swift against the slow”. However, undertaking

compliances on GSTN has not been a smooth walk in the

first 75 days of GST implementation.

GSTN Challenges

Under the GST regime, much like e-commerce sector, revenue

and disclosures are dependent upon efficient functioning of

GSTN. GSTN is also part of the Digital India scheme of the

Government of India to boost technology-driven growth and

reduce corruption.

GSTN in its initial face has faced much criticism from

certain quarters for errors in filling returns and uploading

of information. On September 12, 2017, a Group of

Ministers (GoM) was constituted to monitor and resolve

the IT challenges faced in the implementation of GST.

GSTN crashed on September 4 and September 9, owing to

unforeseen data/invoices uploads. Infosys, the blackened

service provider of GSTN, blamed one unnamed large bank

that uploaded a massive number of invoices in a way the

system was not designed to accept.

Government has been frequently extending the deadline

for submission of returns, acknowledging the technical

glitches faced by the taxpayers in the wake of new system.

In Summary

The economic leverage hoped by taxpayers in the long run

is keeping them optimistic about the new regime. The large

corporate houses have more or less equipped themselves to

be GST ready and small taxpayers are coping up.

Digital India is the most celebrated agenda of the

Government of India; however, it has ended up in creation

of additional trade barriers for e-commerce operators under

GST. In this regard, it is yet to be seen whether GST is able

to keep harmonious balance between offline and online

vendors including e-commerce operators and help them to

achieve organized and all-inclusive growth.

The onus to discharge GST has shifted to the e-commerce

operator and they are faced with the difficulties of

classification of supply and disclosures. Further, increased

cost of compliance in each state is a huge deterrent for

small scale e-commerce operators.

All these issues pertaining to GST implementation are

being brushed aside as teething problems by

the optimist and criticized by the skeptics.

Nevertheless, GST is now and here for good,

so the best recourse is to accept, learn,

move on and make the most of it.

GST and e-commerce trade both have

the potential to disrupt the market in

the most positive way, given that

the attitude of the stakeholders

is towards acceptance and

adaptability.

Disclaimer – The views expressed herein

are strictly personal to the author(s) and

should not to be construed as a legal

opinion. The author(s) is not responsible

or liable for any loss or damage caused to

anyone due to any interpretation, error,

omission pertaining to this article.