ecommerce gst and tax laws in india by prashant mali

ECOMMERCEGOODS &

SERVICE TAX ACT, 2016

Adv. Prashant Mali [MSc(Computer Science), LLB, LLM, Ph.D(Persu.)High Court Lawyer, Mumbai@CyberMahaGuru | Mobile : +91-9821763157Ecommerce & Legal Compliance PracticePr

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WHAT IS E-COMMERCE E-commerce means the trading or facilitation

of trading in products or services using computer networks, such as the Internet.

Typically, it is an electronic platform where one can list his/her goods and services and these products can be bought by customers as per their requirements and specification and additionally delivery is also mad to them at their doorstep.

It employs online shopping websites for retail sales, provides online marketplace for sellers, data interchange and marketing to prospective consumers through emails and newsletters.

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CHALLENGES FOR E-COMMERCE UNDER EXISTING LAW In India, we have origin based taxation

system, i.e. tax is attributable to a State from where goods have been originated causing loss to the consumption States where goods are actually consumed.

As a result of this, most of the States have started to impose an additional entry tax on e-commerce transactions causing increase in price of products.

Certain States have issued rules through State VAT Laws and required to obtain registration and pay tax accordingly.

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DEFINITION OF E-COMMERCE UNDER DRAFT GST LAW

Electronic commerce shall mean supply of goods and/or services, receipt of goods and/or services, transmitting of funds or data over an electronic network primarily the internet or using any application that rely on internet.

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MODE OF CONNECTION

Emails, instant messaging, Shopping carts, Web services, Universal Description Discovery and

Integration (UDDI), File Transfer Protocol (FTP), Electronic Data Interchange (EDI), etc.

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MODE OF PAYMENT

It can be online or through any other option like Cash On Delivery, Cheque etc.

Is Cyrptocurrency like Bitcoin included ?

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DELIVERY OF GOODS

It can be done by operator directly or by the supplier himself.

Most of the time delivery of goods is done by operator on behalf of supplier.

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E-COMMERCE PORTALS

1. Engaged in or facilitating buying and selling of goods.

www.prashantmali.com | Ecommerce & GST [ Indian Laws ]

2. Engaged in providing or facilitation of services.

http://www.prashantmali.com/

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1.1 E-COMMERCE PORTALS INVOLVED IN BUYING AND SELLING OF GOODS

ON THEIR OWN BEHALF Under this type of business model, E-

Commerce Portals buys the goods themselves, hosts the details of the goods on the portal and supplies it directly to the customers.

This model is known as direct selling and sale invoices are raised by the Portal and purchase invoices are also in the name of the E-Commerce Portals as they are engaged in buying and selling of goods on their own behalf.

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1.2 E-COMMERCE PORTALS PROVIDING MARKET PLACE FOR OTHER PERSONS

TO SALE THE GOODS Under this type of business model, portals allows

facilitating exchange between the buyers and the sellers. eg. Amazon, Flipkart, Snapdeal, Ebay, Craftsvilla, Pepperfry, etc.

The general modus operandi of operation of such E-Commerce Portals is that they allow sellers of the goods to upload their product details.

Prospective buyers select the products and place order with portals. The order details are then forwarded to the seller by E-Commerce portal and seller then sends the goods directly to the purchaser.

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CONT.…. Invoice towards supply of goods is

raised by the seller. However, payment of the goods is received by E-Commerce portal.

E-Commerce portal then raises the bill of service charges towards the seller and after deducting the amount due to them towards their service charges, remits the balance amount to seller of the goods.

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2.1 E-COMMERCE PORTAL INVOLVED IN SUPPLYING OF SERVICES ON THEIR OWN BEHALF

Under this type of business model, E-Commerce Portal hosts the details of services supplied by them on the web portal and supplies services to the customers on their own behalf.

This model is known as direct business model under this case invoice is raised by the Portal of the services supplied to the customer on his own behalf.

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2.2 E-COMMERCE PORTALS OPERATING AS MARKET PLACE UNDER THE BRAND

NAME / TRADE NAME Under this model, portals operate as a market place

where service providers are allowed to register themselves and prospective recipient of service visits the E-Commerce portal, places order with the E-Commerce portal.

Order details are then forwarded to service provider by the portal and he then supplies service to the service recipient on his own behalf but under the brand name or trade name of the said Market Place.

Invoice is also raised using the brand name or logo of the E-Commerce Portal.

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2.3 E-COMMERCE PORTALS OPERATING AS MARKET PLACE WITHOUT USING

THE BRAND NAME / TRADE NAME Under this business model, E-Commerce Portal

operate as a place where the service providers are allowed to upload their details and prospective recipient of service visit the web portal, select the service provider and places order with the web portal.

The details are then forwarded to the service provider by E-Commerce portal and service provider supplies service directly to service recipient without using the logo or under the brand name of the E-Commerce portal.

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CONT.…. Invoice to the service recipient is raised

by service provider without using the brand name of e-Commerce Portal. E-commerce portal charges service charges by raising its own bill.

The mode and time of collection of service charges and consideration towards the provision of service may be decided as per the terms of agreement.

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CONCEPT OF ‘AGGREGATORS’

Draft GST law has defined term aggregators which means any person who owns, manages and electronic platform and by means of some device connects the customers with providers of services of a particular kind under brand name and trade name of said aggregators.

Eg. radio taxis like OLA, UBER, and MERU

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REGISTRATION PROVISIONS UNDER DRAFT GST LAW FOR PERSONS ENGAGED IN E-COMMERCE

Schedule III of the draft GST Law provides that

a) Aggregator: A person classified as aggregator would be required to be registered under GST irrespective of the threshold limit.

b) Electronic Commerce Operator: Every electronic commerce operator would be required to be registered under GST irrespective of the threshold Limit.

c) Persons who supply goods and/or services, other than branded services, through electronic commerce operator: Persons who supply goods and/or services, other than branded services through electronic commerce operator, would be required to get themselves registered irrespective of the threshold limit.

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LIABILITY OF PAYMENT OF TAXES Section 9 of the Draft GST Law provides that

taxable Person means a person who carries on any business at any place in India /State of __ and who is registered or required to be registered under Schedule III of this Act.

Section 7(2) of the Draft GST Law provides that The CGST/SGST shall be paid by every taxable person in accordance with the provisions of this Act. Thus, every taxable person would be required to pay taxes in accordance with the provision of the law.

Any person once covered under any of the above three categories would be required to be registered under the law irrespective of the threshold limit and once required to be registered under the law, would be required to mandatorily pay taxes under the law.

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PLACE OF SUPPLY IN CASE OF B2C TRANSACTIONS

Under GST Law, identification of correct place of supply becomes critical as the payment of taxes whether IGST or CGST/SGST will depend on it.

Place of supply of goods by vendors to customers through logistics of e-commerce operators shall be the place where movement of goods terminates for delivery. This has come as great relief for suppliers of goods since place of supply would be easily identifiable.

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PLACE OF SUPPLY IN CASE OF B2B TRANSACTIONS

Place of supply of services from e-commerce operators to suppliers of goods and/or services shall be the location of recipient of services and this is applicable for all kinds of services being provided by operators to these suppliers.

This is again a welcome move both for supplier and recipient of services irrespective of which kind of services being provided like listing services, payment collection services, logistics services and so on.

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INPUT TAX CREDITS (ITC) UNDER THE PROPOSED GST REGIME

Under the existing regime of VAT and Service tax both operators and suppliers of goods suffers huge loss of Input Tax Credit.

The operators make investments in various assets on which VAT is charged whereas input tax on services received by vendors from operators is again nonadjustable.

The proposed law has allowed such cross offsetting of ITC for both operators as well as vendors which is good news for industry as a whole. Further availability of ITC will make industry more profitable and prosperous.

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COMPLIANCE TO BE FOLLOWED BY E-COMMERCE OPERATORS

Liable to collect TCS (Tax collected at Source) on the supplies of goods and/or services made by the supplier.

Responsible to file monthly and annual Returns.

Matching the details of returns with that of suppliers.

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IMPACT OF COMPLIANCE

Additional burden of collection of tax.

Though the rate of TCS would be kept at very low but still it is not desired as it will increase the compliance burden on e-commerce operators.

This will block the working capital of suppliers of goods & services.

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RECONSIDERATION

The provision of Tax Collected at Source, in case of narrow margins may invite situations of credit buildup in the books of suppliers and as a result, situation of refunds can also arise.

This provision of TCS might cause certain problems for operators as well as suppliers of goods and services hence require reconsideration.

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CASH ON DELIVERY, RETURNS AND CANCELLED ORDERS - ISSUES

E-commerce in India has a return or cancellation rate of about 15-18%.

More than 2/3rd of transactions in the country are on cash on delivery.

The cash reconciliation for e-commerce operators happens about 7-15 days later.

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IMPACTS ON CASH FLOWS

Deducting TCS would require e-commerce operators to bear the tax amount from their own capital and later seek refund from government in case of returns and cancellations.

E-commerce operators will have to plan their accounting and cash reconciliation cycles accordingly.

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IMPACT ON DISCOUNTS AND FREEBIES

Schedule I of draft GST law will bring certain transactions under ambit of supply. The popular sales strategy of “buy one get one free” will be taxable under GST.

This will adversely impact the business strategy of certain companies which are using this as promotional activity to increase the sales.

Actionable claims will also be taxable as supply of services at the time it is offered to customers and apprehensions cannot be ruled on taxability of recharge of cash wallets whether it is covered by term money or not.

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CONCLUSIONIt is a welcome law for e-commerce industry as the era of double taxation by State Govt. will no longer be continued. Due to the complexity and taxation burden some big e-commerce operators have started to discontinue delivery in certain States like U.P, Karnataka etc. Now the draft GST law has clearly drawn a line between compliances to be done by an e-commerce operator and its vendors who supply goods and services through their platforms. In totality Concept of TCS is one which needs very serious consideration and adequate representation to policy makers would be panacea to this issue.

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THANK YOU

ADVOCATE PRASHANT MALI [ MSc(Computer Science), LLM] Email: [email protected]

Web site: www.prashantmali.comContact Details: +91-9821763157

Point of Contact: Prashant Mali Law Offices

Advocate Sweety Tajane [ B.Com(Accounting & Finance), LLB] Ecommerce Tax & Legal Compliance

Tel: 022-25401515

www.prashantmali.com

ecommerce gst and tax laws in india by prashant mali

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