E-COMMERCE TRANSACTIONS AND GST

The dynamic nature of E-Commerce makes very difficult to provide any standard definition for E Commerce, it can usefully be defined as “the use of computer networks to facilitate transactions involving the production, distribution, and sale and delivery of goods and services in the marketplace.”

India currently does not have specific tax law provisions in place to regulate the e-commerce industry. As a result, we have seen a lot disputes in past two-three years, mainly in Karnataka and Kerala.

Different Models of e-commerce business

The e-commerce businesses are broadly operating in India under two different models, market place model and fulfillment center model.

Market place model: Under this model, the role of the e-commerce company is only to link the manufacturers/retailers/sellers with customers through its platform. The responsibility to store the merchandise and the delivery of the merchandise would be with the merchants through their service providers.

Fulfillment center model:  Under this model the godowns would be identified by the e-commerce company where the vendors would store the goods and this place would also be identified as an additional place of business in the registration certificate of the respective vendors. The customer would place the order through the website and the goods would be dispatched by the e-commerce company from its godown.

Tax implications on e-commerce transitions in present scenario

In so far as the billing is concerned, apparently the e-commerce company would raise the invoice in the seller’s name. The payment would be collected through the payment gateway and after deducting the commission the sale proceeds would be credited to the seller’s account along with VAT. The responsibilities to comply the VAT payment and other compliance casted on the Seller under an agreement entered between Seller and e-commerce Company.

Where an e-commerce company follows the market place model on a strict interpretation there should not be any issue since the role of the company is only to bring the seller and the buyer together through its technology platform. The consideration for this activity is in the nature of a service and would attract service tax. In fact, in the case of Ashish Ahuja Vs. Snapdeal.com, the Competition Commission of India vide its Order dated 19.05.2014 has observed that Snapdeal is not engaged in the purchase or sale of storage devices rather it owns and manages a web portal that enables those sellers who stock storage devices to sell such devices through its web portal for a commission.

Where an e-commerce company follows the second model namely fulfillment model which involves the establishment of a warehouse / godown; receiving the goods of the sellers; stocking the same; facilitating the sale of the same and raising an invoice on behalf of the vendor, there would still not be any VAT leviable on the Company as the Company does not transfer any property in goods. However, the VAT authorities are likely to take a different view and the matter would spin into litigation.

At present, the e-commerce companies delivered foods from one state to consumers across the country and pay only CST on interstate transactions. Certain states like Karnataka have tried to bring the margins earned by the e-commerce company in to VAT. Also some states like Kerala have tried to conclude that when sales are made n sale on approval basis, the sale are concluded in the state and have tried to levy VAT on the same treating the said transaction as a local sale in the state.

Goods and Services Tax

GST is a unified consumption tax, which will be subject to a numbers of general principles. One of the principles is that it operates on a territorial basis. Another principle is that it must be neutral or in other words, the business has not to bear GST as a cost.

In B2B transactions, where the consumer is entitled to input tax credit, GST cannot be regarded as an item of expenditure. The GST payable by the supply receiver of goods or services will invariably be paid by the ultimate consumers, while GST paid previously will be allowed to set-off with GST recovered from the ultimate consumers  and GST to the extend not recovered from the ultimate consumers be refunded.

Place of Supply in the case of e-commerce

As part of GST roll out, the Revenue Department will prepare Place of Supply' rules that will comprehensively cover taxation of e-commerce, an official said.

These rules will be important as the Goods and Services Tax will be destination based and levied at the point of delivery. They will help determine the location of supply of goods or services as also whether the supply is intra-state or inter-state.

The Report of the Task Force on Goods and Services Tax Thirteenth Finance Commission recommended that, while the rules and approaches vary across countries, the basic criteria for determining the place of taxation (or place of supply) in the case of services pertaining to e-commerce is as follows:-

In the case of mobile services (that is, passenger travel services, freight transportation services, telecommunication services, motor vehicles lease/rentals and E-commerce supplies), there is no fixed place of performance or use/enjoyment of the service. Therefore special rules need to be framed keeping in mind the basic destination principle.

Therefore it is onus of legislature to frame rules pertaining to tax e-commerce should be framed separately, for place or time of supply etc. which will remove all disputes and difficulties.

Models of Operations of E-Commerce Companies: -

The comparative study of e-commerce under present and GST frame works of taxation as below:

Model- 1: E-Commerce companies are owner of the goods and sell goods as their own goods:

In this model, E-Commerce companies are owner of the goods and sell goods as their own goods after receiving of booking/order on its e-portal; and, generally, own and store goods even before receiving of customer’s order.

Model- 2: When the vendors sell their goods first to e-commerce company and the company sell it to ultimate consumers. 

Under this model, after receiving of online order, the e-commerce company informs the seller about such order. The seller, thereafter, makes first sale of goods to the e-commerce company, who, in turn, raises invoice on the customer. Payment from the customer is received by the E-Commerce company, who after retaining its profit margin, remits the purchase price to the seller.

Model- 3: E-Commerce company acts as a facilitator/booking agent between the sellers and the buyers: 

The E-Commerce company acts as a facilitator/booking agent between the sellers and the buyers, and does not have any controls over the goods. Once, the buyer makes order online, the E-Commerce company passes the order to the seller. The supplier, thereafter, using its own logistics, supplies the goods to the customer and raises the invoice. If the payment is received by the E-Commerce company, it, after retaining its commission, remits the balance amount to the seller. On the other hand, if payment is received by the supplier (cash on delivery), it remits the amount of commission to the E-Commerce company.

• Model- 4:the supplier stores its products in one of the warehouses provided by E-Commerce company with a view to reduce the delivery time and quality assurance.

Under this model, the supplier stores its products in one of the warehouses provided by E-Commerce company with a view to reduce the delivery time and quality assurance. Goods to the customers are dispatched by the E- Com. Company; however, invoice is raised in the name of supplier. Payment is also received by the E-Commerce company, who after retaining its commission, remits the remaining amount to the supplier. Warehouses of the e- commerce company is shown as additional place of business of the supplier.

Conclusion

Looking at the intricacies involved in the taxation of sale of goods under various models of e-commerce, it is necessary that a regulation proposed to be framed under GST to look into the various issues relating thereto. For the time being, E-commerce companies have to be very vigilant while drafting of agreement between vendors and tax burden must be casted on the vendors.