The coming GST law in India will have wide ranging impact on E-Commerce in India. This PPT analysis the problems of E commerce under present indirect tax regime as also impact of Model GST law

1. GST AND
ECOMMERCE
By: Ca Sanjay Gupta
Ph:9311025900
sanjay@sanjayramshanker.com
M/s Sanjay Ram Shanker &
Associates
Chartered Accountants
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3. ASSOCHAM REPORT ON E COMMERCE
IN INDIA
• E-commerce market in India will likely to touch $38 billion mark in 2016, a
huge 67 per cent jump over the $23 billion revenues for 2015, reveals the
ASSOCHAM latest paper.
The industry has witnessed an unprecedented growth of 52 per cent over
2015 and has emerged as one of the fastest growing sectors. “Increasing
internet and mobile penetration, growing acceptability of online payments
and favorable demographics has provided the e-commerce sector in India
the unique opportunity to companies connect with their customers”, adds
ASSOCHAM paper.
• India's e-commerce market was worth about $3.8 billion in 2009, it went
up to $17 billion in 2014 and to $23 billion in 2015 and is expected to
touch whopping $38 billion mark by 2016
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4. NASSCOM ON E COMMERCE
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5. E Commerce models under FDI
• E-commerce activities Sector FDI Cap Entry Route E-commerce activities 100%
Automatic
• 1 Subject to provisions of FDI Policy, e-commerce entities would engage only in
Business to Business (B2B) e-commerce and not in Business to Consumer (B2C) e-
commerce.
• Definitions: i) E-commerce- E-commerce means buying and selling of goods and
services including digital products over digital & electronic network
• ii) Inventory based model of e-commerce- Inventory based model of e-commerce
means an e-commerce activity where inventory of goods and services is owned by
e-commerce entity and is sold to the consumers directly.
• iii) Marketplace based model of e-commerce means providing of an information
technology platform by an e-commerce entity on a digital & electronic network to
act as a facilitator between buyer and seller.
E-commerce marketplace may provide support services to sellers in respect of
warehousing, logistics, order fulfillment, call centre, payment collection and other
services.
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6. Various models of E commerce in India
• Inventory based Model
• Market Place Model
• Aggregators-“aggregator” means a person, who
owns and manages a web based software
application, and by means of the application and
a communication device, enables a potential
customer to connect with persons providing
service of a particular kind under the brand name
or trade name of the aggregator;-like Ola,Uber
etc.
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7. Problems of E commerce under
current indirect tax regime -Entry Tax
& Multiple rate of taxes
• The Supreme Court, in a historic judgment of
Jindal Stainless Steel Ltd. vs Union of India
pronounced IN Nov,2016 has upheld the
validity of entry tax legislations.
• Multiple rate of tax exists across India in
various States for same products
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8. Problems-VAT
DUAL TAXATION:
Interstate sales are taxable in the state from
which goods commence their interstate
movement; however, states into which e-
commerce consignments are delivered often seek
to tax the sale citing conclusion of sale upon
delivery in their states. This issue is particularly
more convincing in cases of sale on approval
basis including cash on delivery sales (where the
customer accepts the consignment upon
payment at the stage of delivery of goods)
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9. AMAZON- KARNATAKA VAT ISSUE
• The term dealer is defined under Section 2(12) of the Karnataka Value Added Tax
Act, 2005 as under (relevant portions only):
• 'Dealer' means any person who carries on the business of buying, selling,
supplying or distributing goods, directly or otherwise, whether for cash or for
deferred payment, or for commission, remuneration or other valuable
consideration, and includes-
• (c) a commission agent, a broker or del credere agent or an auctioneer or any other
mercantile agent by whatever name called, who carries on the business of buying,
selling , supplying or distributing goods on behalf of any principal;
• Karnataka VAT authorities are of the view that in such cases, the e-commerce
companies are involved in supplying and distribution of goods and, therefore,
would qualify as ‘dealers’.. The authorities are also of the view that these
companies act as commission agents or consignment agents of sellers. Therefore,
these companies are covered under the definition of ‘dealers’ and, therefore, are
liable to discharge VAT
• Further, the authorities in Karnataka are insisting that e-commerce companies
register their premises / warehouse and undertake other compliances like
maintenance of statutory records and filing of returns.
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10. Problems-Discounts-Reporting
• Discounts and incentives are very common in e commerce model .State
Vat authorities demand Vat on full consideration without discount
• Taxation of new transaction types such as e-wallet, sale by trial,
redemption of e-vouchers, subvention of discount to name a
few. Absence of a specific direction on treatment of the above
transactions under Central and State tax legislations including differential
taxation of the same across States has led to diverse practice being
adopted by the e-commerce sector.
• Several States have made reporting mandatory by E commerce portals of
transactions executed through their portals. Like in Delhi
• In case any Indian citizen residing in UP decides to order any product
online, which costs Rs 5000, then he will be required to file a VAT
declaration, along with mentioning the vehicle number which brought in
the good from outside the state. Further registration as SPN required vide
Circular dt. 30-10-2015
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11. Advantages under GST regime
• Entry Tax subsumed in GST- Though as per FM
Local bodies/Municipal corporations may levy
some entry tax under their jurisdiction ?
• Common rate of Tax across India-One Nation One
Tax ?
• HSN code bring common classification of
goods/services . Thus reducing litigation
• Seamless flow of input credit -?
• One set of reporting and registration, compliance
requirements PAN India
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12. GST MODEL LAW AND E
COMMERCE
1.Chapter-1 Definitions
2.Chapter-III
3. Chapter-XIV
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13. DEFINITIONS UNDER MODEL GST LAW
• Chapter-1 Definitions
• 2(41) ‘electronic commerce’ means supply of
goods and/or services including digital products
over digital or electronic network;
( Same as provided in FDI policy)
•
• 2(42) ‘electronic commerce operator’ means any
person who owns, operates or manages digital or
electronic facility or platform for electronic
commerce;
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14. Chapter-III
8. Levy and Collection of Central/State Goods and
Services Tax -Sub Section (4)
• The Central or a State Government may, on the recommendation of the Council,
by notification, specify categories of services the tax on which shall be paid by
the electronic commerce operator if such services are supplied through it, and all
the provisions of this Act shall apply to such electronic commerce operator as if
he is the person liable for paying the tax in relation to the supply of such
services:
PROVIDED that where an electronic commerce operator does not have a physical
presence in the taxable territory, any person representing such electronic
commerce operator for any purpose in the taxable territory shall be liable to pay
tax:
PROVIDED FURTHER that where an electronic commerce operator does not have
a physical presence in the taxable territory and also he does not have a
representative in the said territory, such electronic commerce operator shall
appoint a person in the taxable territory for the purpose of paying tax and such
person shall be liable to pay tax
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15. Inventory based Model e commerce
• E Commerce entity is supplier of Goods/services.
• All normal provisions of Model GST ACT applicable regarding
registration, returns, Assessment etc.
• The definitions given in Sec 2(41) and 2(42) is comprehensive and
apparently covers this model under E commerce
• Sec.8. Levy and Collection of Central/State Goods and Services
Tax – Plain reading of this section says that the Online retailers who
supply goods/services on their own behalf/account are not covered
under the definition of electronic commerce operator.
They will fall under Sub section 1,2,and 3 and therefore the process
of tax collection at source and other requisite compliances provided
in Chapter-XIV shall not be applicable.
NEED FOR CLARRIFICATION FROM GOVERNMENT/ COUNCIL-
otherwise again interpretation issues will arise
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16. Discounts –Sec.15 Value of Taxable
Supply
• Sub Section (3) The value of the supply shall not include any discount that
is given:
• (a) before or at the time of the supply provided such discount has been
duly recorded in the invoice issued in respect of such supply; and
• (b) after the supply has been effected, provided that:
(i) such discount is established in terms of an agreement entered
into at or before the time of such supply and specifically linked
to relevant invoices; and
(ii) input tax credit has been reversed by the recipient of the
supply as is attributable to the discount on the basis of document
issued by the supplier
Similar Provisions under DVAT and source of litigation
Apparently post sales incentives & discounts under GST may remain teasing
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17. Chapter XIV –Sec.56-Electronic
commerce- Collection of Tax at source
• (1) Notwithstanding anything to the contrary contained in the Act, every electronic commerce operator
(hereinafter referred to in this section as the “operator”), not being an agent, shall collect an amount calculated at
the rate of one percent of the net value of taxable supplies made through it where the consideration with
respect to such supplies is to be collected by the operator.
Explanation.- For the purposes of this sub-section, the expression "net value of taxable supplies" shall mean the
aggregate value of taxable supplies of goods or services, other than services notified under sub-section (4) of
section 8, made during any month by all registered taxable persons through the operator reduced
by the aggregate value of taxable supplies returned to the suppliers during the said month.
NOTES:
A non-obstante clause is usually used in a provision to indicate that the provision should prevail despite anything to the
contrary
Sec 2(5) :agent” means a person, including a factor, broker, commission agent, arhatia, del credere agent, an
auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or
receipt of goods or services on behalf of another, whether disclosed or not;
Sec- 128. Liability of agent and principal Where an agent supplies or receives any taxable goods on behalf of his
principal, such agent and his principal shall be jointly and severally liable to pay the tax payable on such goods
under the Act
Notified services under Sec 8 (4) excluded
Registered Taxable persons covered- NON Registered not required to collect TCS
No threshold limit of amount of supply as in Sec.46 Tax deducted at Source Rs.5 lakh
CASES where consideration is not collected by the operator NOT covered under Sec.56 apparently services like OLA.,
UBER are covered u/s 8(4)
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18. Sec.56 cont.
• (2) The power to collect the amount specified in sub-section (1)
shall be without prejudice to any other mode of recovery from
the operator. The amount collected under sub-section (1) shall be
paid to the account of the appropriate Government by the operator
within ten days after the end of the month in which such collection
is made in the manner as may be prescribed.
(3) Every operator who collects the amount specified in sub-section (1)
shall 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 under sub-section (1) during a month, in such
form and manner as may be prescribed, within ten days after the
end of such month.
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19. Sec.56 Cont.
• (4) The supplier who has supplied the goods or services
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 the manner prescribed.
• (5) The details of supplies furnished by every operator
under sub-section (4), shall, in the manner and within the
period prescribed, be matched with the corresponding
details of outward supplies furnished by the concerned
supplier registered under the Act.
NOTES:
• Drafting error –under sub section (3) not (4)
• Only the amount reflected in statement available as credit
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20. Sec.56 contd
• (6) Where the details of outward supplies furnished by the operator under
subsection (4) do not match with the corresponding details furnished by
the supplier under section 32, the discrepancy shall be communicated to
both persons in the manner and within the time as may be prescribed.
• (7) The amount in respect of which any discrepancy is communicated
under subsection (7) and which is not rectified by the supplier in his valid
return or the operator in his statement for the month in which
discrepancy is communicated, shall be added to the output tax liability of
the said supplier, where the value of outward supplies furnished by the
operator is more than the value of outward supplies furnished by the
supplier, in the manner as may be prescribed, in his return for the month
succeeding the month in which the discrepancy is communicated.
NOTES
Sub section 4 & 7 looks to be drafting error
Sec.32- Furnishing details of outward supplies
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21. Sec 56 cont.
• (8) The concerned supplier shall, in whose output tax liability any amount has been added under
sub-section (8), be liable to pay the tax payable in respect of such supply along with interest, at the
rate specified under sub-section (1) of section 45 on the amount so added from the date such tax
was due till the date of its payment.
(9) Any authority not below the rank of Joint Commissioner may serve a notice, either before or
during the course of any proceeding under this Act, requiring the operator to furnish such details
relating to—
(a) supplies of goods or services effected through such operator during any period, or
(b) stock of goods held by the suppliers making supplies through such operator in the godowns or
warehouses, by whatever name called, managed by such operators and declared as additional
places of business by such suppliers - as may be specified in the notice.
NOTES:
Drafting error sub section 8
Sec.45- Interest on delayed payment of tax
Sec.56 (9) (b)- recognizes fulfillment centre model and additional place of business of
supplier
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22. Sec 56 contd.
• (10) Every operator on whom a notice has been served
under sub-section (10) shall furnish the required
information within fifteen working days of the date of
service of such notice.
• (11) Any person who fails to furnish the information
required by the notice served under sub-section (10) shall,
without prejudice to any action that is or may be taken
under section 85 , be liable to a penalty which may extend
to twenty-five thousand rupees.
• Explanation.— For the purposes of this section, the
expression ‘concerned supplier’ shall mean the supplier of
goods and/or services making supplies through the
operator.
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23. Stock Transfers- Taxed under Model
GST Law
• Under the Model GST Law Intra-state and inter-state stock
transfers, between branches or warehouses of a single e-commerce
entity, would be deemed to be supplies, subject to GST.
• Though the tax paid would be available as credit to the entity, this
may result in cash flow blockages. Example, where large quantities
of goods are stock transferred even from one godown to another
godown tax liability would arise at this first stage which can only be
offset at the time of final supplies by the e-commerce entity.
• NOTES
Relevant both for Inventory based model as well Market place model.
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24. Analysis
• Sec.56 (9) (b)- recognizes fulfillment centre model and additional
place of business of supplier- (Amazon-Karnataka case )
• Electronic operator not to file returns under Chapter-III Returns –
Sec.32,33,34
“ Every registered taxable person, other than an input service
distributor, a nonresident taxable person and a person paying tax
under the provisions of section 9, section 46 or section 56, shall
furnish…..”
Sec.32. Furnishing details of outward supplies
Sec.33. Furnishing details of inward supplies
Sec. 34. Returns
.Statewise inward route permit may be past under GST. However
introduction of forms like DS-2 to be filed by the supplier can not be
ruled out
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25. Analysis cont.
• Schedule-V PERSONS LIABLE TO BE REGISTERED
Sec.6 Notwithstanding anything contained in paragraph 1 and 3 above, the
following categories of persons shall be required to be registered under
this Act:
(vii) persons who are required to collect tax under 56, whether or not
separately registered under the Act;
* E Commerce operator required to registered under the ACT even if it does
not cross threshold limit of registration.
*Required to charge GST on the services provided by it whenever crosses the
threshold limit and file its return and pay taxes as per normal provision of
GST
*Fulfillment centres/ godowns should be carefully planned to avoid any
issues under GST.
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26. A BIG THANK YOU TO ALL OF YOU.
• Queries/ suggestions are welcome
• By: Ca.Sanjay Gupta, Ph: 9311025900
M/s Sanjay Ram Shanker & Associates
Chartered Accountants
4799/2,Ram Bazar, Cloth Market,Delhi-110006
Email: sanjay@sanjayramshanker.com
Website: wwww.sanjayramshanker.com
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