GST on the e-commerce segment as a whole has been a vexed issue in India, with tax laws often playing catch-up with newer technology-driven business models emerging from time to time. In the current GST framework, there are two specific ways in which e-commerce platforms have been thrust with compliance obligations for supplies of goods and services facilitated by them:
1. Through the tax collection at source (TCS) mechanism under Section 52 of the Central Goods and Services Tax Act, 2017 (CGST Act), wherein e-commerce platform operators are liable to collect an amount equivalent to 1 percent of the “net value of taxable supplies made through it by other suppliers where the consideration with respect to such supplies is to be collected by the operator.”
2. Under Section 9(5) of the CGST Act, for a few notified services (such as passenger transportation, food delivery etc.), it has been specified that GST shall be paid by the e-commerce platform operator if such services are supplied ‘through’ it, and GST laws will apply to such operators “as if he is the supplier liable for paying the tax in relation to the supply of such services”.
The concept of platform GST liability and emerging disputes
This concept of deemed GST liability on the e-commerce platform as if it is itself the supplier of the services facilitated by it (Platform GST liability), was also present under the pre-GST service tax laws.
However, with the increasing spread of e-commerce business models across India, especially in tier 1 and tier 2 cities, applicability of Platform GST liability has led to multiple disputes in the recent past.
The first set of debates has arisen regarding the determination of when a service can be said to have been provided ‘through’ an e-commerce platform: Is the collection of payment for the service from the end-user and its remittance to the actual service provider by the platform the key test to ascertain whether the filter of ‘through’ is met? Or is it a wider set of parameters, such as the degree of involvement in or dependence on the user interface of the e-commerce platform or app in the actual service delivery to the end-customer?
While the foregoing debate has mostly arisen in the passenger transport segment, especially given various contrary advance rulings under GST and the lack of clarification by the Central Board of Indirect Taxes and Customs (CBIC) despite repeated representations, this debate may manifest itself in other segments too, especially regarding various pared-down ‘subscription-based’ e-commerce lead-generation models being facilitated by the Open Network for Digital Commerce (“ONDC”) in contrast to the more traditional commission-based e-commerce models.
The Karnataka High Court recently intervened in the context of the above debate and instructed CBIC to clarify the position. CBIC has since referred this matter to the GST Council. It is expected that the GST Council will provide some guidance on this in its meeting scheduled for 21-22 December.
The second debate in this regard has been regarding the liability of ancillary services facilitated by e-commerce platforms or apps alongside the primary service provided by them.
Case Study: The food delivery sector
The most significant example of this second debate has been the recent much-publicised GST demands against prominent food delivery apps regarding the food delivery charges collected by these apps or platforms on behalf of their food delivery personnel who work as independent contractors for such apps or platforms, purely as a pass-through.
GST authorities have demanded 18 percent GST on such delivery charges, even though such delivery services are not provided by such apps or platforms themselves. Even under section 9(5) of the CGST Act, these apps and platforms are liable for Platform GST liability only with respect to “supply of restaurant service”. It is highly debatable whether the services of actual food delivery, which clearly are very different from the services actually provided by these apps or platforms, can automatically be included in the Platform GST liability of such food delivery apps.
There is no precedent where Platform GST liability has been extended even to a service that is not notified under Section 9(5) of the CGST Act – even if the app or the platform is facilitating such a service. It is important to understand that Platform GST liability is an exception considering GST is ordinarily payable only by the supplier of goods and/or services, and it is well-settled that exceptions must be interpreted very strictly, especially in tax laws.
Changes in law to be considered by the GST Council
What is ideally required is a broader policy decision from the GST Council regarding the levy of GST on e-commerce business models, rather than specific clarifications or exceptions for individual sectors.
Uniformity and certainty of the tax position will be critical for the stability of the burgeoning e-commerce businesses in India and will go a long way in bolstering investor confidence in this space.
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