GST & E-invoicing Implication On E-commerce

GST & E-invoicing Implication On E-commerce

Electronic Commerce or E-commerce is a business transaction wherein the selling and purchasing happen over an electronic platform or the internet. The explosion of E-commerce in the 21st century has changed the way of life. Thus, it is imperative to understand the implications of taxation on the E-commerce industry. This article aims to cover the taxability of E-commerce transactions under GST regime.

LIST OF TOPICS COVERED:

Background & Definition

  • Section 2(44) of the CGST Act, 2017 defines ‘electronic commerce’ as the supply of goods or services or both, including digital products over digital or electronic networks.
  • Section 2(45) of the CGST Act, 2017 defines ‘electronic commerce operator’ as any person who owns, operates or manages digital or electronic facility or platform for electronic commerce.
  • Electronic commerce is a relatively newer concept. With the advent of GST, the law and regulations have taken the e-commerce sector under its ambit completely. Considering the outreach of E-commerce in the country, the sector is one of the key contributors to the tax revenue.
  • In the case of the supply of goods, there are two most prevalent E-commerce models in India:

·         In case of supply of services, the most prevalent E-commerce models in India are:

  • The above are common categories, there could other categories also in this domain.

Registration Provisions For Electronic Commerce Operator (Section 24)

  • An Electronic Commerce Operator (ECO) must abide by specific registration provisions as given in the law.
  • The application form for applying for GST registration is Form REG-07. Part A of the form shall indicate the name of the State where TCS is required to be collected but he does not have a physical presence and Part B of the form will indicate the name of the State of his principal place of business. The proper office would grant a registration certificate in Form REG-06 within three working days of submission of application.
  • An ECO must get registered in every state where his suppliers are located. However, he may fix his head office (HO) and file all returns from his HO if he doesn’t want to register in all states.
  • An ECO who is required to collect tax at source u/s 52 of the Act cannot be registered as a composition dealer u/s 10 of the Act.
  • The registration can be canceled after notice, inquiry, and hearing. The cancellation shall be communicated to the said person electronically in form GST REG-08.

Additional Place Of Business

  • In the E-commerce sector, it is common for multiple sellers to have a common place of business such as a common warehouse where sellers store their goods. In such cases, the Government has allowed multiple sellers to get registered at the same premises provided they have requisite documents for use of such place of business viz. agreement of rent, ownership documents, etc. There is no restriction on the same place being used as a place of business for multiple sellers. However, the registered person shall have to comply with the requirements of maintaining records as per section 35 of the CGST Act, 2017, and Rules 56 to 58 of the CGST Rules, 2017.
  • An ECO must get registered in every state where his suppliers are located. However, for compliance purposes, he may fix his head office (HO) and file all returns from his HO.

Reverse Charge Mechanism (RCM) - Applicability (Section 9(5) of the Act & Section 5(5) of IGST Act, 2017

  • In respect of specified services, an ECO is liable to discharge tax on behalf of the service suppliers if such services are supplied through it and all the provisions of the Act shall apply to such ECO as if he is the supplier liable to pay tax in relation to the supply of such services. The Government has notified the following categories of services, the tax on intra-State/ inter-state supplies shall be paid by the ECO –

Sr. No.

Description of supply of Service

Supplier of service

Person Liable to Pay GST

Notification No.

1

Transportation of passengers by a radio-taxi, motorcab, maxi cab, and motorcycleAny personE-commerce operator

Notification No. 17/2017-Central Tax (Rate) dt 28th June, 2017 Corresponding IGST

Notification No. 14/2017-Integrated Tax (Rate) dt 28th June, 2017

2

Providing accommodation in hotels, inns, guest houses, clubs, campsites, or other commercial places meant for residential or lodging purposesAny person except who is liable for registration under subsection (1) of section 22 of the said CGST ActE-commerce operatorsame as above

3

Services by way of housekeeping, such as plumbing, carpentering, etc.Any person except who is liable for registration under subsection (1) of section 22 of the said CGST ActE-commerce operator

Inserted vide Notification No. 23/2017-Central Tax(Rate) dated 22nd Aug, 2017

Corresponding Notification No. 23/2017-Integrated Tax (Rate) dated 22nd Aug, 2017

  • The suppliers have been made exempt from mandatory registration if they are supplying services through ECO and can avail of the benefit of the threshold limit.
  • If the ECO does not have a presence in the state where services are being provided, then the person representing such ECO shall be liable to pay tax. If there is no representative of the ECO, then the ECO shall appoint a representative for the purpose of paying tax, in that state.

Provisions Of Place Of Supply In Case Of E-commerce Operator

GST is a destination-based tax i.e. the place of the recipient is the place of supply in general circumstances. Therefore, the state where the goods are being consumed has a right to collect GST. The same could be an inter-state sale i.e. where the recipient and supplier are in different states or intra-state sales i.e. where supplier and recipient are in the same state. Depending upon the type of sale, IGST/ SGST+CGST is levied.

Supply

Place of supply

Billing and shipping address are the same Place of supply will be the place where goods are delivered.
Billing and shipping address are different The location of the buyer will be considered as the place of supply and point of taxation as well. (billing address)
  • Sales return is a very common phenomenon in the E-commerce space. As per a study, about 15-20% goods sold are returned or replaced in the E-commerce sector.
  • An ECO is required to collect Tax at Source only on the net value of taxable supplies. For computing the net value of taxable supplies, the value of sales return is deducted from the gross sales.
  • However, sometimes the ECO face challenges due to time lag between the sales made and the sales return. The time lag leads to working capital crunch and distorted compliances. The ECO must maintain a close watch and reduce the sales return from the gross sales to arrive at the net value of taxable supplies. Subsequently, the tax collected at source is also adjusted. The ITC, if availed must be reversed. The GST returns are filed accordingly.
  • The ECO 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 with respect to such supplies is to be collected by such operator. The rate is notified by the CBIC in Notification no. 52/2018 under CGST Act and 02/2018 under IGST Act. The amount so collected is called as Tax Collection at Source.
  • The ECO should make the collection during the month in which the consideration amount is collected from the recipient. The amount collected by the operator is to be paid to the government within 10 days after the end of the month in which the amount was so collected. (Refer to Section 52(3) of the CGST Act, 2017).
  • The amount of TCS paid by the operator to the government will be reflected in the GSTR-2 of the actual registered supplier (on whose account such collection has been made) based on the statement filed by the operator. The same can be availed as a credit at the time of discharge of tax liability in respect of the supplies made by the actual supplier. (Refer to Section 52(7) of the CGST Act, 2017).
  • In cases where someone is selling their own products through a website, there is no requirement to collect tax at source as per the provisions of this Section. These transactions will be liable to GST at the prevailing rates.
  • In cases where someone is buying goods from vendors and selling on their website, there are two transactions – where you purchase the goods from the vendors, and where you sell it through your website. For the first transaction, GST is leviable and will need to be paid to your vendor, on which credit is available for you. The second transaction is a supply on your own account, and not by other suppliers and there is no requirement to collect tax at source. The transaction will attract GST at the prevailing rates.
  • Exceptions to collecting TCS for ECO:
TCS applicability on E-commerce operator
  • Computation of net taxable supplies for TCS liability:
The total value of taxable supplies of goods and/or services (other than notified services under GST law by all registered persons) Less: Taxable supplies returned to the suppliers through the e-commerce operator = Net value of taxable supplies
  • The sellers/aggregators who sell goods through ECO shall register themselves under GST. There are several returns to be filed under GST for ECO and suppliers thereof.
  • Unlike regular businesses, there is no threshold exemption for e-commerce suppliers and operators.
  • These e-commerce entities come under the GST compliance irrespective of the value of supply and hence are required to file GST return online.
  • GST return form includes the details such as purchases, sales, output GST and Input Tax Credit (ITC) which are to be submitted on a monthly, quarterly, or annual basis.
  • E-commerce suppliers/aggregators are required to file Form GSTR-1 and GSTR 3B monthly and GSTR-9 is to be filed annually.
  • ECO is required to file their GST return in form GSTR 8 on monthly basis.
  • GSTR-1 is a monthly return filed for outward supplies; GSTR 3B is a consolidated return filed for input and output and payment of tax.
  • GSTR 8 is one of the most important forms which needs to be taken utmost care for an ECO. GSTR 8 is a statement that must be filed by e-commerce operators every month. It must contain the details of supplies made to customers through the taxpayer’s e-commerce portal by both registered taxable persons and unregistered persons, customers’ basic information, the amount of tax collected at source (to be counted at 1%), tax payable, and tax paid. The monthly due date for GSTR 8 would be the 10th of the following month.
  • All the taxpayers registered under GST including E-commerce sellers and operators are required to file their annual return in Form GSTR 9. GSTR-9 consists of details about the supplies made and received during the year under different tax heads i.e., CGST, SGST, and IGST. It consolidates the information furnished in the monthly/quarterly returns during the particular year.

Return/Form

Details

Frequency

Due Date

GSTR – 1

Outward sales by the seller

Monthly

10th of next month

GSTR – 3B

GST Monthly return along with the payment of tax

Monthly

20th of next month

GSTR – 8

GST Return for E-commerce Operator

Monthly

10th of next month

GSTR – 9

GST Annual Return

Yearly

31st Dec of next financial year

  • The Government has permitted an ECO to report the invoices raised by them on behalf of the suppliers to the Invoice Registration Portal (IRP) provided the suppliers are otherwise notified persons and supposed to report invoices under Rule 48(4). Therefore, an ECO can upload his own invoices and invoices on behalf of his suppliers also. Similarly, an ECO can cancel his own invoices and invoices generated by him on behalf of the suppliers. The point to be noted here is that the supplier’s invoices generated by ECO can be canceled by the ECO and not otherwise. Thus, an ECO will have access to all the Invoice Registration Numbers (IRN) generated by him.
  • In the FAQ’s the Government has laid down the following:
The e-invoicing system identifies the e-Commerce operators based on the taxpayer type in the GST registration details. The taxpayer has the type as ‘TCS’ will be enabled for reporting invoices on the e-invoicing system as an e-Commerce Operator. However, it is important to note that E-commerce transactions can be reported by the E-commerce operators with the “EcmGstin” attribute as their GSTINs. This means, that apart from specifying the Seller GSTIN in the payload, it is mandatory to specify the ECO GSTIN in the “EcmGstin” attribute of the schema by ECO when he logs in using his user credentials. E-Invoice APIs available for ECO
  1. Generate IRN (for self or on behalf of suppliers)
  2. Cancel IRN (applicable to only for those IRNs, generated by ECO
  3. Generate E-Waybill
  4. Cancel E-waybill (applicable to only for those IRNs generated by ECO)
  5. Get IRN (applicable to only for those IRNs, generated by ECO
Scope of Access to IRNs generated by e-Commerce operator and Supplier
Accessible to e-Commerce operator Supplier
IRNs generated by the e-Commerce operator

Yes

Yes

IRNs generated by Supplier

No

Yes

IRNs cancelled by the e-Commerce operator

Yes

Yes

IRNs cancelled by Supplier

No

Yes

Generation of EWB for IRN generated by e- Com. operator

Yes

Yes

Generation of EWB for IRN generated by Supplier

Yes

Yes

Process for integrating on the Sandbox system The following procedure has to be followed by the ECO to integrate their ERP systems to the sandbox system of IRP.
  • The Registration module in the sandbox system has an option ‘ECO’
  • The ECO may select this option and enter the GSTIN of type ‘TCS’ and get registered in the sandbox portal, by authenticating with OTP sent to the GSTIN registered mobile.
  • API credentials such as Client-Id, Client-Secret, User-name, and Password may be generated.
  • On logging into the sandbox tool, there is no need to add the GSTINs.
  • The payload to generate the IRN may be prepared and tested in the sandbox tool.
  • As already mentioned, the payload shall contain the Seller GSTIN, Buyer GSTIN and also the e-Commerce GSTIN along-with other details.
  • All other validations and schema and procedure mentioned in the sandbox portal may be followed.
  • While using the ‘Cancel IRN’,’ Generate EWB by IRN’, Cancel EWB’, ‘Get IRN’, send the ‘Supplier GSTIN’ in addition to other parameters.
Process for integrating on the Production system The following procedure may be followed by the e-Commerce operators to integrate their ERP systems to the production system of IRP.
  • The TCS registered taxpayer will need to do login registration in the Invoice registration portal (https://einvoice1.gst.gov.in). If already registered, the taxpayer can log in to the Invoice registration portal.
  • Select the API registration.
  • Submit the application for whitelisting the IPs along with the summary test report. Up to 4, Indian Static IPs are allowed.
  • On submission of the application, the network team will scrutinize and whitelist the IPs.
  • API credentials such as Client-Id, Client-Secret, User-name, and Password may be generated.
  • Create the username and password for the other PAN related GSTINs by selecting the above GSTIN.
  • Use the above credentials, the payload to generate the IRN, may be prepared and IRN may be generated.
  • As already mentioned, the payload will contain the Seller GSTIN, Buyer GSTIN, and the e-Commerce GSTIN along with other details
  • Some relevant advance ruling pronouncements in relation to E-Commerce have been summarised below:

Sr. No.

Case law details Brief facts & ruling

1

Opta Cabs Pvt. Ltd. [2018 (100) taxmann 250 (AAAR-Kar)] The appellant operates a taxi aggregation service on its App and Website. Passenger transport service is directly provided by a taxi driver to customers and the appellant is not engaged in providing any type of direct supply to the customers. The amount is billed by the appellant on behalf of taxi drivers for services provided by them to the customers. Customers can directly pay the charges to the taxi driver either in cash or through in the E-wallet of the driver. Appellant collects monthly usage charges from taxi drivers for providing an electronic platform and does not charge any amount directly from customers. These charges are irrespective of the trips made or income earned by taxi drivers. Appellant does not charge any trip commission from taxi drivers. The appellant deposits GST on such charges monthly. The appellate authority of Advance Ruling held that when transportation of passenger service is provided by the taxi drivers by using a software application, the e-commerce operator is liable to pay GST even if payment is not directly received by the e-commerce operator.

2

Humble Mobile Solutions P. Ltd [TS-834-AAR-2019-NT] The applicant doesn’t provide drivers to consumers; only facilitates the provision of service and collects service charge for use of electronic commerce platform. Drivers are independent service providers and customers can choose drivers. Thus, the transaction is a Principal to Principal transaction where applicant is only a facilitator. Karnataka AAR held that applicant is not liable to pay tax for the supply of services by drivers to customers; but is liable to pay tax on services provided by applicant to drivers such as listing on the platform, payment collection, etc. The applicant is also liable to collect TCS u/s 52 on the net value of taxable supplies. The AAR noted that the drivers are not supplying services in their vehicles but are driving vehicles belonging to the recipient of services and thus, are not providing “services of transportation of passengers by a radio-taxi, motorcar, maxi cab, and motorcycle” but are providing manpower services namely “driving a motor vehicle service” which is not covered any services listed under Notification No. 17/2017-CTR. Therefore, AAR held that the services provided by the drivers are not covered under Notification No. 17/2017-CTR and hence, not covered under section 9(5) of the CGST Act and thus, the applicant is not liable to pay GST on services provided by the drivers.

3

Mr. Sadashiv Anajee Shete [GST-ARA-32/2018-19/B-131] The applicant was not registered under GST and was engaged in the business of assisting believers, followers, and devotees to book pundits/ Brahmins online for their religious ceremonies like pujas, abhisheks, etc. The said service was being provided through the applicant’s own website in exchange for consideration. The applicant is only a facilitator between pundits and customers. The applicant receives consideration online, deducts his commission from the amount, and remits the remaining amount to the independent pundits for their service. The Maharashtra AAR held that the service of puja etc. is exempt under GST. The commission portion is received to the applicant out of total consideration received online from the service recipient. As per the provisions of law, the commission received is the supply of service the same would liable for GST. The Applicant would be liable to pay GST on the value of commission received from website users, not the total amount received.

Sr. No.

Reference and date Relevant text

1

28/2018 dated 1 April 2018 When accommodation services are provided by hotels, inns guest houses or other commercial places meant for residential or lodging purposes through E-Commerce operators, registration under GST is not required if their turnover per annum is below Rs. 20 lakhs (Rs. 10 lakhs in special category states).

2

74/2018 dated 5 November 2018 Tea board of India is the e-commerce operator collecting TCS at the notified rate from (a) sellers on the net value of goods supplied and (b) auctioneers on the net value of supply (i.e. brokerage). Further clarification is given for this.

3

76/2018 dated 31 December 2018 Certain specific issues related to various provisions such as TDS, TCS, Penalty, and supply by Government has been clarified.
Sr. No.

 FAQ

Answers

1

Is it mandatory for an e-commerce operator to obtain registration? Yes. As per Section 24(x) of the CGST Act, 2017 the benefit of threshold exemption is not available to e-commerce operators and they are liable to be registered irrespective of the value of supply made by them.

2

Whether a person supplying goods or services through an e-commerce operator would be entitled to threshold exemption? No. Section 24(ix) of the CGST Act, 2017 lays down that the threshold exemption is not available to such persons and they would be liable to be registered irrespective of the value of supply made by them. This requirement is, however, applicable only if the supply is made through such an electronic commerce operator who is required to collect tax at source under section 52 of the CGST Act, 2017. However, where the e-commerce operators are liable to pay tax on behalf of the suppliers under a notification issued under section 9 (5) of the CGST Act, 2017, the suppliers of such services are entitled to threshold exemption.

3

Will an e-commerce operator be liable to pay tax in respect of the supply of goods or services made through it, instead of the actual supplier? Yes, but only in case of services notified under Sec. 9(5) of the CGST Act, 2017. In such cases tax shall be paid by the electronic commerce operator if such services are supplied through it and all the provisions of the Act shall apply to such electronic commerce operator as if he is the supplier liable to pay tax in relation to the supply of such services. A similar provision for inter-State supply is provided for in Sec. 5(5) of the IGST Act, 2017. (Refer to Notification No. 17/2017- Central Tax (Rate) and 14/2017- Integrated Tax (Rate) dated 28.06.2017)

4

Will threshold exemption be available to electronic commerce operators liable to pay tax on notified services? No. Threshold exemption is not available to e-commerce operators who are required to pay tax on notified services supplied through them.

5

There are cases in which the ECO does not provide an invoicing solution to the seller. In such cases, the invoice is generated by the seller and received by the buyer without ECO getting to know about it. The payment flows through the ECO. In such cases, on what value is TCS to be collected? Can TCS be collected on the entire value of the transaction? Section 52(1) of the CGST Act, 2017 mandates that TCS is to be collected on the net taxable value of such supplies in respect of which the ECO collects the consideration. The amount collected should be duly reported in GSTR-8 and remitted to the Government. Any such amount collected will be available to the concerned supplier as a credit in his electronic cash ledger.

6

There are sellers who are selling exempted or zero-tax goods like books through ECOs. Will marketplaces be required to collect TCS on such supplies? As per Section 52(1) of the CGST Act, 2017 TCS is to be collected on “the net value of taxable supplies” made through an ECO. When the supply itself is not taxable, the question of TCS does not arise.

7

Is every e-commerce operator required to collect tax on behalf of the actual supplier? Yes, every e-commerce operator (other than an operator required to pay tax under section 9(5) of the CGST Act, 2017) is required to collect tax where the consideration with respect to a taxable supply is collected by such e-commerce operator. (Refer to Section 52(1) of the CGST Act, 2017).

8

Do travel agents providing services through digital or electronic platforms qualify as ECOs? Will they be required to collect tax at source as per the provisions of Section 52 of the GST Act? Online travel agents providing services through the digital or electronic platforms will fall under the category of ECOs liable to deduct TCS under Section 52 of the CGST Act, 2017.

9

There are transactions in which two or more ECOs are involved. In such cases who would deduct the TCS? In such cases, each transaction needs to be treated separately and examined according to the provisions of Section 52 of the CGST Act, 2017. The TCS will be deducted accordingly
*These FAQs are not exhaustive. For a complete list, www.cbic.gov.in can be visited.

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