E-commerce Operators and food supply

[Shilpi Jain]

CA Shilpi Jain

The confusion which the GST department has created with the taxability of the food supply services has now continued into the e-commerce sector. In these times, there is a vast share of revenue in the food sector coming from the food delivery by the e-commerce operators. With the increase in the number of outlets that are not compliant with the tax laws, the department thought it fit to shift the tax liability on the e-commerce operators, who are big players.

However, as per section 24 of the CGST Act, 2017 any person supplying through e-commerce operator where TCS provision as per section 52 of the CGST Act, 2017 is applicable, are required to be registered under GST and tax is payable for their supplies. Exception to this being service providers having aggregate turnover less than threshold limit (₹ 20lakhs/10lakhs) as per notification 65/2017 CT.

With the new provisions applicable from 1^st Jan ’22, the restaurant service (by restaurant at premises where declared tariff is not more than ₹ 7500 per day per unit of accommodation) through e-commerce operators (ECO) would be liable in the hands of the ECO under section 9(5) of the Act as per notification 17/2021 CT R, thereby undoing the above exception. In this regard, the following are aspects that need to be considered:

1. Paying tax by the ECO as per section 9(5) applies only in case of supply of services.

(5) The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it,……

Supply of food: In the present scheme of things under GST, there is a doubt whether the supply of food by way of home delivery is a supply of service at all. The department has treated it as a supply of service as per the circulars issued, which is not the law but only understanding of the department and binding on the department officers alone. This has been analysed in a couple of the paper writer’s articles at the links[1], as per which the delivery of food would be a supply of goods and not services.

If a view is taken that delivery of food is a supply of goods and not of service, then no GST liability vests with the ECO under section 9(5) of the Act. The persons supplying the food would be liable to pay GST.

However, if a conservative approach is taken of complying with what the department thinks is the law, then ECO will be liable for the supply of food by these specified restaurants.

Supply of ice-creams: Circular 164/2021 GST has considered the supply of ice creams by outlets who do not prepare their own ice-creams, as a supply of goods. Thereby, when these outlets supply ice cream through ECO, it would not be liable in the hands of ECO since section 9(5) is applicable only for supply of service through it (if the department view is considered lawful).

Now, what other food stuff will be given this kind of treatment? Which food stuff would be supply of goods and which will be regarded as supply of service? And who decides this, whether ECO or the actual supplier? This opens a Pandora’s box.

I would not suggest department to issue a circular to clarify this since such circulars open further points of confusion and dispute. These are issued without giving any legal backup of provisions or case laws.

So, it would be up to the restaurant or eating joint to decide whether it would treat it as a supply of goods or services, based on which the ECO’s liability would be decided. However, this would lead to risk for the ECO in respect of which demands can be issued by department in case of any non-compliance, since the ECO is treated as a supplier as per the provisions of section 9(5). So it is suggested that a reasoned decision be taken and also intimation be made to the department for the supply of foodstuff through ECO.

 

2. Whether ECO can use credit to pay the tax liability under section 9(5)?

ECO regarded a supplier

The ECO will be regarded as the supplier liable to pay tax for the transactions falling under this provision and all the provisions of the Act will accordingly apply.

(5) The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra-State supplies of 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 supplier liable for paying the tax in relation to the supply of such services.

‘Supplier’ is defined u/s 2(105) of the Act as the person supplying the goods or services. Thus, when section 9(5) regards the ECO as a supplier, then it is deemed that the ECO is supplying the services in respect of which he would now be liable to pay the tax.

This section 9(5) is different from the reverse charge u/s 9(3). Under this provision, the person liable to pay tax is the recipient and he does not enter the shoes of the supplier. He pays the tax as a recipient only.

ECO’s output tax

Once the ECO is regarded as the supplier of the service for the purpose of paying the tax, this tax will fall within the scope of output tax as defined u/s 2(82) of the Act.

“output tax” in relation to a taxable person, means the tax chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis;

Payment of output tax

As per section 49(4) of the Act, the electronic credit ledger can be used to pay output tax. As per section 49(3) electronic cash ledger is required to be used for payment of liability under reverse charge mechanism (RCM).

The liability under section 9(5) is not under RCM and thereby no requirement that it should be paid by cash ledger only. Further, since ECO is the supplier liable to pay tax, it would be regarded as his supply and be required to be reported in returns also as his supply. Thus, this tax would be in the nature of his output tax and the usage of the credit to pay this liability should be allowed.

However, the circular 167/2021 GST clarifies in para 6 that this liability has to be paid by ECO in cash only. This seems to be without any legal basis.

There could be other legal implications and practical challenges in implementing this new provision. However, these days it has become a trend that the provisions are forcefully made to be complied by trade before enactment. Once the trade gets used to, then provisions are introduced in the law to make it legal. So, seems like this could be the course adopted by the Government in this case as well.

The above are personal views of the paper writer and cannot be regarded as an advice. Do reach out at shilpijain@hiregange.com for any queries/feedback.

[1] https://hiregange.com/assets/articles/5d94e-supply-of-food_-what-is-the-service_oct-21.pdf