Introduction: E-Commerce Business is growing very rapidly in India. It now occupies third position in the world after China and US. The E-Commerce has provided retailers with additional channel of sales and reach which was unimaginable for an offline seller. While the number of sellers and their business have increased significantly, GST has specifically taken up new line of business and has come out with rules & regulations specific to this segment
Now, let us understand some sections under GST which will be helpful for the discussion on the E-Commerce under GST
2. Definitions:
Section-2(44)
E-Commerce: Means the supply of goods and services or both, including digital products over digital or electronic network.
Section-2(45)
Electronic commerce operator (ECO): Means any person who
- Owns,
- Operates or
- Manages
Digital or electronic facility or platform for E-Commerce
3. General business structure of E-commerce
The customer places an order with the e-commerce operator, the purchase request is pushed to the supplier. The goods are then delivered from the supplier’s location to the customer. The consideration for the supply is made by the customer to the e-commerce operator who transfers the same to the supplier after deducting its commission.
4. Earlier GST structure on E-commerce:
Section 9(5) of CGST Act - 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.
The following services are covered under sec-9(5):
- Passenger Transportation
- Accommodation
- House-Keeping
5. Amendment to the earlier GST structure in E-Commerce:
Notification 16/2021-CT(R) dated 18.11.2021, effective from 1st January 2022:
Amending original notification 12/2017-CT(R) dated 28.06.2017 w.r.t services exemptions:
- Passenger transportation services through non-airconditioned carriages, metered cabs or auto-rickshaws (including e-rickshaws) would not be exempt when such services are provided through an e-commerce operator which is notified under Section 9(5).
Notification 17/2021-CT(R) dated 18.11.2021, effective from 1st January 2022:
Amending original notification 17/2017-CT(R) dated 28.06.2017.
- Extends liability of passenger transport services to include omnibus and any other motor vehicle. (Cab, taxi and motor cycle were already included
- Adds restaurant services, other than services supplied by restaurants having accommodation services above ₹ 7,500/unit/day.
6. Intention of govt for implication of these amendments:
The main intention behind the decision to tax the e-commerce companies like Swiggy and Zomato has apparently been taken by the GST Council to address the issue of under-reporting of turnover by some restaurants.
While this will ease the monitoring of revenue for the government, it will also lead to the supplies by smaller restaurants operating below ₹ 20 lakh threshold limit becoming taxable.
Finance ministry officials said, in a briefing after the council meeting, that the move is an effort to curb GST evasion by a primary supplier such as a restaurant.
7. Amendments: The following is the briefing of various circulars and notifications issued by the GST council in order to tax the e-commerce companies:
|
Sl. No
|
Type of service
|
GST applicability
|
|
1
|
Transportation service by ola auto-rikshaw
|
Taxable in the hands of ECO
|
|
2
|
Auto-rickshaw not registered with e-commerce operator
|
Remains exempted
|
|
3
|
Air-conditioned/ non air-conditioned mode of transport booked via ecommerce operators
|
Whether AC or Non-AC taxable in the hands of ECO
|
|
4
|
Buses
|
If Non-AC, remains exempted
|
|
5
|
Air-conditioend bus
|
If AC, remains taxable in the hands of supplier
|
|
6
|
Food delivery apps
|
Whether vendor is registered or un-registered, taxable in the hands of ECO
|
|
7
|
Restaurants
|
If un-Registered vendor, remains exempted
|
|
8
|
Restaurants
|
If registered vendor, remains supplier liability
|
Note: Tax rate – 5% without ITC in both passenger transport and restaurant services.
8. Issues or clarifications required in new GST amendments in
E-Commerce:
- Whether a restaurant/canteen/mess/food joint having only takeaway/food delivery option and no dine-in, will be considered as restaurant services or supply of goods? -Similar to this can cloud kitchen also be covered under restaurant service?
- Whether ECO would be liable to reverse ITC on common credits used for restaurant services and other taxable services supplied by them from 1st Jan ‘22?
- As ECO are required to pay GST @5% on restaurant services provided through it as per Sl. No. 7 of Notification No. 11/2017-Central Tax (rate). As per explanation (iv) of said notification, where tax @5% is paid on restaurant services then there is a requirement to reverse the common ITC proportionately.
- Circular 167/2021 clarifies that ECO need not reverse the proportionate ITC for paying tax @5% on restaurant services.
- As per Sec. 9(5), ECO is made liable to pay tax on certain supplies made through it. ECO will not become the actual supplier of such services and hence the conditions/restrictions applicable to the actual supplier cannot be made applicable to ECO.
- Further, it can be said that reversal is not required by ECO as long as ECO is not availing ITC on any restaurant related services.
- Circular No. 167/23/2021 requires ECO to pay GST @5% on restaurant services mandatorily in cash. Is it valid?
- As per Sec.__, Input tax credit can be utilized for payment of output tax only. Circular No. 167/23/2021, mandating the ECO to discharge the liability in cash also clarifies that ECO can treat the restaurant services as output service and disclose it accordingly in GSTR 3B return.
- On one hand circular clarifying it to be outward supply and on the other hand mandating the liability to be paid in cash is not justifiable.
- Furthermore, Circulars are mere understanding of the provision and are not binding in the court of law. Supreme Court decision in case of COMMISSIONER OF CENTRAL EXCISE, BOLPUR VERSUS M/S RATAN MELTING & WIRE INDUSTRIES [2008 (10) TMI 5 - SUPREME COURT] favoured this view.
- Much more clarity is required on this aspect. Also, the clarification given to treat the same as outward supply in returns is also not having any basis in GST Act. For time being, based on the above analysis, it can be said that the circular cannot mandate the liability payment in cash.
- Whether the ECO services (i.e., convenience fee) and transportation charges can be treated as composite supply of passenger transportation service and be taxed together at the rate of 5%?
- As per Sec. 9(5) ECO is made liable only for payment of tax as a supplier and all the other provisions under GST as applicable to the supplier does not apply to him. Also, the fact that transportation services are not provided by ECO and are provided through ECO will play a role to determine that the convenience charges levied by ECO cannot be said to be composite supply of transportation services supplied by various persons.
- Another school of thought could be that convenience charges levied by ECO and transportation charges cannot be separated, they are naturally bundled and the customer on the electronic platform has no other option but to opt for the same. Also, the clarification given by the circular that it can be treated as outward supply. It can be argued that the same to be treated as supply of composite supply and the entire bundle to be taxed at 5%.
- Categorically it can be said that as the supply is naturally bundled and the service on electronic platform cannot be separated it can be treated as composite supply.
- As the taxes are going to increase the price of auto-rickshaws then there may be case that cab and auto comes under same price range - So people prefer cab rather than auto’s then there may be impact on auto industry.
- Whether Same services can be differently be taxed i.e., Exempt and taxable?
- If we take a road hailing auto service - then it remains exempted,
- but if we book the auto through ola or uber then it is taxable. Can the same service be differently taxed? Does service through an ECO change the very nature of the underlying services?
- If exemption itself not removed, and the reason behind granting exemption remains same, does it not contradict?
AYURVEDA PHARMACY AND ANOTHER VERSUS STATE OF TAMIL NADU [1989 (3) TMI 187 - SUPREME COURT]
UNION OF INDIA VERSUS PALIWAL ELECTRICALS (P) LTD. [1996 (3) TMI 131 - SUPREME COURT]
On the basis of 2 main reasons,
- Regulating the economy and for serving social objectives.
- Article 29 – Protection of Interest of Minorities
UNION OF INDIA VERSUS JALYAN UDYOG [1993 (9) TMI 108 - SUPREME COURT]
SIDDHARTH SURYANARAYAN VERSUS UNION OF INDIA SECRETARY MINISTRY OF FINANCE DEPARTMENT OF REVENUE AND OTHERS [2015 (3) TMI 183 - MADRAS HIGH COURT]
AASHIRWAD FILMS VERSUS UNION OF INDIA AND OTHERS [2007 (5) TMI 325 - SUPREME COURT]
- Uber has filed a writ in Delhi HC disputing the applicability of GST on autorickshaws booked through their app.
- Way forward/Representation:
Persons who are unregistered due to present exemptions and ECO providing passenger transport services & restaurant service must raise their voice and should make an application to appropriate offices/persons.
(Inductive list given below):
- Hon’ble Union Minister of Finance, Ministry of Finance
- Hon’ble Secretary, GST Council
- Hon’ble Minister for Commerce and Industry, Government of India
- Hon’ble Prime Minister’s office
- Grounds for representations:
- Necessity product:
- non-AC passenger transportation services are necessary
- restaurant services considering the change in way of life basic necessity and not one of luxury/sin.
- Nature of services: Nature of services are not altered only by provision of such services via ECOs. Any additional service provided by ECOs was always taxed separately.
- Service cost imbalance: Those services where, tax is levied w.e.f 1.1.22 only due to the fact that it is supplied through an ECO otherwise remains exempt increases the cost of such services on par with other similar services in the marketplace. The smaller entities enrolled with an ECO would be forced to do business without ECO to sustain in the market.
- Constitutional violation: As this notification affects a certain class of businessmen only, one may dispute that the notifications are in violation of Article 19 (Right to Business) and Article 14 (Right to Equality) of the Constitution of India.
- Public interest/Government’s private interest: Considering the various issues raised above, one must question whether the amendment has been carried keeping in mind the public interest or just to boost the revenue of the State & Centre and to ease the collection of taxes for the Govt? If the GST law amendments cause more harm than good, would it not be prudent to rectify the changes in law?
Conclusion
Even though the department has issued multiple notifications and circulars in this regard, the following contradictions and questions remain unanswered:
- Can the government have different taxation mechanisms for the same underlying transaction?
- Does the availability of internet and e-commerce operators actually display a luxurious lifestyle?
- Whether the supply food delivery & passenger transport service through an e-commerce operator change the very nature of the underlying services?
If the answers to these questions is ‘No’, then can we say that the recent circulars and notifications are incorrect and must be made void ab-initio?
Can they be struck down on the basis of equality and in the public interest? We will have to wait to see how the situation unfolds.
