Electronic Commerce and GST

Section 2 of the Draft Model GST Law (the Draft Law) defines ‘electronic commerce’ to mean the supply of goods and/or services including digital products over digital or electronic network.

An ‘electronic commerce operator’ has also been defined by the Draft Law to mean any person who owns, operates or manages digital or electronic facility or platform for electronic commerce.

> Read more on ‘Supply’

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.

Associated enterprise” shall have the meaning assigned to it in section 92A of the Income Tax Act 1961.

Business” includes –
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;
(b) any activity or transaction in connection with or incidental or ancillary to (a) above;
(c) any activity or transaction in the nature of (a) above, whether or not there is volume, frequency, continuity or regularity of such transaction;
(d) supply or acquisition of goods including capital assets and services in connection with commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members, as the case may be;
(f) admission, for a consideration, of persons to any premises; and
(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;
(h) services provided by a race club by way of totalisator or a licence to book maker in such club;

Explanation.- Any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities shall be deemed to be business.

Casual taxable person” means a person who occasionally undertakes transactions involving supply of goods and/or services in the course or furtherance of business whether as principal, agent or in any other capacity, in a taxable territory where he has no fixed place of business.

Fixed establishment” means a place, other than the place of business, which is characterised by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services, or to receive and use services for its own needs.

Goods’’ means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

Non-resident taxable person” means a taxable person who occasionally undertakes transactions involving supply of goods and/or services whether as principal or agent or in any other capacity but who has no fixed place of business in India.

Place of business” includes
(a) a place from where the business is ordinarily carried on, and includes a warehouse, a godown or any other place where a taxable person stores his goods, provides or receives goods and/or services; or
(b) a place where a taxable person maintains his books of account; or
(c) a place where a taxable person is engaged in business through an agent, by whatever name called.

Principal” means a person on whose behalf an agent carries on the business of supply or receipt of goods and/or services.

Principal place of business” means the place of business specified as the principal place of business in the certificate of registration.

Principal supply” means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary and does not constitute, for the recipient an aim in itself, but a means for better enjoyment of the principal supply.

Recipient” of supply of goods and/or services means –
(a) where a consideration is payable for the supply of goods and/or services, the person who is liable to pay that consideration,
(b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available, and
(c) where no consideration is payable for the supply of a service, the person to whom the service is rendered,
and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply;

Explanation.- The expression “recipient” shall also include an agent acting as such on behalf of the recipient in relation to the goods and/or services supplied.

Persons shall be deemed to be “related persons’’ if only –
(a) they are officers or directors of one another’s businesses;
(b) they are legally recognized partners in business;
(c) they are employer and employee;
(d) any person directly or indirectly owns, controls or holds twenty five per cent or more of the outstanding voting stock or shares of both of them;
(e) one of them directly or indirectly controls the other;
(f) both of them are directly or indirectly controlled by a third person;
(g) together they directly or indirectly control a third person; or
(h) they are members of the same family;

Explanation I. – The term “person” also includes legal persons.
Explanation II. – Persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related.

Reverse charge’’ means the liability to pay tax by the recipient of supply of goods or services instead of the supplier of such goods or services in respect of such categories of supplies as notified under sub-section (3) of section 8.

Services’’ means anything other than goods.

Explanation 1- Services include transactions in money but does not include money and securities;
Explanation 2- Services does not include transaction in money other than an activity relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.

Supplier” in relation to any goods and/or services shall mean the person supplying the said goods and/or services and shall include an agent acting as such on behalf of such supplier in relation to the goods and/or services supplied.

Taxable supply’’ means a supply of goods and/or services which is chargeable to tax under the Draft Model GST Law.

Taxable territory’’ means the territory to which the provisions of this Draft Model GST Law applies.

Usual place of residence” means
(a) in case of an individual, the place where he ordinarily resides;
(b) in other cases, the place where the person, as defined, is incorporated or otherwise legally constituted.

Import of goods” with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India.

Import of service” means the supply of any service, where
(a) the supplier of service is located outside India,
(b) the recipient of service is located in India, and
(c) the place of supply of service is in India;

Intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of a service (hereinafter called the ‘main’ service) or the supply of goods, between two or more persons, but does not include a person who supplies the main service or supplies the goods on his account.

Location of the recipient of services” means:
(a) where a supply is received at a place of business for which registration has been obtained, the location of such place of business;
(b) where a supply is received at a place other than the place of business for which registration has been obtained, that is to say, a fixed establishment elsewhere, the location of such fixed establishment;
(c) where a supply is received at more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the receipt of the supply; and
(d) in absence of such places, the location of the usual place of residence of the recipient.

Location of the supplier of services” means:
(a) where a supply is made from a place of business for which registration has been obtained, the location of such place of business;
(b) where a supply is made from a place other than the place of business for which registration has been obtained, that is to say, a fixed establishment elsewhere, the location of such fixed establishment;
(c) where a supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the provision of the supply; and
(d) in absence of such places, the location of the usual place of residence of the supplier.

Non-taxable online recipient” means Government, a local authority, a governmental authority, an individual or any person not registered under section 23 of the CGST Act, 2016 receiving online information and database access or retrieval services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory.

Explanation: For the purposes of this clause, “governmental authority” means an authority or a board or any other body:
(i) set up by an Act of Parliament or a State legislature; or
(ii) established by Government,
with 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution.

Online information and database access or retrieval services” means services whose delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology and includes electronic services such as,-
(a) advertising on the internet;
(b) providing cloud services;
(c) provision of e-books, movie, music, software and other intangibles via telecommunication networks or internet;
(d) providing data or information, retrievable or otherwise, to any person, in electronic form through a computer network;
(e) online supplies of digital content (movies, television shows, music, etc.);
(f) digital data storage; and
(g) online gaming;

Place of business” includes
(a) a place from where the business is ordinarily carried on, and includes a warehouse, a godown or any other place where a taxable person stores his goods, provides or receives goods and/or services;
(b) a place where a taxable person maintains his books of account; or
(c) a place where a taxable person is engaged in business through an agent, by whatever name called.

Tourist” means a person not normally resident in India, who enters India for a stay of not more than six months for legitimate non-immigrant purposes.

 


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Collection of Tax at Source

Chapter XIV and section 56 of the Draft Law imposes the following obligations on ‘electronic commerce operators’ (not being an ‘agent’)

  • Collect tax at source on ‘taxable supplies’ made through it, being an amount calculated at the rate of 1 percent of ‘net value of taxable supplies^ made through it,
  • Where the consideration for such said supplies is to be collected by the electronic commerce operator.
  • The amount collected is required to be paid to the account of the appropriate Government by the operator within 10 days after the end of the month in which such collection is made in the manner as may be prescribed.
  • Furnish an electronic statement containing the details of outward supplies of goods or services effected through it (including returned through it) and the amount collected during a month, in such form and manner as may be prescribed, within 10 days after the end of such month.
  • Details of supplies furnished by every operator is to be matched with the corresponding details of outward supplies furnished by the concerned supplier registered, any discrepancy therein communicated to both and if not rectified is to be added to the output tax liability of the supplier (where the value of outward supplies furnished by the operator is more than the value furnished by the supplier).

^Net value of taxable supplies” means the aggregate value of taxable supplies of goods or services, other than services notified under section 8(4), 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.


Notice to provide Details

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 electronic commerce operator to furnish such details relating to —

  • Supplies of goods or services effected through such operator during any period, or
  • 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.

Every operator on whom such notice has been served must furnish the required information within 15 working days of the date of service of such notice.

Person who fails to furnish the information required by the notice served is (without prejudice to any action that is or may be taken under section 85) liable to a penalty which may extend to Rs.25,000.

Electronic Commerce Operator – Notified Services for Tax Collection

Under the section 8(4) of the Draft Model GST Law (the Draft Law), the Central/State Government may accordingly 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 the Draft Law apply to such electronic commerce operator as if it is the person liable for paying the tax in relation to the supply of such services.


Non-physical Presence in Taxable Territory

  • Where such electronic commerce operator does not have a ‘physical presence’ in the taxable territory, any person ‘representing’ it for any purpose in the taxable territory is liable to pay such tax; or
  • Where there is lack of physical-presence and absence of a ‘representative’, such electronic commerce operator is required to ‘appoint’ a person in the taxable territory for the purpose of paying tax and such person is liable to pay tax.


Unavailability of Composition Levy

The ‘Composition Levy’ option available under section 9 of the Draft Law to small businesses etc. is unavailable to a person —
(a) Engaged in the supply of services; or
(b) Making inter-State outward supplies of goods; or
(d) Making any supply of goods through an electronic commerce operator (who
is required to collect tax at source under section 56 of the Draft Law) etc.

> Read more on ‘Composition Levy’

 

Compulsory Registration

Para 6 of Schedule V to the Draft Law lists the various persons (taxable persons) compulsorily liable to be registered for GST irrespective of their ‘aggregate turnover’ for the financial year and includes the following —

  • Every electronic commerce operator
  • Every person supplying online information and database access or retrieval services from a place outside India to a person in India (other than a registered taxable person)
  • Persons making any inter-State taxable supply
  • Casual taxable persons
  • Persons who are required to pay tax under reverse charge
  • Persons who are required to pay tax under section 8(4)
  • Non-resident taxable persons
  • Persons who are required to deduct tax under section 46 (Tax deduction at source) whether or not separately registered
  • Persons who are required to collect tax under section 56 (Collection of tax at source by Electronic Commerce Operator) whether or not separately registered
  • Persons who supply goods and/or services on behalf of other taxable persons whether as an agent or otherwise
  • Persons who supply goods and/or services (other than supplies specified under section 8(4) of the Draft Law) through an electronic commerce operator (required to collect tax at source under section 56) etc.

> Read more on GST Registration

 


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For the purpose of determining supplies of goods and/or services in the course of inter-State trade or commerce and consequential levy and payment of IGST, the Draft Model IGST Law (the Draft IGST Law) contains the following provisions.


Place of supply of services where the location of the supplier or the location of the recipient is outside India

(section 10 of the Draft IGST Law)

  • The provisions of the above said section apply to determine the place of supply of services where the location of the supplier of service or the location of the recipient of service is outside India.
  • The place of supply of services (except those excluded by the said section, some mentioned below) is the location of the recipient of service (in case the location of the recipient of service is not available in the ordinary course of business, the place of supply shall be the location of the supplier of service).
  • The place of supply of services supplied in respect of goods that are required to be made physically available by the recipient of service to the supplier of service, or to a person acting on behalf of the supplier of service in order to provide the service, is the location where the services are actually performed (except when such services are provided from a remote location by way of electronic means, the place of supply shall be the location where goods are situated at the time of supply of service).
  • The place of supply of services supplied by a banking company, or a financial institution, or a non-banking financial company, to account holders and intermediary services, is the location of the supplier of service.
  • The place of supply of the “online information and database access or retrieval services” services is the location of recipient of service etc.
  • To prevent double taxation or non-taxation of the supply of a service, or for the uniform application of rules, the Central Government has the power to notify any description of service or circumstances in which the place of supply shall be the place of effective use and enjoyment of a service.

 

Special provision for payment of tax by a supplier of online information and database access or retrieval services located outside India to specified person in the taxable territory

(section 12 of the Draft IGST Law)

  • On supply of online information and database access or retrieval services by any person located in a non-taxable territory and received by non-taxable online recipient, the supplier of service located in a non-taxable territory shall be the person liable for paying IGST.
  • Where in the above circumstances, an intermediary located in the non-taxable territory and who arranges or facilitates provision of such service, will be deemed to be receiving such services from the service provider in non-taxable territory and supplying such services to the non-taxable online recipient (except when such intermediary satisfies the prescribed conditions).
  • The above said supplier for payment of IGST, is required to take a single registration under a Simplified Registration Scheme as may be prescribed (any person located in taxable territory representing such supplier for any purpose in the taxable territory is required to take a registration and pay IGST on behalf of the said supplier).
  • Where such supplier does not have a physical presence or does not have a representative for any purpose in the taxable territory, a person may be appointed in the taxable territory for the purpose of paying IGST and liable for such purposes.

> Read more on ‘Inter-State Supplies’

 


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