Electronic Commerce under Goods and Services Tax (GST)
Section 2 of the Central Goods and Services Tax Act 2017 (CGST Act) defines “electronic commerce” to mean the supply of goods or services or both, including digital products over digital or electronic network. The said provision also defines an “electronic commerce operator” (the Operator) to mean any person who owns, operates or manages digital or electronic facility or platform for electronic commerce.
- Such Operator is subject to significant compliance obligations and restrictions (discussed briefly below) under the CGST Act (including for the purposes of levy of Integrated Tax/Union Territory Tax under the IGST/UTGST, as the case may be, through the same and other applicable provisions), which cannot be avoided even by foreign/tax non-resident Operators without a ‘physical presence‘ and/or ‘representative‘ in India for such purposes.
- Furthermore, the application of ‘POEM‘ criteria for determining the tax residency for Companies in India for Income Tax purposes under the Income Tax Act 1961, may potentially have an added significance for foreign e-commerce Companies with clients/customer base and/or business partners/administration in India.
Section 2 of the Central Goods and Services Tax Act 2017 (CGST Act) lists the various definitions (subject to context) to various key words, terms and phrases, some of which for the purpose of ‘composition levy‘ have been provided below ––
“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 or both on behalf of another.
“Aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.
(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 sub-clause (a);
(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;
(d) supply or acquisition of goods including capital goods 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;
(f) admission, for a consideration, of persons to any premises;
(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 ; and
(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities.
“Casual taxable person” means a person who occasionally undertakes transactions involving supply of goods or services or both in the course or furtherance of business, whether as principal, agent or in any other capacity, in a State or a Union territory where he has no fixed place of business.
“Central tax” means the central goods and services tax levied under section 9.
“Cess” shall have the same meaning as assigned to it in the Goods and Services Tax (Compensation to States) Act.
“Composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.
Illustration.— Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.
“Consideration” in relation to the supply of goods or services or both includes––
(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall
not include any subsidy given by the Central Government or a State Government;
(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:
Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply.
“Continuous supply of goods” means a supply of goods which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, whether or not by means of a wire, cable, pipeline or other conduit, and for which the supplier invoices the recipient on a regular or periodic basis and includes supply of such goods as the Government may, subject to such conditions, as it may, by notification, specify.
“Continuous supply of services” means a supply of services which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, for a period exceeding three months with periodic payment obligations and includes supply of such services as the Government may, subject to such conditions, as it may, by notification, specify.
“Council” means the Goods and Services Tax Council established under article 279A of the Constitution.
“Electronic cash ledger” means the electronic cash ledger referred to in subsection (1) of section 49.
“Electronic commerce” means the supply of goods or services or both, including digital products over digital or electronic network.
“Electronic commerce operator” means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce.
“Electronic credit ledger” means the electronic credit ledger referred to in sub-section (2) of section 49.
“Exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply.
“Fixed establishment” means a place (other than the registered 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.
“Government” means the Central Government.
“Goods and Services Tax (Compensation to States) Act” means the Goods and Services Tax (Compensation to States) Act, 2017.
“India” means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, and the air space above its territory and territorial waters.
“Integrated Goods and Services Tax Act” means the Integrated Goods and Services Tax Act, 2017.
“Integrated tax” means the integrated goods and services tax levied under the Integrated Goods and Services Tax Act.
“Input tax credit” means the credit of input tax.
“Intra-State supply of goods” shall have the same meaning as assigned to it in section 8 of the Integrated Goods and Services Tax Act.
“Intra-State supply of services” shall have the same meaning as assigned to it in section 8 of the Integrated Goods and Services Tax Act.
“Mixed supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.
Illustration.— A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.
“Money” means the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any other instrument recognised by the Reserve Bank of India when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value.
“Non-resident taxable person” means any person who occasionally undertakes transactions involving supply of goods or services or both, whether as principal or agent or in any other capacity, but who has no fixed place of business or residence in India.
“Non-taxable supply” means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act.
“Non-taxable territory” means the territory which is outside the taxable territory.
“Notification” means a notification published in the Official Gazette and the expressions “notify” and “notified” shall be construed accordingly.
“Other territory” includes territories other than those comprising in a State and those referred to in sub-clauses (a) to (e) of clause (114).
“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.
“Outward supply” in relation to a taxable person, means supply of goods or services or both, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business.
“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, supplies or receives goods or services or both; 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.
“Place of supply” means the place of supply as referred to in Chapter V of the Integrated Goods and Services Tax Act.
“Prescribed” means prescribed by rules made under this Act on the recommendations of the Council.
“Principal” means a person on whose behalf an agent carries on the business of supply or receipt of goods or services or both.
“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.
“Proper officer” in relation to any function to be performed under this Act, means the Commissioner or the officer of the central tax who is assigned that function by the Commissioner in the Board.
“Registered person” means a person who is registered under section 25 but does not include a person having a Unique Identity Number.
“Reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Act.
“Services” means anything other than goods, money and securities but includes activities 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.
“State” includes a Union territory with Legislature.
“State tax” means the tax levied under any State Goods and Services Tax Act.
“Supplier” in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied.
“Taxable person” means a person who is registered or liable to be registered under section 22 or section 24.
“Taxable supply” means a supply of goods or services or both which is leviable to tax under this Act.
“Taxable territory” means the territory to which the provisions of this Act apply.
“Turnover in State” or “turnover in Union territory” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis) and exempt supplies made within a State or Union territory by a taxable person, exports of goods or services or both and inter-State supplies of goods or services or both made from the State or Union territory by the said taxable person but excludes central tax, State tax, Union territory tax, integrated tax and cess.
“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 is incorporated or otherwise legally constituted.
“Union territory tax” means the Union territory goods and services tax levied under the Union Territory Goods and Services Tax Act.
“Union Territory Goods and Services Tax Act” means the Union Territory Goods and Services Tax Act, 2017.
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Compulsory Registration for GST
The various thresholds and criteria (section 22 of the CGST Act) subject to which registration for GST is voluntary for most, does not apply to the said Operators, who are required to compulsorily register (section 24 of the CGST Act) and satisfy consequential compliance obligations (briefly mentioned below). Other persons also required to similarly register compulsorily include —
- Persons making any inter-State taxable supply
- Casual taxable persons making taxable supply
- Persons who are required to pay tax under reverse charge
- Person who are required to pay tax under section 9(5)^
- Non-resident taxable persons making taxable supply
- Persons who are required to deduct tax under section 51, whether or not separately registered under this Act
- Persons who make taxable supply of goods or services or both on behalf of other taxable persons whether as an agent or otherwise
- Persons who supply goods or services or both (other than supplies specified under sub-section (5) of section 9) through such electronic commerce operator who is required to collect tax at source under section 52^^
- 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 person etc.
Levy and Collection of GST – Additional Compliance Obligations
Section 9^/5 of the CGST/IGST Act empowers the Central Government to levy Central Tax/Integrated Tax on intra/inter-State supply (as the case may be) of goods and/or services, and there under it may (by notification on the recommendations of the GST Council) also specify categories of services, the relevant said tax on which shall be paid by the electronic commerce operator, where such services are supplied through it. Consequently, all the provisions (and related obligations) of the relevant Act then applies to such Operator as if the supplier liable for paying the said tax for the supply of such services.
Non-Physical Presence in Taxable Territory
- Where such Operator does not have a physical presence in the ‘taxable territory’, any person representing such Operator for any purpose therein will be liable to pay the said tax.
- Where such Operator does not have a representative in the said territory, it will be required to appoint a person therein for the purpose of paying such tax and being liable for the same.
Composition Levy Disentitlement for Suppliers
The beneficial provisions of ‘Composition Levy’ (the Scheme) is available (subject to satisfaction of prescribed criteria) as an option to small businesses etc, who under the said Scheme have relatively less compliance obligations and lower rates of Tax on supplies made by them. This Scheme is however unavailable to a supplier (even if they satisfy the relevant criteria for the Scheme) who is engaged in making any supply of goods through an electronic commerce operator (required to collect tax at source under section 52, see below).
Chapter X through section 52 of the CGST Act, imposes tax deduction/collection obligations on the Operators (not being an ‘agent’), being an amount calculated at such rate not exceeding 1 percent (as may be notified by the Government on the recommendations of the GST Council) 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 said Operator and fulfills the following compliance requirements —
- Amount collected to be paid to the Government by the concerned Operator within 10 days after the end of the month in which such collection is made, in the manner as may be prescribed (see draft ‘Revised Payment Rules‘);
- Furnish an electronic statement^, containing the details of ‘outward supplies’ of goods and/or services effected through it (including such supplies returned through it) and the amount collected during a month, in the prescribed form and manner within 10 days after the end of such month;
- Furnish an ‘annual statement’ electronically, containing the details of outward supplies of goods and/or services effected through it (including the supplies returned through it) and the amount so collected during the financial year in the prescribed form and manner (see draft ‘Revised Payment Rules‘) before the 31st day of December following the end of such financial year.
- The supplier who has supplied the goods and/or services through the Operator can claim credit in the electronic cash ledger for the amount so collected and reflected in the statement of the Operator as furnished in the above said manner;
- The details of supplies furnished by every Operator in the above said manner is then to be matched with the corresponding details of outward supplies furnished by the concerned (registered) supplier^^ in the prescribed manner and time.
- Where such details do not match, the discrepancy is to be communicated to both said persons and the amount (if any), not rectified for the month in which discrepancy is communicated, is to be added to the output tax liability of the said supplier (where the value of outward supplies furnished by the Operator is more than the value of outward supplies furnished by the supplier) for the month succeeding the month in which the discrepancy is communicated in the prescribed manner.
- The concerned supplier^^ in whose output tax liability any such amount has been added, will be required to pay the tax in respect of such supply along with interest (at the rate specified under section 50(1) of the CGST Act) on the amount so added from the date such tax was due till the date of its payment.
**“Net value of taxable supplies” means the aggregate value of taxable supplies of goods and/or services, other than services notified under section 9(5), made during any month by all registered persons through the operator reduced by the aggregate value of taxable supplies returned to the suppliers during the said month.
^Any omission or incorrect particulars discovered therein after furnishing such statement (other than as a result of scrutiny, audit, inspection or enforcement activity by the concerned tax authorities) is required to be rectified^ in the statement to be furnished for the month during which the same are noticed (subject to payment of interest as specified in section 50(1) of the CGST Act.
^No such rectification of any omission or incorrect particulars shall be allowed after the due date for furnishing of statement for the month of September following the end of the financial year or the actual date of furnishing of the relevant annual statement, whichever is earlier.
^^“Concerned supplier” means the supplier of goods or services or both making supplies through the Operator.
Notice to Furnish Details
Any authority (not below the rank of Deputy Commissioner) may serve a notice, either before or during the course of any proceedings under this Act, requiring the Operator to furnish details relating to—
- Supplies of goods and/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 Operator 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 is required to furnish the required information within 15 working days of the date of service of such notice.
Person who fails to furnish such information required by the said notice served (without prejudice to any action that may be taken under section 122) will be liable to a penalty which may extend to Rs.25,000.
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