INDIRECT TAXATION IN E-COMMERCE-By Law Padho

This article is written by AMRIT BEHERA, a student at Symbiosis Law School, Hyderabad, where he discusses about the "INDIRECT TAXATION IN E-COMMERCE" 

This paper will mainly focus on the importance of indirect tax and how indirect tax functions. And how the introduction of GST impacted the old school method of taxation. After analysing this the paper will focus on the importance of GST and how GST function in the present market conditions. And most importantly this paper will focus on how indirect taxation and GST function in the E-commerce market. And who is liable to pay GST.

INTRODUCTION

To run the government, it needs to collect some amount of money from the eligible citizens. The money collected is known as tax. The payment of tax to the local government is an important duty of the citizens.[1] The tax can be collected through various ways like state tax, central government tax, direct tax, and indirect tax. But broadly the taxes are divided into two parts that are direct tax and indirect tax.

Tax can be defined as a mandatory fee charged by the government upon an individual or an organization. The money so collected is used for public works providing the citizens the best facilities and the possible infrastructure. And in case one person denies or fails to pay the tax he/she has to face the consequences as mentioned in the book of the law.[2]

In today’s world, we can see the e-commerce market booming. In this, we too have to pay the taxes. One of the most commonly found taxes here is the service tax.[3] For example, we buy a particular good from Flipkart sometimes we can see that we have to pay a shipping charge in which a certain % of tax is included which we have to pay. We too have to pay tax for the e-commerce services we avail of. For example, if we take the subscription for Amazon prime the total amount that we pay to Amazon includes the service tax.

Before the implementation of GST in India. India followed a different taxation policy throughout the country.  The main paper will majorly focus on the aftermath of the implementation of the GST in India and how it has affected the e-commerce market.

The main paper will focus on the implementation of GST in India. How does it work? It will focus on the advantages and disadvantages that it provides. It will also focus on the differences between direct tax and indirect tax. It will also focus on the various types of indirect taxes found in India.

LITERATURE REVIEW

It is “a vital part of the research paper which help in defining the research questions postulated in a paper. There are many research papers on said research topic i.e. “Indirect Taxation in E-Commerce”. The sources “referred by the researcher to proceed with the analysis of the topic are mentioned below:

1.   “Impact of E-commerce on Taxation” By Kirti and Namrata Agrawal[4]. Among all the papers I came across while doing my research on this topic, I found this to be the best one. This paper mainly focuses on the growth of E-commerce in India and the major steps taken by the government of India to encourage E-commerce transactions. It also focuses on the existing laws with relation to tax and E-commerce.

2.       “The Effect of GST on Indian E-commerce Industry” by G.V.J Joseph Benedict Malar.[5] This paper was a well-researched one. This paper mainly dealt with GST. It helped to gather knowledge about the history of taxation policy in India and also helped me to know about the long-term and short-term effects of GST and the Shortcomings of Indian GST.

3.       “Taxation of Ecommerce from a Global Perspective” By Subhajit Basu. This paper majorly dealt with how the Taxation system worked in the initial stages of E-commerce on a global level. And as it is a pretty old paper (Published in 2004) is focused on the importance of taxation on E-commerce during that point in time. it also focused on how taxation in E-commerce was starting to play its role.

4.       “Taxation of Electronic Commerce: A Developing Problem” By Richard Jones and Subhajit Basu.[6] This paper majorly focuses on the developing problems in the field of taxation in E-commerce. This paper broadly discussed the major problems and the upcoming problems concerning the taxation system in E-commerce.

5.       “Goods and Services Tax on E-Commerce Transactions” By Rajesh Kumar.[7] Among all the papers I came across while doing my research on this topic, this paper was the most recent and updated one. And this paper mainly focuses on E-commerce in India and how Companies like Flipkart, Zomato, Amazon deal with the taxation policy in India.

RESEARCH METHODOLOGY

The above research is been done by following the doctrinal method of research. While writing this paper study of analytics and descriptive was used. To support each point given in the research paper proper explanation, examination, statutes, laws, and case laws are provided. “The starting point of research will be a strong doctrinal analysis. It would describe the law is now and whether there are indications as to how the law might be evolving or developing. It would follow the pattern of positivist legal research. But the full pattern of research will be a clever mix of the doctrinal, descriptive, and analytical method.”

“It would critically evaluate the law and dwell into the areas which are uncertain and require changes or are evolving.” The citation style that is used to write this paper is 20th Edition Bluebook.

“Reference has been made from secondary sources like books, journals, and articles, and online websites. All the sources have been duly acknowledged.”

RESEARCH OBJECTIVE

The following are the research objectives:

1.       To know about the meaning of indirect tax and the process of its implementation.

2.       To know about the differences between direct tax and indirect tax.

3.       To know about how the indirect tax affected the e-commerce market.

4.       To know about the different types of taxes that exist in India.

5.        To know about the advantages and disadvantages of Indirect tax.

RESEARCH QUESTIONS

The following are the research questions:

1.       What does Indirect tax mean and how is it implemented?

2.       What are the major differences between direct tax and indirect tax?

3.       How does the implementation of indirect tax affect the e-commerce market?

4.       What are the different types of indirect taxes found in India?

5.       What are the advantages and disadvantages of Indirect tax?

 MAIN BODY

GOODS AND SERVICES TAX

Today in India, there are various types of indirect taxes that exist. For example- Custom Duty is imposed on the Goods that are imported, Excise Duty is imposed on the Goods that are manufactured, and Service Tax is imposed on the Services that are provided. And the list goes on.

As there were many different types of taxes imposed on the buyer so on 28^th February 2006[8] the bill of GST was introduced. In the historic bill and on 1^st April 2010[9] the finance minister laid down the date for the introduction of GST in the country. And in 1^st July 2017,[10] the GST bill was passed in the Lok Sabha and the Rajya Sabha.

So taxes such as the “Service tax, Excise Duty, VAT (Value Added Tax), Customs Duty, STT (Securities Transaction Tax), Stamp Duty, Entertainment Tax” are all included in the Goods and Service Tax otherwise known as GST.[11]

IMPOSITION OF GOODS AND SERVICES TAX ON E-COMMERCE TRANSACTIONS

The Goods and Services Tax is imposed on the “supply of goods and services”. It is imposed on all types of contracts the mode of the contract is of no importance. Whatever the mode of contract may be (Written, oral, or E-Communication) the tax remains the same.[12] Therefore it can be said that on a fundamental level the Impact of GST on the E-commerce market is equal to any other market. But there are certain provisions on the use of GST that apply to E-commerce operators and those who are supplying their goods and services through an E-commerce portal.

Possibly there are two types of e-commerce:

1.       The supplier himself supplies the goods and services through the medium of e-commerce. Here the supplier supplies its goods and services directly to the customers.[13]

2.       Marketplaces like Flipkart, Amazon, Zomato, or Ola are a few examples. Here the e-commerce operator only provides platforms the numerous suppliers.   Here the operator only provides a platform where different suppliers can showcase their products and the interested ones can buy them.[14]

LIABILITY TO PAY GST

The liability to pay GST lies in the hands of the goods or service provider. The same also stands in the case of e-commerce transitions. The one who supplies goods or services through the e-commerce platform can be termed as the provider or supplier.[15] For example in a case where a person is providing goods or services through Amazon, then the supplier of the goods or services in respect to those supplies have to follow the provisions of GST.

“Section 9(5) of the CGST Act of 2017”[16], however, states that “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.”[17] The following services were included under “Section 9 (5) of the CGST Act of 2017”:

1.       Cab Services

2.       Housekeeping services.

3.       Hotels and Accommodation 

One thing that must be kept in mind is that “Section 9 (5) of the CGST Act of 2017” only dealt with services that were provided on the e-commerce platform.[18] And in such cases, as read above, the e-commerce operator can be made liable to pay the taxes for providing supply when such supply gets affected through its portal. In the case of “Opta Cabs Pvt. Ltd. 2019 (20). G.S.T.L. 161”[19] the court held that when software is used by the taxi drivers with the aim to transportation services to the passengers, then in this case the e-commerce operator is liable to pay GST even though the e-commerce operator does not receive the payment directly. Therefore the e-commerce operators who are providing services and come under "Section 9 (5) of the CGST Act of 2017” have to design and develop their model in such a manner that they will be able to discharge the liability of GST. 

In the case of providing goods through an e-commerce platform the liability to pay GST also lies in the hands of the provider of the goods. Therefore, the person providing goods through amazon, or Flipkart will be responsible for discharging the liability of GST. And in the case of services, all the service provider must discharge their liability, only excluding those who fall under any 3 categories of “section 9 (5) of CGST Act of 2017”[20].

THRESHOLD EXEMPTION LIMIT

“Section 24 (ix) of CGST Act, 2017” states that those who supply their goods and services through the electronic platform must have been registered and they also have to make sure that they do not have any threshold exemption limit. But the government has the power to blacklist any particular supplier from its registration. On 15^th November 2017 the Central Government released a notification No. 65/2017-CT[21] which stated that the suppliers providing services through the e-commerce platform and do not fall under any three categories given in “section 9 (5) of CGST Act, 2017”[22] and they have an aggregate turnover, are to be monitored on an all India basis, but the turnover must not exceed the amount of twenty lakh Rupees (Rs. 20,00,000) in a financial year.

Therefore in a case where the supplier is providing services that are not included in “section 9 (5) of the CGST act, 2017”[23] are required to get themselves registered and Collect the GST only in the case where their annual turnover is more than twenty lakh (the threshold limit). In the case where the suppliers fall under any category of “Section 9 (5) of CGST Act, 2017”[24]   and their annual turnover is more than the amount of twenty lakh rupees even then also they are not liable to get registered as the liability to pay the GST lies in the hands of the e-commerce platform operator.

It must be kept in mind that only the freedom to not get registered is only provided and the provisions for the ISGT/SGST Act[25] remain the same. Therefore “even inter-state supplies are exempt from payment of GST on such supply of service up to threshold limit of exemption.”

Therefore, the persons who are providing services through e-commerce and fall under “section 9 (5) of the CGST Act, 2017”[26] enjoy the exemption from the threshold limits. But in case of a seller selling goods through the e-commerce platform does not enjoy such benefits. And the sellers selling goods through the e-commerce platform have to compulsorily get registered under the GST list even though their annual turnover is less than twenty lakh rupees (Rs. 20,00,000) (less than the threshold limit). This means the seller must be registered before selling its goods through an e-commerce platform. E-commerce platforms such as Amazon, Flipkart, Myntra, etc need to have a GSTIN (GST Identification Number) at the time of registration as a seller on this e-commerce platform.

COMMISSION CHARGED FROM SUPPLIERS

A certain amount of money is charged by the E-commerce portals from the various suppliers. “It amounts to support services, falling under Tariff heading 9985, and shall attract GST at the rate of 18%.”[27] Under section 24 (ix) of the CGST Act,[28] it is stated that the “e-commerce portals are needed to be compulsorily registered” and they are liable to pay GST on the amount received as a commission from the various suppliers. And the GST must be paid without availing any benefit from the threshold limits. This tax is charged on the invoices that are raised against the goods and service provider, and if such providers/ suppliers are otherwise eligible can exercise have the right to avail of the Input Tax Credit (ITC) on such type of GST charged.

CONCLUSION

Due to many transitions taking place at the same time e-commerce transactions look complicated. Therefore, in a case where a person buys some goods from amazon, then simultaneously two transactions are taking place. Those transactions are:

1.       The supplier of the goods is supplying through the e-commerce platform.

2.       And the e-commerce platform is providing services to suppliers.

Both the above-mentioned transactions are different from each other and are subject to GST through their nature. At the end of the month, the Tax Collected Sources (TCS) provisions come into play, while the operator of e-commerce is transferring the considerations that are been collected by the supplier of goods and services.

Author- Amrit Behera,

Symbiosis Law School, Hyderabad

END NOTES

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[1] “Study Paper on Taxation of E-Commerce under GST, (2017),"

"https://idtc-icai.s3.amazonaws.com/download/Study_Paper_Taxation_E-Commerce_under_GST.pdf" (last visited May 11, 2021).

[2] “What is Tax? - Definition & Types of Taxation in India,"

"https://groww.in/p/tax/" (last visited May 11, 2021).

[3] “Planning to Sell Goods Online? Here are All the Taxes You Need to Know About – GST India-Goods and Services Tax in India," GST INDIA (2016),

"https://www.gstindia.com/planning-to-sell-goods-online-here-are-all-the-taxes-you-need-to-know-about/" (last visited May 11, 2021).

[4] “Namrata Agrawal, Impact of E-commerce on Taxation, International Journal of Information and Computation Technology" (2014),

"https://www.ripublication.com/irph/ijict_spl/ijictv4n1spl_16.pdf" (last visited May 11, 2021).

[5] G V J Joseph & Benedict Malar, “The Effect of GST on Indian E-commerce Industry” Written by (2018), http://arno.uvt.nl/show.cgi?fid=146763 (last visited May 11, 2021).

[6] “Richard Jones & Subhajit Basu, Taxation of Electronic Commerce: A Developing Problem, 16 Int. Rev. Law, Comput. Technol. 35–51 (2002)," file:///C:/Users/HP/Downloads/Taxation_of_Electronic_Commerce_A_Developing_Probl.pdf.

[7] “Rajesh Kumar, Goods And Services Tax On E-Commerce Transactions - Tax - India," mondaq (2020), "https://www.mondaq.com/india/sales-taxes-vat-gst/878310/goods-and-services-tax-on-e-commerce-transactions" (last visited May 11, 2021).

[8] “About GST | Goods and Services Tax Council,"

"http://gstcouncil.gov.in/about-gst" (last visited May 12, 2021).

[9] Id.

[10] Id.

[11] “7 Types of Indirect Taxes in India and its Meaning,"

"https://www.charteredclub.com/indirect-tax-gst/" (last visited May 12, 2021).

[12] “Impact of GST on E-Commerce Marketplace Sellers, Cleartax (2021),"

"https://cleartax.in/s/impact-of-gst-on-e-commerce-marketplace-sellers" (last visited May 12, 2021).

[13] Rajesh Kumar, supra note 7.

[14] Id.

[15] Type of GST Applicable on Ecommerce Sale, (2021),

https://cleartax.in/s/gst-applicable-on-ecommerce-sale (last visited May 12, 2021).

[16] Central Goods and Services Tax Act, 2017,

"https://taxguru.in/goods-and-service-tax/president-assents-central-goods-services-tax-act-2017.html/" (last visited May 12, 2021).

[17] Id.

[18] Suyash Tripathi, GST on E-Commerce Operators (2020),

"https://taxguru.in/goods-and-service-tax/gst-e-commerce-operators.html" (last visited May 12, 2021).

[19] TECHONOLOGY INDUSTORY, , www.wirc-icai.org (last visited May 12, 2021).

[20] “Central Goods and Services Tax Act, 2017," supra note 16.

[21] GOODS & SERVICES TAX UPDATE-27 Changes in GST rate,

"http://idtc-icai.s3.amazonaws.com/download/GST-Update27.pdf" (last visited May 12, 2021).

[22] “Central Goods and Services Tax Act, 2017," supra note 16.

[23] Id.

[24] Id.

[25] THE INTEGRATED GOODS AND SERVICES TAX ACT, 2017, , MINISTRY OF LAW AND JUSTICE , "https://www.cbic.gov.in/resources//htdocs-cbec/gst/igst-act.pdf" (last visited May 12, 2021).

[26] “Central Goods and Services Tax Act, 2017," supra note 16.

[27] Rajesh Kumar, supra note 7.

[28] “Central Goods and Services Tax Act, 2017," supra note 16.