1. What do you understand by the term "E-commerce" under the GST Act? Can you give an example of an e-commerce transaction?
E-commerce represents a modern business model where transactions occur electronically rather than through physical exchanges. The Department of Industrial Policy and Promotion (DIPP) in its FDI Policy defines e-commerce as buying and selling of goods and services including digital products over digital and electronic networks.
Under GST legislation, this definition is specifically formalized in Section 2(44), which encompasses all forms of commercial transactions conducted electronically. This includes:
- Business-to-Business (B2B) transactions like those on platforms such as TradeIndia and Indiamart
- Business-to-Consumer (B2C) transactions like those on Flipkart and Amazon
- Consumer-to-Consumer (C2C) transactions like those on eBay
- Consumer-to-Business (C2B) transactions
The GST framework treats e-commerce as a distinct channel of commerce with specific compliance requirements, recognizing its growing significance in the Indian economy. The definition is deliberately broad to encompass evolving digital business models and ensure comprehensive tax coverage.
2. What are the different models of E-Commerce and how are they regulated in India?
There are two primary models of e-commerce in India: the Marketplace Model and the Inventory-Based Model. Let me provide a comprehensive explanation of both models and their regulatory framework:
E-Commerce Models in India
1. Marketplace Model
The marketplace model functions as a digital platform that connects buyers and sellers without the platform itself owning any inventory. According to DIPP's Press Note-03 dated March 29, 2016, a marketplace-based model of e-commerce is defined as "providing of an information technology platform by an e-commerce entity on a digital and electronic network to act as facilitator between buyer and supplier."
In this model:
- The customer places an order on the e-commerce platform
- The platform notifies the vendor about the order
- The vendor directly raises an invoice to the customer and transfers ownership of goods
- The platform primarily serves as an intermediary, facilitating the transaction
Examples include Amazon Marketplace, Flipkart Marketplace, and India Mart.
2. Inventory-Based Model
In the inventory-based model, the e-commerce entity owns the inventory of goods and services that it sells directly to consumers. As per DIPP's definition, an inventory-based model means "an e-commerce activity where inventory of goods and services is owned by the e-commerce entity and is sold to the consumers directly."
In this model:
- The e-commerce company maintains its own inventory
- It directly interfaces with customers
- It manages logistics and all aspects of the business
- The platform acts as both seller and facilitator
Examples include traditional retail businesses that have moved online while maintaining ownership of their inventory.
Regulatory Framework in India
As you correctly pointed out, the regulatory environment treats these models differently:
- FDI Regulations:
- 100% Foreign Direct Investment (FDI) is permitted under the automatic route for the marketplace model
- FDI is not permitted in the inventory-based model of e-commerce
- Control Limitations:
- A marketplace entity cannot exercise ownership or control over the inventory of sellers on its platform
- As you noted, if more than 25% of a vendor's purchases are from the marketplace entity or its group companies, the inventory is deemed to be controlled by the marketplace entity, effectively converting it to an inventory-based model
- Additional Restrictions:
- Entities in which an e-commerce firm or its group companies have a stake cannot sell on their online platform
- Marketplaces cannot mandate sellers to sell exclusively on their platforms
- Marketplaces must maintain a level playing field for all vendors
3. Can you explain what constitutes "Scope of Supply" under GST in the context of e-commerce transactions? Include examples for clarity.
Within Scope; Outside the Scope; Deemed Supply (SCH 1); Not a Supply(SCH 2)
Reference Point : It should involve goods or services; It should be for a consideration (payment);It must be in the course or furtherance of business.
4. Who are the stakeholders in e-commerce transactions ? What are their Liabilities ?
Ans : e-commerce Operator and Suppliers and Customers
Sec 2(45) :In simpler terms, an e-commerce Operator is an entity that facilitates online buying and selling of goods or services through its platform.
Supplier : Section 2(115) : Supplier Definition;
- Registration Requirement: Section 24(x) of the CGST Act mandates that every e-commerce operator required to collect TCS must register under GST, regardless of their turnover threshold.
- Supplier Registration: Similarly, Section 24(ix) requires that all suppliers making supplies through e-commerce operators (who are required to collect TCS) must register under GST, irrespective of their turnover.
Liabilities as per Act Mandate : Payment of Tax ; Tax Collection at Source (TCS : Section 52)
Tax Collection at Source (TCS) under GST
Tax Collection at Source (TCS) is a mechanism introduced under Section 52 of the CGST Act to ensure tax compliance in e-commerce transactions. As you correctly stated, e-commerce operators are required to collect TCS at the rate of 1% (0.5% CGST + 0.5% SGST/UTGST or 1% IGST for inter-state supplies) on the net value of taxable supplies made through their platforms when the consideration is collected by the operator.
Key aspects of TCS under GST:
- Calculation Base: TCS is calculated on the "net value of taxable supplies," which means the aggregate value of taxable supplies of goods or services made by all registered suppliers through the e-commerce operator, reduced by the value of returned supplies.
- Payment Timeline: The amount collected by the e-commerce operator must be paid to the government within 10 days after the end of the month in which the amount was collected.
- Return Filing: E-commerce operators must file a monthly return in Form GSTR-8 by the 10th of the following month, providing details of supplies made through their platform and the TCS collected.
- Credit Mechanism: The TCS amount paid by the operator can be claimed as credit by the actual supplier in their GST returns, reducing their tax liability.
5. What are the Challenges Faced When Multiple E-Commerce Operators Are Involved In Single Transaction ?
6. What are the services notified under Section 9(5) of the CGST Act, where the electronic commerce operator (ECO) itself is responsible for paying GST instead of the supplier?
Swiggy and Zomato GST Controversy
The Directorate General of GST Intelligence (DGGI) issued GST demand notices to Zomato and Swiggy for non-payment of GST on delivery fees charged from consumers:
- Zomato received notices totaling approximately Rs 803 crore.
- Swiggy received notices of around Rs 350 crore.
- The tax authority argued that delivery charges should be taxed at 18% as a service.
- The platforms contended they were merely collecting fees that get paid to gig workers who provide the actual delivery service.
- Since individual gig workers typically fall below the Rs 20 lakh GST threshold, they would be exempt from GST.
This controversy highlights the ongoing interpretational challenges in applying GST provisions to new business models in the digital economy.
