Ecommerce has transformed the shopping experience of customers in India. Though, the e-commerce sector is still in the infancy stage, it has seen unprecedented growth lately. Taking into consideration the immense potential of the sector it is expected to grow tremendously in upcoming years.

However, it is unfortunate for the ecommerce sector that the indirect tax authorities have failed to make conducive tax environment for this emerging sector given the complex framework of multiple taxes involving value added tax (VAT)/ central sales tax (CST), excise duty, service tax and entry tax. Since different state governments have their own VAT laws, threshold limits and tax rates which led to confusion and uncertainty on the tax treatment of e-commerce sector resulting in hindering its growth.

In order to make the indirect tax laws comprehensive and uniform, the Government has proposed to implement the Goods and Services Tax (“GST”) on sale of goods and rendering of services. An ideal GST regime intends to create a harmonised system of taxation by subsuming all indirect taxes under one tax. It seeks to address challenges with the current indirect tax regime by broadening the tax base, eliminating cascading of taxes, increasing compliance, and reducing economic distortions caused by inter-state variations in taxes.1

The 122nd Constitution Amendment Bill (‘Bill’) that will enable the introduction and implementation of GST across India, was passed in the Lok Sabha on 12th May 2015 and on 3rd August, 2016 in Rajya Sabha. The finance ministry is aiming to implement the tax measure from the scheduled deadline of 1st April, 2017

The GST Bill brings together most of the taxes that are imposed on all goods and services (few exceptions are there) in India under a single umbrella whereas in the current indirect tax system, different taxes are levied separately on goods and services.

In the interim, the Empowered Committee of State Finance Ministers on 14th June 2016 released two drafts of the GST law (“Model GST”):

• The Central/State Goods and Services Tax Act, 2016
• Integrated Goods and Services Tax Act, 2016

We may discuss provisions of the Model GST as applicable on e-commerce. To begin with, Chapter XIB of the Model GST deals with Electronic Commerce.

Clause 43B under Chapter XIB of the Model GST defines “Aggregator”, “Electronic Commerce” and “Electronic Commerce Operator”.

The terms ‘aggregators’ and ‘electronic commerce operators’ (‘Operators’) are two separate categories, however, as per the Model GST, the tax liabilities are prescribed for the Operators only. The only difference between Aggregator and Operator is that the Aggregator shall provide services under its brand name. The thin line distinguishing Aggregator and Operator shall create confusion in future. Furthermore, the Model GST excludes online retailers who supply goods/services on their own behalf.

Further, clause 43C of the Model GST deals with collection of tax at source. A concept of tax collected at source (“TCS”) has been introduced for the Operators, whereby the Operator shall be liable to collect an amount as tax from the total amount payable to the supplier of goods/services, and deposit the same with tax authorities within 10 days after the end of the month in which such collection is made, in the prescribed manner. The supplier shall then be able to adjust the same against its output tax liability. The suppliers selling goods/services through e-commerce shall be liable to register with authorities irrespective of threshold.

The Operator shall be required to comply with the requirements of furnishing details of transactions and tax so collected with authorities at stipulated time-lines. Concurrently, the supplier would also be required to file GST returns of supplies made. The data disclosed by Operator and supplier shall then be matched by the authorities and, in case of any discrepancies, adequate action would be taken. In case of mismatch issues, the supplier would be liable to pay differential tax along with interest.

The authorities have also been empowered to extract information from the Operators in relation to the sales made through them. Clause 43C will led to a significant increase in compliance requirements to be undertaken by Operators, at central and state levels since these Operators have large number of supplier from various states.

The liability has been fastened on the Operator, even though the actual consideration may not be received by them since Operators are mere facilitators between the supplier of the goods or services and the customer.

The Model GST brings all e-commerce transactions under the ambit of the proposed tax regime. While the proposed regime might address the tax issues ecommerce companies have been facing in different states, it comes with its own set of issues of higher compliance challenges and opens up other issues with complex rules. The intent of the government reflecting in the Model GST is to ensure that there is no tax avoidance in the ecommerce sector instead allowing e-commerce industry to grow and operate smoothly.

On 8th September, President Pranab Mukherjee signed the government’s flagship Goods and Services Tax Bill, which will do away with a host of Central and state taxes and usher in one tax regime for the entire country