Goods and Services Tax – GST – By: – SKP IDT – Dated:- 2-7-2016 – Over the last couple of years, the advent and augmentation of e-commerce market in India has changed the way people buy and sell goods and services. India is adding three new Internet users every second and is the second largest market for e-commerce. Though the sector is still in the infancy stage, considering the endless possibilities in the Indian markets, huge hopes are pinned on the sector and e-commerce in India is expected to perform better year on year. Taking into consideration the immense potential of the sector, one would expect tax laws to be conducive to the growth of this sector. Unfortunately for the e-commerce sector, the current indirect tax laws in India are an impediment to operations, thwarting the growth of the sector. Now that the Model GST law, 2016 is issued by the government on 14 June 2016, it would be relevant to understand what were the problems plaguing the e-commerce sector under the presen
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ow: Levy of VAT/ CST e-commerce transactions: Since the e-commerce operators are mere facilitators between the supplier of the goods or services and the customer, typically the operators are required to collect service tax on value of commission charged by them to the suppliers. However, considering the complexity of different models under the e-commerce sector, the tax authorities are perplexed whether the movement of goods from supplier to the warehouse of operator would fall within the ambit of sale of goods chargeable to VAT / CST. Further, in most cases the suppliers are not registered under the State VAT laws and are not charging VAT/ CST on the transaction executed, the authorities want e-commerce companies to obtain registration and pay VAT/ CST on sales generated on their portals on the argument that the operators are acting as agents for the sellers. In view of the above, the Kerala state department recently issued demand notice on various e-tailers demanding discharge of VAT
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suppliers cannot utilise credit of service tax paid by the operators for payment of their Excise/ Service tax/ VAT/ CST liability, since the services availed by suppliers cannot be attributed to their manufacturing/ trading activity. Further, even in case of service tax paid on common input services including accounting fees, rent, etc. the suppliers are required to reverse the credit in proportion to their trading operations (which is considered as an exempt service under the Service tax legislation). This results in huge increase in costs to the sector and has affected the margins of the suppliers. To summarise the above, absence of specific direction and clarity under various Indirect tax legislations has led to diverse practice being adopted by the e-commerce sector and tax authorities on taxability of transactions, ultimately leading to tax litigations and increase in cost of compliances and operations. GST on e-commerce- Boon or bane Bringing the e-commerce under GST will help co
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ions. As per the Model GST law, any payment made by the e-commerce operator to the supplier would be subject to TCS at a rate to be notified. The TCS collected would be available as credit to the supplier. Further, the e-commerce operator would be required to pay the TCS collected and file an electronic statement to disclose TCS collected and supply of goods/ services made through every supplier during the month within ten days from end of month. This move of introducing TCS on e-commerce operators would significantly augment the compliance burden, since many of them deal with thousands of suppliers operating on their online platform. Additional compliances would require tweaking IT and other systems and increased costs to ensure strict disclosure requirements prescribed under the Model GST law. Inter-state movement of goods on online purchases: On a cursory reading of meaning of the term supply under the model GST law, it appears that any movement of goods from one place to another wo
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re exchange offers by e-commerce operators may attract GST. Valuation of supplies under GST: As per the Model GST law, post supply discounts would be included in the value of taxable supply (except where it is known beforehand). Accordingly, in case of sale of goods at a discount, the operator may be required to pay GST on the price without discount resulting in additional tax burden on the e-commerce operator. In light of the above, though the GST is expected to bring in major benefits to the e-commerce sector, the industry may suffer in case clarity is not provided to the above concerns and ambiguities in the Model GST law. Way forward- What should the e-commerce companies do? Though there a few ambiguities in the Model GST law released by the government, implementation of GST would address majority of the concerns of the e-commerce sector in terms of single Indirect tax across India, seamless flow of credit, etc. and would act as a catalyst for the growth of the industry by improvin
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