There has been so much euphoria
with regard to Indian E-commerce story and is on track to become the world’s
fastest growing e-commerce market. This growth story is being driven
by robust investment activity by VCs, Angels and the rapid increase
in internet users. Internet users in India have gone up from 50 million
in 2007 to 300 million in 2014. As per Morgan Stanley, size of the Indian
internet market is expected to rise from $11 billion in 2013 to $137 billion by
2020 and market capitalization of these internet businesses could touch
$160-200 billion from the $4 billion at present.
Let’s understand various
e-commerce models from the indirect Tax perspective:-
I) SUPPLY
OF GOODS
E-commerce Platforms have
entered into Memorandum of Understanding with seller to promote the business of
seller. This type of business has several models and service tax to be levied
accordingly. Following models have been explained herein.
A)
Direct Supply from Seller to Customer
Seller have own website for
soliciting their business and not relying on online aggregators like Flipkart,
Amazon, Snapdeal for listing of goods. In this case, VAT shall be charged by
seller in case of intrastate transaction and CST in case of inter-state
movement of goods.
EXAMPLE
Mr Karan orders a Service book
from the Website poojalawhouse.com. Online website shall be maintained by the
seller Pooja law House. The invoice of the Book would generate by the Pooja Law
which shall levy VAT on the product sold.
II)
Supply from Seller to Customer via online Intermediary/Aggregators
Products of sellers are listed
on websites like Flipkart, Amazon, Snapdeal who have entered into MOU with
ecommerce Platforms. These orders are in turn given to the Seller for delivery
of the goods. Seller shall make the invoice and deliver the same to customer
directly. Invoice shall contain name of the company/firm, Reg. Address, TIN/CST
no. etc. In present case only, Interface is being provided by the online
portal.
Example:
Mr Gaurav Agarwal orders iPhone
4s from the Online Website Snapdeal.com. Snapdeal will book order on the behalf
of the Seller named WS Retailer. So, Snapdeal will contact with the WS Retailer
to deliver the goods to the customer. The seller shall levy VAT on the goods
sold by seller.
Now these online portals
Flipkart, Snapdeal etc. shall generate an invoice of such services like
Booking, Commission, Courier, Shipping charges etc. in the name of Seller, as
these charges are covered under the definition of taxable services as per the
provisions of Finance Act, 1994. In continuation of above example, Snapdeal
will generate an invoice and service tax to be charged.
Bill to be charged shall vary
according to terms and conditions contained in Memorandum of Understanding with
sellers. For example- If the goods are delivered by e-commerce platform to
customer then shipping charges shall be charged by platform in the bill.
Shipping charges shall also be charged in bill and liable to service tax.
III)
Seller to Online Portals to Customer
In this case , seller shall
sell goods to e-commerce platform who in turn sells to final customer. Role of
e-commerce site shall not be limited to provide interface but becomes the owner
of the goods.
For
Example:
Mr Sushant Kapil orders iPhone
5s from the Online Website www.alidaddy.com. This site will book order on the
behalf of the seller and purchase the goods from Manoj Electronics to deliver
the goods to Customers. The invoice of iPhone 5s would be generated by the
Manoj Electronics including TIN No. and address to the Website. Now, this site
will issue an invoice to Customer.
This site will generate an
additional invoice of such services like Booking, Commission, Courier, Shipping
charges etc. in the name of Seller XYZ Enterprises which will be exactly the
same as discussed in Model 2.
2.
RENDERING OF SERVICES
Let’s first define service as
per Service Tax
Section 65B(44) of ST Act
‘Service’ means any activity carried out by a person for another for
consideration, and includes a declared service, but shall not include -
(a) An activity which
constitutes merely,––
(i) A transfer of title in
goods or immovable property, by way of sale, gift or in any other manner; or
(ii) A transaction in money or
actionable claim
Many E-portals websites are in
existence to promote the business of rendering services on behalf of service
provider. Various Service model are mentioned below:-
A)
Service rendered by Online Portals ( like Makemytrip, Expedia etc) to the
Service Recipient
If the service provider is
providing service to the customer with help of intermediary (Online
Aggregator),in that case service tax shall be levied on the bill raised by
Service Provider to the customer. Online Aggregator /intermediary shall raise
bill towards service provider and service tax to be levied on same.
For Example- Online service
providers (like makemytrip, booking.com) provide the relevant information on
destinations, hotels and Airports. They have entered into MOU with hotels and
airlines. Invoice is raised by the Service provider (hotel) on the customers.
Makemytrip acting as online aggregator raises invoices towards hotel. Service
Tax shall be levied on the amount of bill issued by online aggregator.
B)
Direct rendering of Service from Service Provider to Service Receiver
If the service provider is
rendering the online services, then service provider shall be liable to charge
service tax from the customer. For example – Online Repairing of computer being
provided by the company then it shall be liable to charge Service tax from the
customer.
C)
Service being provided from Customer to Customer
In case of customer to customer
transactions, website does not sell anything but provides a platform for the
customers for doing sale and purchase .In turn charges for the commission for
the service provided and same shall be liable to service tax . No chargeability
of Sales Tax in such transactions.
D)
Crowd funding Websites
Crowdfunding is the
practice of funding a project or venture by raising monetary contributions from
a large number of people, typically via the internet. These have been becoming
very popular of late. People have been able to raise large capital for their
venture. These platforms like pikaventure.com, Indiegogo.com and many
others are helping entrepreneurs to raise capital for their project. In turn
charge minimum fees for raising such amount if target funding is achieved.
Amount of fee to be charged shall be liable for service tax.
Issues
The current dispute has arisen
in case of e-commerce companies that undertake storage of goods procured from
various sellers in their warehouse before dispatching them to the respective
buyers. It appears that Karnataka VAT authorities are of the view that in such
cases, the e-commerce companies are involved in supplying and distribution of
goods and, therefore, would qualify as ‘dealers’.. The authorities are also of
the view that these companies act as commission agents or consignment agents of
sellers. Therefore, these companies are covered under the definition of
‘dealers’ and, therefore, are liable to discharge VAT. “The Karnataka
Government plans to amend the Value Added Tax Act and bring transactions from
e-commerce marketplaces under its ambit, reports The Times of India.
The government says the amendment will deal with transactions on
e-commerce sites that follow the marketplace model like Flipkart, Amazon
India and Snapdeal and it is expected to be passed during the upcoming
winter session of the state legislature. This action by one state government
will change the whole scenario, wherein this industry would be greatly
demotivated. Also the position of service tax law would need to be re-assessed
after this.
Even though it has been decided
issue that levy of tax would arise on occurrence of a taxable event. In the
case of levy of VAT, the taxable event is sale or purchase of goods. In the
case of e-commerce transactions, the companies are not involved in sale of
goods at all. The primary object of the companies is to offer online portals
where the buyer and the seller meet and the buyer places an order for goods
advertised on the portal. The is raised by the seller on the buyer. No invoice
whatsoever is issued by the e-commerce company on the buyer in respect of sale
of goods. Clearly, e-commerce companies are service providers.
Conclusion
There has been clarity with
regards to levy of indirect taxes on ecommerce transactions. Government of the
day needs to incentives this sector and assist to make it competitive keeping
in view their vision of “MADE IN INDIA CAMPAIGN” rather than burden with taxes.
Note: Above article is contributed by our Active Member Mr.Ravi Vyas.
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