GST on Ecommerce & Services

The Goods and Services Act that comes into effect on 01 July 2017 in India, is subject to not only complexities, as a result being protested and even ridiculed widely by various sections of society, due to lack of clarity.

The service sector is more confused due to the fact that previously Services was covered under separate Service Tax Law while goods were covered VAT, Excise, etc. Though, previous law pertaining to taxes on sale and manufacture of goods used to cover it’s inter state movement, while Service Tax Act didn’t had any such provisions as to rendering of services in a different state.

Section 24 of the new Goods and Services Act (GST) mainly provides for compulsory registration for certain category of businesses including persons making any inter-State taxable supply and e-commerce businesses, as follows:

Section 24 of GST – Compulsory registration in certain cases

Notwithstanding anything contained in sub-section (1) of section 22, the following categories of persons shall be required to be registered under this Act,–

(i) persons making any inter-State taxable supply;

(ii) casual taxable persons making taxable supply;

(iii) persons who are required to pay tax under reverse charge;

(iv) person who are required to pay tax under sub-section (5) of section 9;

(v) non-resident taxable persons making taxable supply;

(vi) persons who are required to deduct tax under section 51, whether or not separately registered under this Act;

(vii) persons who make taxable supply of goods or services or both on behalf of other taxable persons whether as an agent or otherwise;

(viii) Input Service Distributor, whether or not separately registered under this Act;

(ix) persons who supply goods or services or both, other than supplies specified under sub-section (5) of section 9, through such electronic commerce operator who is required to collect tax at source under section 52;

(x) every electronic commerce operator;

(xi) every person supplying online information and database access or retrieval services from a place outside India to a person in India, other than a registered person; and

(xii) such other person or class of persons as may be notified by the Government on the recommendations of the Council.

A. Now, say, you are in the business of Website Development and have clients in a different state. So are you required to register under GST ?

Answer is YES in your State and also in case of of Casual Taxable Person in other state for 90 days (which are not otherwise inter-state transaction).

B. E- commerce Definitions (provided by government of India under FAQs on Goods and Service Tax Model Law) 

1. What is an E-commerce: An Electronic Commerce to mean the supply or receipt of goods and/ or services, or transmitting of funds or data, over an electronic network, primarily the internet, by using any of the applications that rely on the internet, like but not limited to e-mail, instant messaging, shopping carts, web services, universal description Discovery and integration (UDDI), File Transfer Protocol (FTP) and Electronic Data Interchange (EDI) whether or not the payment is conducted online and whether or not the ultimate delivery of the goods and/or services is done by the operator.
2. What is an E-commerce Operator: An Electronic Commerce Operator (Operator) as every person who, directly or indirectly, owns, operates or manages an electronic platform which is engaged in facilitating the supply of any goods and/or services. Also a person providing any information or any other services incidental to or in connection with such supply of goods and services through electronic platform would be considered as an Operator. A person supplying goods/services on his own account, however, would not be considered as an Operator.
3. What is an E-commerce Aggregator: Aggregator to mean a person, who owns and manages an electronic platform, and by means of the application and communication device, enables a potential customer to connect with the persons providing service of a particular kind under the brand name or trade name of the said aggregator. For instance, Ola cabs would be an aggregator.

For instance, Amazon, Snapdeal and Flipkart are E-commerce Operators because they are facilitating actual suppliers to supply goods through their platform (popularly called Market place model or Fulfillment Model). However, Titan supplying watches and jewels through its own website would not be considered as an e-commerce operator for the purposes of this provision. But of course if the supply by Titan Website is in a different state, then they would still have to get themselves register.

It further states, Amazon, Snapdeal and Flipkart will not be treated as E-commerce operators in relation to those supplies which they make on their own account (popularly called inventory Model).

In all of the above cases, the threshold exemption of Rs 20 Lakhs is not available to E-commerce operators or their suppliers or even to Aggregators. All of them would be liable to be registered irrespective of the value of supply made by them.

C. Coming back to the example of Website Development company, who may be re-seller for products like Domain names or Hosting, do they fall within the definition of E-commerce operator ? 

Answer is YES, even a Domain Name re-seller will be considered a E-commerce Operator as he just facilitate the sale of Domain Name through his platform, which can be a supersite in case of ResellerClub and White Labelled platform in case of Godaddy. Also in many cases, the re-sellers provide domain, hosting and related web products through WHMCS, which again can be referred as operating an electronic platform which is engaged in facilitating the supply of web related services. Hence, such business also have to be compulsorily registered.

But exceptions could be there, in case a website development company rendering services only within the state and restricted to just Website Development and Graphic Designing services, while the client may manage the Domains directly from Godaddy or BigRock, need not get themselves register under GST. Also, either hosting can be obtained from other players or the Website Development Company may locally host websites within their premises. In the latter case, it will fall within the exception which reads “A person supplying goods/services on his own account, however, would not be considered as an Operator.”

Update: ResellerClub is advising in the emails sent to it’s resellers, that if the turnover is below 20 Lakh, the reseller may or may not register, that is it is not compulsory !

Though till the time the GST Department comes wit proper clarifications, all such online services do fall under the definition of E-commerce !