Budget 2023: Penal provisions introduced for e-commerce operators

Partner: Himanshu Sinha, Counsel: Shashank Shekhar, Senior Associate: Tushar Joshi, Associate: Samyak Jain

In a move to curb tax leakages, the Finance Bill, 2023 (Bill) has proposed several amendments to regulate supplies made through e-commerce platforms by persons not registered under the Central Goods and Services Tax Act, 2017 (CGST Act), i.e., unregistered persons, and composition taxpayers. Electronic Commerce Operators (ECOs) have now been burdened with the additional responsibility of ensuring compliance with applicable tax provisions in respect of such supplies and could be subjected to penalties of INR 10,000 or more for certain violations under the CGST Act.

Key provisions under CGST Act applicable to ECOs

Under the CGST Act, electronic commerce has been defined to mean the supply of goods or services or both, including digital products, over digital or electronic networks. An ECO has been defined to mean any person who owns, operates or manages a digital or electronic facility or platform, for electronic commerce.

Currently, the CGST Act contains various provisions to create an audit trail of supplies made through ECOs and to ensure that there is no tax leakage in respect of such transactions, for example –

• If the consideration is to be collected by the ECO (and not by the supplier directly), the ECO must collect tax at source (TCS) at a rate not exceeding 1% of the net value of taxable supplies made by a supplier of goods or services through it.
• Subject to certain exceptions, the ECO and the supplier above must be registered under the CGST Act.
• For certain specified categories of services, ECOs must pay the Goods and Services Tax (GST) liability when such services are provided through their platform. These categories include transportation of passengers, provision of accommodation, housekeeping and restaurant services.

Further, at present, unregistered persons and composition taxpayers are ineligible to make supply of goods or services where payments are channelled through ECOs, leading to loss of substantial business for them. Being mindful of the same, the GST Council, in its 47th meeting, had granted an in-principle approval to allow both unregistered suppliers and composition taxpayers to make intra-state supply of goods through ECOs, subject to certain conditions.

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