lO M oA R cP S D | 3 6 8 2 2 3 9 8

A Project Report on

“E-COMMERCE OPERATORS”
Chapter Name of Page
No. Chapter No.

1. Introduction 1-7
2. TRENDS DRIVING E COMMERCE 7-8
3. GST'S TREATMENT OF E-COMMERCE 9-12

4. Conclusion 13
 CHAPTER I
INTRODUCTION

1
 E-commerce

E-commerce as anything that involves an online

transaction. E-commerce provides multiple benefits to the consumers in
form of availability of goods at lower cost, wider choice and
saves time. The general category of ecommerce can be broken down
into two parts: E-merchandise: E-finance. E commerce involves
conducting business using modern communication instruments:
telephone, fax, e-payment, money transfer systems, e-data interchange
and the Internet. Online businesses like financial services,
travel, entertainment, and groceries are all likely to grow. Forces
influencing the distribution of global e-commerce and its
forms include economic factors, political factors, cultural factors and
supranational institutions.

Goods and Service Tax or GST as it is known is all set to be

a game changer for the Indian economy. Overall, it is known to be
beneficial to both the consumer, business and the Government. In
India, there are different indirect taxes applied on goods and services by
central and state government. GST is intended to include all these taxes
into one tax with seamless ITC and charged on both goods and services.
Thus excise duty, special additional duty, service tax, VAT to name a
few will get repealed and will be added into GST. For this, GST will have
3 parts CGST, SGST and IGST. The central taxes like excise duty
will be subsumed into CGST and state taxes like VAT into SGST.
This going to be forward on all transactions of both goods and
services, only one tax will apply which is GST comprising of CGST
and SGST. IGST would be applied instead of SGST for interstate
transactions. Input credit of all these taxes will be available against
all the respective outputs. This paper is outcome of a review of
various research studies rried out on Impact of GST on E-commerce.
This paper examines different aspects like No threshold for GST
registration, No Benefit under Composition Scheme, Tax Collection
at Source by Marketplace Operator. Finally in the conclusion
one country and one tax will help Indian Economy to grow Rapidly.

2
 India’s e-commerce market is estimated to have crossed
Rs. 211,005 crore in December 2016 as per the study conducted by Internet and
Mobile Association of India. The report further claim that India is expected to
generate $100 billion online retail revenue by the year 2020. The uprising of
Electronic Commercein India has also resulted in conception of online
marketplaces. A Marketplace is an e-commerce platform owned by the
Ecommerce Operator such as Flipkart, Snapdeal and Amazon.
Some of the features of a marketplace model are:

 Marketplace enables third-party sellers to register and

sell online on their platform.
 Marketplace charges a subscription fees/ commission
on sale value from listed sellers.
 Third-party sellers under this model gain access to a larger
customer base, registered with marketplace.
 Customer on the other hand gain access to multiple sellers and
competitive prices for desired products.
 Items purchased on such marketplaces are either shipped by
Merchant/Third-party seller directly or through the fulfillment center managed by
Marketplace Operator.

Government has also allowed Foreign Direct Investments

under such model to promote e-commerce marketplace business model in
India. Marketplaces has provided retailers with additional channel of sales
and reach which was unimaginable for an offline seller. Major marketplaces
claim to have lacs of sellers affiliated with their platform with millions of
[Link] the number of sellers and their business have increased
significantly, GST has specifically taken up marketplaces and has come out with
rules & regulations specific to this segment. Introduction of these regulations
requirements has compelled the online seller community to embrace GST regime.

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 Now, a few words on e-commerce. Broadly speaking,
e-commerce is the business of buying and selling goods and
services on the Internet. It is also associated with conducting
any transaction involving the transfer of ownership or rights to
use goods or services through a computer mediated network. Driven by
a young demographic profile and increasing Internet penetration,
the growth in e-commerce has been phenomenal. According to a joint
ASSOCHAM-Forrester Study Paper, India's e-commerce revenue is
expected to jump from $30 billion in 2016 to $120 billion in 2020,
at the annual growth rate of 51%.2 Starting with a traditional
'stock and sell' model, the e-commerce companies have transformed
themselves into a multi-model platform. Therefore, today it can be
said that e-commerce means "use of electronic communication
and digital information processing technology in business to
create, transform, and redefine relationship for value creation
between or among organisations, and between organisations and
individuals".3 Indian e-commerce industry is unique because of its
sheer number of transactions, complexity and the employability
of the unorganised sector. E-commerce keeps evolving itself
in various new formats for different types of transactions. There are
many models for making supplies through e-commerce. Some of
the important models are briefly discussed below:

A. Direct Sales Model

This model is adopted by the entities which were already doing

business through physical stores. They now sell their goods directly through
their portals (e-commerce route). Direct Sale Portals of Titan, Nike, etc. fall
in this category.

B. Inventory Model

In this model, the e-commerce operator acts like a mega retailer. He

buys the goods form the seller, manages the inventory on his premises, and
sells it to the end-buyers. e.g. Jabong.

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C. Marketplace Model

A popular model is the Marketplace Model where the e-commerce

companies provide a meeting point for the sellers and buyers through their
portal. In this model, the end customer in Business-to-Consumer (B2C)
transactions can book an item, order for it, and then cancel it as well, or even
return the goods through an online Portal or App. In a pure marketplace
model, the e-commerce operator would not be involved in any activity
other than providing a platform to the sellers to display their
goods and facilitating buyers to view and place orders to buy those goods. E.g.
Naaptol, E-bay etc.

D. Managed Marketplace Model

In the Marketplace Model, the supply of the goods is dependent on the

efficiency of the seller, over which the e-commerce operator does not have direct
control. In the Inventory Model, the operator can fulfil the supply commitments
at his own level of efficiency, but the operator will have to invest in the
inventory. The Managed Marketplace Model attempts to get the best of both
these models. Here, the operator not only creates a marketplace, but also gets
involved in other aspects of the sale contract, and handles parts of the supply
chain of goods as well e.g. Amazon India.

E. Fulfilment Model

This model is a particular type of Managed Marketplace

Model where the goods are shipped and stored by the sellers in warehouses
of the e-commerce operators even before the sale takes place. Once purchase
orders are received, the goods are packed and dispatched by the e-commerce
operator under intimation to the seller. The e-commerce operator
neither makes payment to the seller, nor owns the inventory. Although he does
not invest in inventory, he has to invest in storage, transport and logistics.
Thus, he cuts down capital investment, and has better control over
supply of goods. Today, most of the e-commerce operators have
adopted this mode. E.g. Flipkart, Snapdeal, etc.

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F. Hybrid Model

It is becoming increasingly difficult for the large e-commerce

operators to have a single model for all the sellers and all types of goods because
of the sheer volume and variety. This compels the large operators to adopt a mix
of aforesaid models for different sellers and different types of goods. e.g.
Myntra.

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 CHAPTER II
TRENDS DRIVING
E COMMERCE

7
TRENDS DRIVING E-COMMERCE IN INDIA

The key trends driving e-commerce in India have been explained in a

CIIDeloitte Report.' The first trend has been reported to be the Government
launching of e-market platform to connect farmers with the 'mandi's of different
states to sell agro commodities, the other flagship initiatives from the
Government include Digital India, Start-up India, Make in India, Skill India, etc.
The second trend is the phenomenal increase in internet penetration owing to
major improvements in the telecom infrastructure. This has facilitated the fast
growth of e-commerce. The third trend has been the widespread adoption of
smartphones which turned out to be the most favoured medium of e-commerce.
Almost 70-75% of their online traffic comes from mobile applications of
smartphones. Evolution of new digital payment solutions has been reported to be
the fourth trend. Some such initiatives are the launch of e-wallets, different
digital payment products, Unified Payments Interface (UPI) by the Reserve Bank
of India, etc. The fifth trend has been an increasing incidence of partnership of
ecommerce operators with the Third Party Logistics Service Providers (3PLS)
like India Post in order to reach the hinterlands of the country. Last but not the
least, the e-commerce operators' expectations that GST would enhance their
growth because of its structure and operational efficiency; Logistics Service
providers can leverage seamless 'hub-and-spoke' models for delivery, resulting in
lower costs and fewer bottlenecks.

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GST'S TREATMENT OF E-COMMERCE

Current Indirect Tax System for E-commerce The current

indirect taxation system comprising Service Tax on provision of services,
State VAT on sale of goods, and Central Sales Tax on inter-state
sale of goods is not geared to recognize and accommodate the evolving
business models of e-commerce. The Central Government has been
collecting the Service Tax on the services provided by various
e-commerce operators. During the 2015-16 Budget, the tax base
was further widened by bringing in the concept of 'aggregator'
and taxing the services provided by him. An aggregator has
been defined as a person who owns and manages a web-based
software application. By means of the application and a communication
device, he enables a potential customer to connect with the persons
providing services of a particular kind under the brand name or trade
name of the aggregator. Soon thereafter, the liability for
collecting and depositing Service Tax was shifted to the Aggregator,
thus enabling a reverse charge mechanism, which allows
charging Service Tax from the receiver instead of the provider of service.

In the existing indirect taxes, there are no specific provisions

for e-commerce operators to pay taxes on sale of goods, or
make any tax deductions from the payments made by them to the actual
sellers of the goods. But many states have started prescribing
Returns to be filed by the e-commerce operators with information relating
to supplies made through their portal. Attempts by some states to
equate e-commerce companies operating through the
'Marketplace Model' as dealers, and collect State VAT from
them have not succeeded; this has reference to the Kerala High Court
judgment in Flipkart Internet (P) Ltd. v. State of Kerala'.

Currently, the e-commerce sector faces many difficulties,

particularly in the following issues of indirect taxation. On
classification issues, the challenge is a categorization of the offerings
in e-commerce as 'goods' - inviting the payment of VAT/CST,
or as 'services' - inviting the payment of Service Tax. Both State
VAT/CST authorities and Service Tax authorities want to exercise
their right over digital transactions like downloads of software, music,
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e-books, etc., leading to disputes and endless litigation. On the issue of
compliance costs, the difficulties arise particularly in inter-state
movement of the offerings of e-commerce operators. These relate to
compliance of the requirements of statutory forms, way-bills,
road-permits, registration of e-commerce market place entity
for entry/sale of their offerings into a State etc.

There are many challenges in the management of supply chains.

The shipments and returns across the country involve a lot of paperwork
and other compliance costs. Further, at present, the sourcing,
distribution, and warehousing strategies are designed by the
companies from the perspective of minimizing the tax liability.
Besides, in view of non-uniform tax (VAT, Entry Tax, etc.) structure
across the States, the pricing of the goods and calculation of margins are a
challenge at present. Further, there is a lack of clarity on
taxation and documentation management for typical e-commerce
sector transactions such as e-wallet (advance deposits by the consumers),
cash-on-delivery (payment collected at the doorstep of the consumer),
gift vouchers, drop-shipment (direct delivery of goods from the
e-commerce company vendor to the e-commerce company customer),
etc.

Conventionally, indirect taxation revolves around the physical

presence and the physical movement of goods across jurisdictions.
But e-commerce models are different because the supply of goods is
happening across internet networks. Since it is difficult to establish
and track the physical movement of goods and the millions of
transactions, the possibility of pilferage and revenue leakages is
high. However, problems in taxation are faced mostly in models
wherein the e-commerce operator does not buy or sell the goods
directly from the sellers but claims to only facilitate the sale. In these
cases, the sale is being claimed to have happened between the
seller and purchaser with the e-commerce operator being only a service
provider to the seller. The operator charges a commission from the seller
for each sale. In these cases, the seller is declaring the sale of goods in
his returns while the E-commerce company only declares the total
amount of "services" provided to the seller and pays tax on it. Thus,
the e-commerce company completely dissociates itself from the act of
sale of goods. However, as mentioned before, some States have
prescribed filing of information return by the e-Commerce companies
operating on the marketplace or managed marketplace model,
thereby receiving information about sales which have taken place
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through their portal.

GST LEGISLATION ON E-COMMERCE

From a taxation point of view, it is important that the online

ordering and subsequent delivery of goods and services are
taxed consistently and fairly. It is also important that the
small traders not be adversely affected because of inconsistency
in taxation practices. In the GST era, the challenge is tracking and
taxing inter-state sales. The matter of incidence of CST on
inter-state trade through e-commerce is already in litigation in a
number of Indian states. While the first draft Model
GST Laws (MGL) of June, 2016 had retained the concept of
aggregators, it has been dispensed with by the Revised
Model GST Law published in November, 2016. The term
'electronic commerce' has been defined as the "supply of goods
and/or services including digital products over digital or electronic
network". 6 The term 'electronic commerce operator' has been
defined as "any person who owns, operates or manages digital
or electronic facility or platform for electronic commerce".' In the
first draft MGL the definition of 'e-commerce operator' covered
only the platform players. It had separately provided for an
'aggregator' in similar lines with the existing Service Tax
provisions. Companies like Uber, Ola, OYO Rooms, etc. could
fall under this category. As mentioned, the concept of aggregator
has been dropped in the Revised MGL, and instead, the definition
of e-commerce operator has been expanded to cover all kinds
of e-commerce operators that include: Providers of a platform
where supply and invoicing are done by the actual supplier
(e.g. Amazon), Suppliers of their own goods/services online
(e.g. Fabindia), and Entities which raise invoices for supply of others'
services (e.g. Google Play.) There is only one section,. The
scheme of one central registration valid for the entire country is
absent in the structure of GST. This will pose a great obstacle for
small and occasional dealers who otherwise wish to increase
their sales through e-commerce. The platform players would also be
impacted since such dealers may decide to refrain from
availing their services for effecting sales of the supplies. Further,
it is not clear whether, for the purposes of depositing tax collected
at source, the e-commerce operators would also be required to obtain
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registration in every state where the suppliers using their
platform are situated. Under the current indirect tax provisions,
the vendors selling goods via e-commerce can not avail credit
on Service Tax. The revised MGL has provided in Section 56(5) that the
supplier using the facility provided by the e-commerce operator
will be entitled to claim credit. Naturally, this will entail
following the procedure of registering at each state of supply, and
complying with the provisions relating to 'place of supply' in the
cases of inter-state supplies. The issue of multiple registrations
depending upon the 'places' (read as states) of supply will be
relevant for overseas suppliers as well. Currently, they discharge Service
Tax through centralized registration either by themselves or through a
representative.

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CONCLUSION

The concerns of e-commerce sector regarding TCS can

be summed up as follows: Although the tax collected by the
e-commerce operator and paid by the vendors would be available
as credit to be utilized later for payment of output tax, it is
estimated by a major e-commerce operator that at the current
scale of business, around Rs.400 crores of capital a year, will get
locked in the system and will not be accessible to sellers. This is
likely to deter the sellers from transacting online on the platforms
of the e-commerce operators. Secondly, TCS may also enhance
tax costs since many such suppliers who are below the threshold
do not pay VAT, Entry Tax or Service Tax on date. Thirdly, TCS
would be a compliance hazard, especially in cash-on-delivery scenarios.
Fourthly, IT and other systems will need to be restructured to ensure
compliance with strict disclosure requirements as prescribed in
the MGL. Finally, all the aforesaid responsibilities will put a huge
accounting and manpower burden on the e-commerce operators.
Given the fact that there are now lakhs of sellers facilitating
millions of transactions on these e-platforms, all these concerns
have brought the major e-commerce operators including
Amazon, Flipkart, Snapdeal, Paytm, Grofers, and Zomato, etc. together.
Recently, in the second week of February, they voiced
their GST concerns jointly. Given that India's e-commerce
revenue has been growing at an annual rate of 51%, it is hoped
that the GST Council would mitigate their concerns by dropping
the idea of TCS, and finding some other simpler way
of monitoring businesses that supply goods and services
via e-commerce operators. GST must be beneficial to every
sector of the economy. E-commerce being a comparatively
new initiative which is growing at a commendable rate deserves
to be dealt with deftly in the GST regime.

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