International Tax Law Review

By The Law Brigade (Publishing) Group 1

IMPACT OF GST LAW WITH REFERENCE TO

ECOMMERCE INDUSTRY IN INDIA

Written by Kunal Keshri

4th Year BBA LLB Student, Bennett University, Greater Noida, India
DOI: doi.org/10.55662/ITLR.2023.2101

ABSTRACT

Article 366(12A) defines the Goods and Services Tax (GST) as any tax on the supply of goods,
services, or both, except taxes on the delivery of alcoholic drinks for human use. In the new
Article 366(26A), the word “service” means something other than “products.” Article 366(12)
states that all materials, things, and articles are considered to be products.

The government considers the GST to be more of a tax reform than a change to the current
Indian tax system. They are evaluating all the pros and cons of the indirect taxation system.
India was one of 123 countries in the world that used the Value Added Tax (VAT) system.
Finance minister P. Chidambaram created plans for VAT and presented them to the Centre and
the States on January 17, 2005. VAT replaced the Central Excise Tax at the national level and
the Sales Tax System at the state level, which made a significant change to the tax collection
process.

In 2014, it was proposed that the GST be implemented in India starting from June 2016. The
GST is implemented in a “double” way, with one part handled by the Centre (CGST) and
another by the State (SGST). The tax base is almost the same for both the federal government
and the states. On July 1, 2017, the GST was implemented in India, with three main models:
(i) Central GST, (ii) State GST, and (iii) Dual GST.

The E-commerce industry in India has been contributing more and more to the Indian economy.
To make the most out of a mature and profitable E-commerce industry, retail E-commerce
businesses need a stable indirect tax plan to address tax assessment issues they have been
facing.

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The implementation of GST is also expected to resolve many supply chain problems that E-
commerce companies have been facing, leading to faster shipping and returns and reduced
administrative work. This will also help businesses and E-commerce sites improve their supply
chain methods by focusing on making better storage and organizational decisions driven by
cost and service.

Keywords: Goods and Services Tax (GST), Article 366(12A), Value Added Tax (VAT),
Central Excise Tax, Sales Tax System, CGST, SGST, Dual GST, E-commerce industry, tax
assessment, supply chain, shipping, returns, administrative work, supply chain methods,
storage, organizational decisions, cost, service, Indian tax system, tax reform, indirect taxation
system, P. Chidambaram, Centre, States, tax collection process.

INTRODUCTION

The taxation of online businesses and electronic commerce is a major concern for international
organizations, tax authorities, and national agencies. In its most developed form, electronic
commerce allows unidentified buyers to pay anonymous sellers in electronic currency for a
combination of merchandise, services, and licenses. The payee may be located anywhere with
access to a computer, and public restrictions have no effect. The current debate over the
taxation of online businesses or electronic commerce is similar to the uncertain academic and
administrative debate that occurred in the 1980s regarding mail-order transactions. However,
the additional inquiry pertaining to online business or electronic commerce is how to reconcile
national financial restrictions with the borderless universe of the internet. Governments are
currently losing millions of dollars in tax revenue due to the proliferation of online businesses
within their jurisdictions, and tax authorities are finding it increasingly difficult to stem this
hemorrhage. Multiple taxes on income, production and consumption of products and services,
transportation, and various other activities of earning and disbursing money have resulted from
India’s federal government structure.

Innovation has altered the global perspective on conducting business, and by 2025, the value
of India’s electronic commerce market is projected to reach $1 trillion. The Indian e-commerce
market is expected to reach US$200 billion by 2026, up from US$38.5 billion in 2017i, due to

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rising internet usage and increased online retail. In addition to e-commerce pioneers,
conventional businesses are progressively enhancing their digital presence. Rapid advances in
technology will repeatedly necessitate modern directives or legal interventions.

The e-commerce industry in India has been progressively contributing to the Indian economy,
and a stable circuitous duty course of action is required as a panacea for a number of expense
evaluation ailments encountered by e-commerce business entities in the retail space in order to
reap the benefits of a thriving and profitable e-commerce industry.

Furthermore, the implementation of GST is anticipated to resolve numerous store network

issues confronted by e-commerce organizations, including faster shipment and returns and a
reduction in administrative and record-keeping work. This will also assist associations and
web-based business entities in enhancing store network strategies, with an emphasis on
enhancing warehousing and association decisions that are primarily cost and administration
driven. The dual structure of the Goods and Services Tax (GST) will also result in the
simplification and disentanglement of the expense framework, making it easier and quicker for
those who sell across state lines, thereby reducing the burden on consumers. In this context,
current research focuses on the “Impact of the GST law on the Indian e-commerce industry.”

MEANING OF E-COMMERCE

OECD (2011)ii defines e-commerce as a web-based business transaction involving the sale or
procurement of products or services, conducted over computer networks by strategies expressly
designed to obtain or submit requests. The products or services are requested through these
methods; however, the payment and final delivery do not need to be conducted online. An
online business transaction may involve businesses, families, individuals, governments, and
other public or private organizations. To be included are orders placed via the Internet, extranet,
or electronic information commerce.

Online business is the buying or selling of goods or services that is done over computer
networks using methods designed to get or send requests. Even if a product or service is sold
electronically, the price and official movement of the product or service do not have to be

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coordinated on the web. A business transaction on the web can happen between businesses,
families, individuals, states, and other public or private groupsiii.

Next to the Industrial Revolution in the middle of the 20th century, the rise of electronic
business could be the most significant event in the history of money. While Europe and the
U.S. were the main winners of the Industrial Revolution, there are strong signs that India, along
with the U.S. and China, will be the major beneficiaries of the electronic exchange change.
This is because India has a large number of skilled people who can perform technical work. To
achieve its business goals, the Indian business is using growth as a driving force. In doing so,
it has been focusing on how the benefits of new technology and the risks that come with having
a business depend on it change.

Orders placed over the web, extranet, or an electronic data exchange are part of these electronic
trades. The method for placing the solicitation describes this type of trade. Orders made by
phone, fax, or handwritten notes are always forbidden. Online business organizations may use
some or all the following:

i) Sites where people can buy things online and have them shipped directly to them.
ii) Offering or taking part in online business places, which track business-to-customer
or customer-to-customer deals that can’t be touched.
iii) Business-to-business buying and selling.
iv) Getting pieces of information from web contacts and web-based media and using
them.
v) Electronic data exchange between businesses.
vi) Sending email or fax messages to customers who have already been contacted and
set up.
vii) Going into shopping to get new products and services out there.
viii) There was a rush of online business for the first time in a long time, which caused
a surge in online business. In 2010, the industry alone saw a 50 percent increase.
With the second wave of online business in India in the early 2000s, new ways of
shopping online, like group-buying sites, secret deals clubs, and comparison-
shopping platforms, began to grow. During this decade, there were also many

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impressive mergers and acquisitions, with money coming in from some of the most
important investment sources in India and around the world.
ix) People are affected by the web. Customers have become more demanding as they
have learned more about new products and services. The speed of the web has
changed every aspect of business, whether it’s how customers feel about a
company, how they feel about its accessories, or how supply chain leaders manage
the chain of storesiv.

CROSS-BORDER E-COMMERCE TAXATION

Due to the rise of cross-border online business transactions, various tax-related issues have
emerged, such as the following:

i) Is it necessary to develop new guidelines and norms to determine the nature and
character of compensation obtained from cross-border online transactions?
ii) Is there a need for a new definition and meaning of permanent establishment (PE)
in India for the purpose of expense evaluation?
iii) Is there a need to modify the premise of tax collection, such as tax on residence or
pay accumulated, emerged, and received in India?
iv) Should principles of assessment fairness be adhered to when considering tax
collection from online business transactions?
v) Are final consumers acquired or not?
vi) Is jurisdiction an issue associated with online business transactions?
vii) Copyright infringement.

On a global scale, e-commerce transactions pose numerous problems related to security,

jurisdiction, and taxation. The fundamental principle of tax collection is to avoid bias, which
requires that charge collection rules should not influence financial decisions. As a result,
financially comparable compensations should be treated similarly, regardless of whether they
are from conventional business coordination methods or online transactions.

To achieve international agreement on e-commerce problems, the Organisation for Economic

Cooperation and Development (OECD)v has been working on ways to address them. The

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OECD has suggested some rules that governments should follow and has also laid out new
rules for how taxes should be collected from online business deals. These rules are:

i) Governments should create a stable environment for electronic business to grow,

work to eliminate unnecessary barriers to trade, and intervene when necessary to
protect important public interests in the digital world, as they do in the real world.
ii) When government action is necessary, it should be proportionate, direct, solid,
clear, and impartial.
iii) Governments should seek a middle groundvi.

To address e-commerce taxation issues, two things need to be clarified: first, the type of income
generated from e-commerce transactions (e.g., royalty, business profit, or fees for technical
services); and second, the definition of PE in the source country and how to allocate profits to
it.

RESEARCH PROBLEM

The internet-based business industry in India has been growing rapidly and contributing
significantly to the Indian economy. In order to leverage the benefits of this growing industry,
e-commerce companies in the retail space require a consistent indirect tax approach to address
certain tax issues they are facing.

The implementation of GST is also expected to resolve several supply chain problems that e-
commerce companies have been encountering, leading to quicker shipping and returns and
reduced bookkeeping. This will also assist companies in improving their supply chain systems
by focusing more on making better warehousing and organizational decisions based on cost
and service. The two-tiered structure of GST will also simplify and enhance the tax structure,
making it easier and quicker for people to sell across state lines and reducing the burden on
buyers.vii

E-COMMERCE TRANSACTIONS

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Electronic commerce has replaced traditional collaboration. The word “e” represents the choice
and acceptance of electronic innovation, while “trade” represents business activities like
buying and selling goods and services online. E-commerce includes storing, creating, renting,
selling, and shipping goods via the Internet. E-commerce has opened doors and created
opportunities for people from all walks of life, including initiatives like Karshaka Information
Systems Services and Networking (KISSAN), an e-commerce and e-administration initiative
by the Department of Agriculture, Kerala, which provides farmers with online pesticide, seed,
crop board, and marketing information.

STATUTORY PROVISIONS UNDER GST LAW

Relevant provisions in this context are Section 2viii includes definitions, including subsections
(41-48), 50, 52, 56, 64, 65, 85, 86, 89, 102, and section 9, Article 265 of the Constitution of
India.

Section 52 of the CGSTix –

Tax Collection at Source This section allows for duty to be levied at the source under certain
conditions. The section describes in detail the tax collectors who are directed by the Central
Government to collect tax at the source, the rate of tax collection, and the method for settling
the tax collected. The amount of assessment collected is recorded in the Electronic Cash Ledger
of the person from whom the expense was collected. Normal CGST, UTGST, and SGST Act
provisions have been dissected in this manner.

Analysis of Section 52 in conjunction with Other Statutes and Regulations:

1. Every e-commerce operator will collect TCS at a rate of no more than 1% of the net
value of transactions for which they collect consideration of the inventory. Please note
that if there is a return of goods to suppliers, the corresponding amount will be deducted
from the gross value, and TCS will only be charged on the resulting net amount.

2. The amount collected will be paid to the Central/State Government separately within
ten days of the end of the month in which the collection is made.

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3. If the e-commerce operator fails to collect the burden under sub-segment 1 of Section
52 or collects a sum that is less than the sum required to be collected under said sub-
segment or where they fail to pay to the public authority the sum collected as expense
under sub-segment 3 of Section 52, they will be subject to punishment under clause (vi)
of sub-segment 1 of Section 122 of the Act, which may extend to Rs. 25,000 in addition
to

4. The e-commerce operator must file Form GSTR-8 within ten days of the end of the
month in which the supplies are made, detailing the outward supplies of goods or
services or both made through it, as well as the provisions returned through it and the
amount collected in sub-segment 1.

5. 5) The E-Commerce administrator must gather details of the duty collected at the source
under Section 52 of Form GSTR-8 and make them available to the supplier
electronically in Part D of Form GSTR-2A. A similar provision exists for Form GSTR-
2.
6. 6) As per Section 52(5) of the CGST Act, E-Commerce operators must file the Annual
Statement by December 31st following the end of the fiscal year, which is March 31st
of the relevant year.
7. 7) The amount of tax collected by the E-Commerce operator is reflected in the
supplier’s Electronic Cash Ledger once the operator has filed the relevant monthly
return.
8. 8) If there is a discrepancy between the information provided by the E-Commerce
operator in their monthly returns and that provided by the suppliers who sell goods or
services through the operator, the appropriate authorities may conduct a cross-check
inquiry. Either party may correct the inaccurate information. If the supplier fails to
make the necessary corrections, they may be penalized for non-compliance. The
negligent supplier (who under-reported their turnover) must pay any short settlement
with interest, as per Section 50.
9. 9) Any authority holding the rank of Deputy Commissioner or higher may issue a notice
to an E-Commerce operator requesting information on (a) supplies of products or
services made through the operator during a specific period, or (b) stock of merchandise

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held by the suppliers who sell goods or services through the operator in warehouses or
stockrooms overseen by the operator.
10. 10) The E-Commerce operator must respond to the notice within 15 days of receiving
it. If the operator fails to provide the required details, they may be fined up to Rs.
25,000/-, as per Section 52(14) of the Act.x
11. 11) The UTGST Act of 2017 adopts the provisions of the CGST Act regarding Tax
Collection at Source, subject to its own provisions.

DEALS THAT FALL UNDER SECTION 14 OF THE IGST ACT OF 2017

Since GST is a consumption-based tax, any goods that are consumed in India, such as those in
the public domain, are subject to GST. However, consider a web-based business exchange
where the entity carrying out the exchange is not based in India and has no physical presence
there, but still provides services to non-business individuals in India. We know that when the
service beneficiary is in India, but the service provider is outside of India, the beneficiary is
responsible for paying the fee under RCM. Since a non-financial expert is not at risk of
registration, would they have to sign up for long-term registration to free themselves from the
RCM (Reverse Charge Mechanism) obligation? The correct answer is “NO.” Section 14 of the
IGST Act makes the entity providing the service liable for registration and payment of fees in
these situations.

Section 14(1) of the IGST Actxi states that if a person in a non-taxable territory provides online
information and database access or retrieval services that are received by a non-taxable online
recipient, the person who provided the services in the non-taxable territory is responsible for
paying integrated tax on such a supply of services.

Online information and database access or retrieval (OIDAR) services are those whose delivery
is mediated by information technology over the internet or an electronic network and whose
nature makes their supply largely automated with little human intervention, and impossible to
ensure without information technology. This includes electronic services such as

a) advertising on the internet;

b) providing cloud services;

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c) providing e-government services;

d) providing e-health services;
e) providing e-commerce services.

A non-taxable online recipient is any government, local authority, government authority, or

person who is not registered and receives online information and database access or retrieval
services for any reason other than commerce, industry, or any other business or profession in
the taxable territory.

IMPACT OF GST ON E-COMMERCE

In general speech, electronic trade is called “business exchanges that are led electronically.”
Although this description may sound simple, electronic commerce started as online retail in the
stock-and-sell model, but it has now revolutionized the way people conduct business, making
it more efficient and productive than traditional methods. The success of companies like
Flipkart, Myntra, Paytm, Amazon, Make My Trip, and eBay has caught the attention of
everyone, from old-school financial experts to new business owners and even governments.
Online transactions have led to new ways of getting goods and services to people, making
everything cheaper without lowering the quality of their goods. In this study, we have compiled
some of these models and will examine how the Goods and Services Tax (“GST”) affects
themxii.

Taxation on cross-border e-commerce transactions in India has been a challenge due to the
absence of actual presence of suppliers, administrative difficulties in tracking and collecting
expenses, and the scope of GST burdening. The expansion of the digital economy and internet
business associations has had a global impact, including online enrollment-based services,
online recommendation of products/services/software, web gaming, hotel/flight reservations,
and more, such as Netflix, Amazon, Flipkart, Uber, Airbnb, MakeMyTrip, and Nintendo. With
effect from 1 April 2020, India has substantially widened the scope of “Equalisation Levy” to
encompass such cross-border web transactions. The Finance Act, 2020, which was approved
by the President of India on March 27, 2020, amended the arrangements of Equalisation Levy,

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and increased its level to introduce a 2% levy on e-commerce supplies or services utilised by a
non-web-based business operatorxiii.

Concerns have been raised regarding a fair playing field in the global market between locally
located brick-and-mortar stores and foreign online service providers. One can only hope that
the Base Erosion and Profit Shifting (BEPS) Action Plansxiv will reach a global consensus by
2020, as intended. Given the divergent interests of ‘host jurisdictions’ and ‘market
jurisdictions,’ it would require an enormous amount of concerted political will to reach a global
consensus on taxation rules. Until then, nations, including India, will continue to implement
unilateral measures for taxing digital participants to protect their revenue interests.

Electronic Commerce Operator (ECO):

Under GST, OIDAR and ECO have been introduced. ECO includes anyone who owns or
manages a high-tech office or electronic trading platform. According to this, an ECO is
required to accomplish charge assortment at source (Tax Collected at Source) @ 1% for its
items and endeavours from a defined client. For designated services such as radio-taxi and
convenience perks, the ECO must release 100% of the basic provider’s GST liability. However,
the complicated advanced player appraisal system still has ambiguities:

i. Service aggregators may qualify as both an OIDAR specialised organisation and an

ECO, requiring two GST registrations.
ii. While a rearranged and single enrollment system exists for OIDAR specialist co-ops,
an ECO is required to enlist in all States where the underlying provider exists.
Therefore, depending on the specific activities, ECOs may have the difficult
commitment to enlist in all States in India and comply with the related procedural
requirements. Unfamiliar online business managers who don’t have a physical presence
in a State may need to assign experts to enroll.
iii. When an ECO agrees to release 100% of the provider’s expenditure risk for certain
services, it is unclear how additional procedural standards like receipt issuance must be
consented to.
iv. The timing of an ECO’s expense collection is unclear. According to CBIC’s online
business flier, the administrator should make the selection during the month the
beneficiary pays the thought sum. However, the FAQ states that the ECO must charge

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at source “when the inventory is made through it.” It is unclear if this should be the date
when the provider makes the real (hidden) supply to a definitive client, when the client
completes the online exchange on the ECO’s site and makes the online installment, or
when the basic stockpile is supplied (which may be the date of receipt or supply). Since
an ECO’s monthly assertion will match the worried provider’s legal return for that
month or any first month, this perspective is crucial. If a befuddle remains unresolved,
the uncoordinated money will be added to the provider’s yield responsibility with
interest.

JUDICIAL PRONOUNCEMENTS

In the case of K.K. Ramesh (Petitioner) vs. The Union of India, The Secretary, Office of the
GST Council Secretariat, New Delhi and The Commissioner, Commercial Tax Officer,
Cheupakkam, Chennaixv, the Madras High Court found that the Petitioner had filed a writ
petition after the authority responsible for enforcing the GST law dismissed their enrollment
application for failing to provide clarification on errors in their records. The Petitioner, who
was aggrieved by the dismissal of their enrollment application, filed this writ petition in the
Hon’ble High Court.

According to the Respondents’ submissions, the Hon’ble High Court allowed the Petitioner to
file a new enrollment application with the necessary documents. If the Petitioner files a new
application, it will be considered, and the competent authority will decide on the matter. Based
on the contextual analysis, it appears that a candidate whose GST enrollment application has
been rejected may submit a new application.

In the case of Rajeevan V.N. (Petitioner) vs. The Central Tax Officer-1 Circle, Cochin And
Jose Thomas, Kottayam, (Respondent)xvi, the Kerala High Court found that the Petitioner-
Assessee was unable to record GST profits due to the temporary ID and secret phrase not
working. Additionally, the Petitioner-Assessee was deemed ineligible for enlistment. The
Applicant-Assessee cannot initiate the enrollment process or file the GST return due to the
temporary ID and secret key being non-functional. The Hon’ble High Court advised the
Respondent-Department to refrain from taking coercive recovery actions until the judgment is

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issued. The Hon’ble High Court has not yet made a decision, but it has advised the Respondent-
Department not to take action against enrolled individuals who were unable to comply with
GST regulations due to non-functioning temporary IDs and secret phrases.

In M/s KTL (P) Ltd. (Petitioner) vs. Union of Indiaxvii, the High Court of Judicature at
Allahabad found that the Petitioner-Assessee was unable to submit Form GST TRAN-01
because the Respondent-Department’s computerized system was not working. The Petitioner-
Assessee supported this petition of mandamus to broaden the headings of Form GST TRAN –
01. The Petitioner-Assessee, who couldn’t complete Form GST TRAN – 01 due to Respondent-
Department electronic problems, is entitled to temporary credit. The Respondent Department
will restart the gateway and allow the Petitioner-Assessee to fill out Form GST TRAN – 01
within 14 days of the Honourable High Court’s instruction. The High Court of Judicature at
Allahabad ordered the Respondent-Department to physically assist the Petitioner-Assessee if
the entryway isn’t restarted. The Petitioner can pay fees on the standard electronic system used
for credit consideration. The contextual investigation suggests that the Department cannot deny
temporary credit when the enlisted available individual couldn’t document Form GST TRAN
– 01 due to technical concerns. The office should ensure that such enlisted available individual
is eligible for temporary credit by reopening the entry or physically processing the temporary
credit application.

In the context of management fees, the Indian judiciary has established the following
principles:

i. Documentary evidence is essential to establish the authenticity of expenses incurred

for the payment of management fees/intra-group charges.
ii. It is challenging to provide concrete evidence of the day-to-day advice provided by
various group centers to group companies, but this can be inferred from the manner
in which business is conducted.
iii. The company’s legitimate business requirements must be evaluated from the
company’s perspective. The tax authority has no authority to dictate the necessities
of a business.
iv. When calculating ALP, the tax authorities cannot challenge the taxpayer’s business
acumen. It is up to the taxpayer to determine how to conduct its business.

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v. The TPO (Transfer Pricing Officer) cannot calculate the transaction’s ALP (Arm
Length Price) on an ad hoc basis. The provisions of section 92C (1)xviii require the
use of one of the prescribed methodologies for calculating the Arm’s Length Price
of international transactions. vi. The benefit test is required for determining the
arm’s-length price of intra-group services. ‘Benefit’ must be identified from the
assessor’s perspective; it must be potential, reasonable, and foreseeable; it may not
be quantifiable in monetary terms alone; it may be strategic but cannot be incidental.

To ensure conformance with the arm’s-length standard, management fees must be thoroughly
analyzed and meticulously documented. Emerging jurisprudence on the subject suggests that a
robust document attesting to the receipt of management services would go a long way toward
avoiding or minimizing exposure in this area. Given the complexities involved and the level of
in-depth analysis required, it is prudent for taxpayers to be well-prepared in advance.

CONCLUSION

Today, web commerce is rapidly gaining traction. Online business can be defined as the leader
of any business activity that utilizes the Internet as a medium. The scope of online commerce
is dynamic and consistently expanding. Given the unfamiliar foreign direct investment (FDI)
and managerial principles in existence, the online business marketplace game plan has been
the best model in India.

More importantly, it is uncertain whether these laws will be able to legitimately assess based
on extraterritoriality. In conclusion, while the law seeks innovation, it is essential for businesses
to discover the stratified complexities of the legal system, manage the complexities, and live
with the ambiguities.

The introduction of the Goods and Services Tax (GST) law altered the fundamental guidelines
governing how e-commerce is conducted in India. The Organisation for Economic Co-
Operation and Development (OECD), G20-Twenty OECD Participating Nations in its project
BEPS (Base Erosion and Profit Sharing) Action Point 1 have completely expressed that the
entire economy is digitalizing, and that it would be difficult, if not impossible, to ring-fence
the digital financial framework.

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After due discussion and deliberation with its member nations, the OECD & G20 would not
deliver a solution on Taxation of the Digital Economy until the year 2020. Due to the delay in
providing solutions, individual countries have begun unilaterally taxing the Digital Economy
within their taxing jurisdictions, based on the original proposal put forth by OECD and G20.

In light of the foregoing, India must tread carefully along this path to burden the Digital
Economy, like a bumblebee that extracts nectar from a flower without injuring the flower itself.
India should also devise its tax assessment strategy on the digital economy in one or more of
the aforementioned ways, so that the web-based business industry is not burdened by taxes and
can develop and prosper to its full potential.

ENDNOTES

i
Media Reports, Press releases, Union Budget 2019-20, Business Standard, Economic Times, Live Mint, Times
Now, Times of India.
ii
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