GST Council meeting: Onus of deducting TCS may be on ONDC sellers

Tuesday's GST Council meet likely to put out clarification

The Goods and Services Tax (GST) Council in its meeting on Tuesday likely to put out a clarification about the tax collected at source (TCS) liability of suppliers in context with the newly-introduced ONDC model. It may clarify that TCS would be deducted by the seller app while making a payment to the supplier, if there are multiple e-commerce operators (ECO) involved in a single transaction. 

The Open Network for Digital Commerce or ONDC model is intended to democratise digital commerce and move it from a platform-centric model, such as Amazon and Zomato, to an open-network model in a bid to end monopolistic practices in the digital space.
 

With the new business architecture and participation from a broader cross-section of the industry — especially by a large number of small and medium enterprises — clarity was sought by stakeholders regarding TCS obligations in the case of ONDC model of multiple ECOs from concerned ministries. 
 

The GST rule suggests that every e-commerce operator is required to collect TCS at the rate of 1 per cent of the taxable value of goods/services sold through its platform. 
 

A law committee, comprising officials from states and the Centre, which was examining the issue, is learnt to have recommended that in such a situation where multiple ECOs are involved in a single transaction of supply of goods or services or both through a digital platform and where the supplier-side itself is not the supplier of the said goods or service, the TCS compliance is to be done by the supplier-side (seller app), which finally releases the payment to the supplier.  The panel explained that the ONDC’s open network works on two models — inventory model and marketplace model.

The inventory model is straight forward where a buyer places an order with an e-commerce platform, which then pays the supplier of goods or services. The obligation of TCS deduction is on the e-commerce platform while making a payment to the seller.
 

But it was not clear in the case of the marketplace model, where two intermediaries are involved in a single transaction. 

In the marketplace model, a buyer places an order on an e-commerce platform (buyer app) which then sources it from another e-commerce entity (seller app). The seller app then procures goods from the actual supplier.
 

“The issue of TCS applicability where multiple ECOs are involved in the same supply is illustrative of the fact that changes in business practice will make it essential to have clarity on GST applicability on a real-time basis. It is expected that clarity will emerge on the ECO liable to deduct TCS in various situations, so that the buyer-side ECO and the seller-side ECO are clear about which of the two needs to deduct the TCS,” said M S Mani, partner, Deloitte India. 
 

Notably, last year, the GST Council exempted small businesses selling on e-commerce platforms from mandatory GST registration if they supplied goods with a turnover of up to Rs. 40 lakh.

Taxing concerns

• In the current platform-centric model of e-com, the buyer interface and the seller interface are operated by the same e-commerce operator 
• In the ONDC model, both buyer and seller apps qualify as e-commerce operators 
• Stakeholders sought clarity about which ECO is required to deduct TCS
• An e-com operator is required to collect TCS at the rate of 1% of the taxable value of goods/services sold through its platform