Know all about recent GST updates for Ecommerce sector effective from 1st January 2022

Introduction

In its 45th meeting held on 17th September, 2021 the GST Council has notified ‚Restaurant Service under section 9(5) of the CGST Act, 2017. By virtue of notification No. 17/2021 dated 18.11.2021 tax on supplies of restaurant service supplied through e- commerce operators shall be paid by the e-commerce operators.

What is E- commerce?

Electronic Commerce has been defined in Sec. 2(44) of the CGST Act, 2017 to mean the supply of goods or services or both, including digital products over digital or electronic network.

Who is an E- commerce operator?

Electronic Commerce Operator has been defined in Sec. 2(45) of the CGST Act, 2017 to mean any person who owns, operates or manages digital or electronic facility or platform for electronic commerce.

Will an e-commerce operator be liable to pay tax in respect of supply of goods or services made through it, instead of actual supplier?

Yes, but only in case of services notified under Sec. 9(5) of the CGST Act, 2017. In such cases tax shall be paid by the electronic commerce operator if such services are supplied through it and all the provisions of the Act shall apply to such electronic commerce operator as if he is the supplier liable to pay tax in relation to the supply of such services.

What is Tax Collection at Source (TCS)?

The e-commerce operator is required to collect an amount at the rate of 1% i.e., (0.5% CGST + 0.5% SGST) of the net value of taxable supplies made through it, where the consideration with respect to such supplies is to be collected by such operator. The amount so collected is called as Tax Collection at Source (TCS).

Implications of amendments for the E-commerce sector:

As ‘restaurant service’ has been notified under section 9(5) of the CGST Act, 2017, the ECO like Zomato, Swiggy shall be liable to pay GST on restaurant services provided, with effect from the 1^st January, 2022, through ECO. Accordingly, the ECOs will no longer be required to collect TCS and file GSTR 8 in respect of restaurant services on which it pays tax in terms of section 9(5).

In light of the above, E- commerce operator and a registered person would report notified supplies on the GST portal as under

However, this change is not applicable for restaurant services provided from a premise with declared tariff of Rs. 7,500/- or above per day.

There would be no mandatory requirement of taking separate registration by ECOs for payment of tax on restaurant service under section 9(5) of the CGST Act, 2017 as ECOs are already registered in accordance with rule 8(in Form GST-REG 01) of the CGST Rules, 2017. Further, ECOs will be liable to pay GST on any restaurant service supplied through them including by an unregistered person.

Applicability of Input Tax Credit/ Reverse charge for ECO:

Since ECO are not the recipient of restaurant service supplied through them and therefore, they are not input services to the ECO. Hence, these are not to be reported as inward supply (liable to reverse charge).

ECOs provide their own services as an electronic platform and an intermediary for which it would acquire inputs/input service on which ECOs avail input tax credit (ITC). The ECO charges commission/fee etc. for the services it provides. The ITC is utilised by ECO for payment of GST on services provided by ECO on its own account (say, to a restaurant). The situation in this regard remains unchanged even after ECO is made liable to pay tax on restaurant service. ECO would be eligible to ITC as before. Accordingly, it is clarified that ECO shall not be required to reverse ITC on account of restaurant services on which it pays GST in terms of section 9(5) of the Act. It may also be noted that on restaurant service, ECO shall pay the entire GST liability in cash, which means no ITC could be utilised for payment of GST on restaurant service supplied through ECO).

Will the above changes impact the end consumers pockets by paying more for online order to Zomato or swiggy? 

Zomato, swiggy with all the other food delivery apps are now liable to pay goods and service tax to the government on behalf of the restaurants that supply food through these platforms. This is a matter of concern, as question arises will there be rise in payment for ordering food online by end consumers. However, it was clarified by the GST council that no new tax has been added. Tax that was earlier paid by restaurants will now be paid the accumulators.

Cloud kitchens will be taxed 5% GST without input tax credit. Further, by making food delivery e- commerce operator liable to tax for the restaurant services, all restaurants including cloud kitchens supplying food through these apps would get taxed, making the food supply that much costlier.  Presently the rate of GST is 5% without input tax credit charged by restaurants on the supply of services including supply of food and beverages. Whereas, accumulators like Zomato and swiggy registered under TCS are charging 18% GST on delivery charges which is paid by consumers. The impact on consumers will not be much where the restaurant has more than Rs 20 lakh turnover, however, concern will arise for small restaurants as safeguards need to be taken in subjecting them to GST to ensure that smaller food outlets are protected and consumers do not end up paying more. This would also give a rise to the compliance burden for online food apps.

Will there be any impact for e-commerce operators providing services of transportation of passengers?

Yes, e-commerce operators will also be made liable to pay tax on service of transportation of passengers by any type of motor vehicles being provided through them, from 1^st January, 2022. This will impact the service of Ola and Uber.