GST Vidhi | GST Advance Ruling

E-Commerce Platforms Selling Goods and Collecting Payments Classified as Electronic Commerce Operators (ECO) Under CGST Act Section 2(45) - Karnataka Authority for Advance Rulings

 By Yogesh Verma (CS/ LLB) / 2 min. read / GST Advance Ruling

Advance Ruling No.:  KAR ADRG 08/2024

Name of Applicant: M/s. Changejar Technologies Pvt. Ltd.

Name of Authority: Karnataka Authority for Advance Rulings

Date of Ruling: February 28, 2024.

Summary of Advance Ruling:

Changejar Technologies Pvt. Ltd. (referred to as the "applicant") operates a micro-saving and investment platform through a mobile application called "Jar". The primary service offered through this platform is the sale of Digital Gold, in partnership with Digital Gold India Pvt. Ltd. (DGIPL), a seller of digital gold.

Through this platform, users can invest in digital gold, which is stored in a vault by the seller (DGIPL). The applicant provides a means for users to purchase this gold, but does not own the gold itself. Instead, the applicant earns a commission based on the sales made through their platform, which is credited at the end of each month. The sale proceeds from the customers are transferred directly to DGIPL via an escrow account, with no deductions or control over the funds by Changejar.

Question Raised before Authority: The applicant sought an advance ruling to clarify their role under GST law, particularly:

1.     Whether the applicant is considered an Agent and therefore excluded from the requirement to collect tax at source under Notification No. 52/2018 (Central Tax), read with Section 52 of the CGST Act, 2017.

2.     Whether the applicant is required to register as an E-commerce operator under the provisions of Rule 12 of the CGST Rules, 2017.

Applicant’s Business Model:

·        Platform Operations: Changejar provides a platform for users to purchase digital gold, which is offered by DGIPL.

·        Commission Model: The applicant earns a commission based on a percentage of the sales made through the platform. They do not charge any platform fees from DGIPL.

·        Escrow Account: When a user purchases digital gold, the funds are transferred into an escrow account, which is jointly held by Changejar and DGIPL. At the end of each day, the funds are transferred from the escrow account to DGIPL without any deductions or control by the applicant.

·        Responsibility for Gold: DGIPL is solely responsible for the quality and authenticity of the gold being sold. The applicant provides only the platform and does not assume any responsibility for disputes regarding the gold's quality or delivery.

·        Invoice Issuance: The invoices are issued by DGIPL directly to the customer. The applicant only issues invoices for the commission earned from DGIPL.

Submission by Applicant:

1.     Not an E-commerce Operator (ECO): The applicant argued that they are not an e-commerce operator since they do not assume responsibility for the supply of goods (digital gold) or provide multiple products. They stated that their platform merely facilitates the sale of gold between DGIPL and customers.

2.     Agent Role: They also argued that their commission-based model, without control over the funds or involvement in the actual sale, classifies them as an agent under GST law. As a result, they claimed that they are exempt from the provisions of Section 52 of the CGST Act, 2017, which mandates the collection of tax at source for e-commerce operators.

3.     Commission Agent Status: The applicant contended that they qualify as a commission agent for DGIPL, and, as such, they are not required to register as an e-commerce operator under GST.

Relevant Sections and Provisions:

1.     Section 2(44) of CGST Act, 2017: Defines "Electronic Commerce" as the supply of goods or services, including digital products, through a digital or electronic network.

2.     Section 2(45) of CGST Act, 2017: Defines "Electronic Commerce Operator" (ECO) as any person who owns, operates, or manages a digital or electronic platform for electronic commerce.

3.     Section 52 of CGST Act, 2017: Mandates the collection of tax at source (TCS) by e-commerce operators on taxable supplies made through their platform, where the consideration is collected by the operator.

Authority’s Analysis:

·        Nature of Business: The Authority found that Changejar owns, operates, and manages a digital platform (the "Jar" app), which facilitates the sale of digital gold by DGIPL. This makes Changejar an Electronic Commerce Operator (ECO) under Section 2(45) of the CGST Act, as it operates a platform for the sale of goods (in this case, digital gold).

·        Principal-to-Principal Relationship: The Authority examined Clause 9.4 of the agreement between Changejar and DGIPL, which clearly states that the relationship between the two entities is on a principal-to-principal basis, not as principal-agent. Therefore, the applicant’s argument that they are an agent was rejected.

·        Ownership and Responsibility: The Authority emphasized that the applicant does not assume ownership of the gold nor responsibility for its quality or delivery. However, this does not exclude them from being considered an e-commerce operator, as they manage a platform through which goods are sold, and the consideration is collected.

·        Comparison with E-commerce Platforms: Although the applicant compared themselves to Amazon or Flipkart, the Authority clarified that such platforms assume certain responsibilities (like delivery and refunds). Nonetheless, Changejar’s operations still qualify as an e-commerce platform, as they are involved in the sale of goods (digital gold) and collect payment from customers through their platform.

Key Observations:

·        The applicant does not qualify as an agent, and their role as an operator of a platform for digital gold sales qualifies them as an e-commerce operator.

·        The sale of digital gold through the applicant’s platform constitutes a taxable supply under GST law, and the applicant is required to collect tax at source (TCS) under Section 52 of the CGST Act, 2017.

·        The applicant’s argument that they do not assume responsibility for the goods does not exempt them from compliance with the provisions of Section 52.

·        The applicant is also required to register as an e-commerce operator under Section 24(x) of the CGST Act, 2017.

Final Ruling:

1.     Electronic Commerce Operator Status: The applicant qualifies as an e-commerce operator and is not an agent of DGIPL. Therefore, they are subject to Section 52 of the CGST Act, 2017, and must comply with the Notification No. 52/2018 (Central Tax), which mandates the collection of tax at source.

2.     Tax Collection at Source (TCS): The applicant is required to collect tax at source on the net value of taxable supplies made through their platform.

3.     Mandatory Registration: The applicant is required to register as an e-commerce operator under Section 24(x) of the CGST Act, 2017.

Conclusion: In summary, Changejar Technologies Pvt. Ltd. is deemed to be an Electronic Commerce Operator under GST law. As a result, they are required to collect tax at source (TCS) on the sale of digital gold through their platform and must register as an e-commerce operator. The Authority’s ruling clarifies that the applicant cannot claim to be an agent and is subject to the provisions of Section 52 of the CGST Act, 2017.

Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.