– By Shivam Mehta and Shubham Vijay
With the constant advancement in technology, new and complex business models are emerging, reshaping traditional industries and creating innovative opportunities in the e-commerce sector. Historically, our tax laws have struggled to keep pace with continuous technological developments and the emergence of innovative business models, leading to various legal ambiguities as to the proper course of compliance.
One such ambiguity which is persisting since the inception of GST law pertains to whether the electronic commerce operators (ECOs) are service providers or just the facilitators.
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While some ECOs function under the inventory model, directly selling goods or services to consumers on principal-to-principal basis, others operate under the marketplace model, merely facilitating the provision of goods and services between third-party suppliers and users.
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It is the ECOs working under a marketplace model which are under a constant scrutiny of the tax authorities. Tax demands are consistently raised on ECOs working as food aggregators and other ECOs, primarily due to the ambiguity surrounding the question of “who is the supplier of services? – is it the ECO or the third-party supplier”.
Tussle between ECOs and tax authorities
Tax authorities are taking the view that ECOs are supplying services to their users, as they undertake essential functions that constitute an integral part of the transaction. These include collecting the fees towards the services and processing it. This viewpoint revolves around the significant control of ECOs in the transaction and their role in enabling the transaction, which essentially makes ECOs the service providers.
On the flip side, ECOs contend that they are merely facilitating the supply of services between the third-party suppliers and users by way of providing them with a digital platform to connect. This viewpoint is being supported by compliance with TCS provisions under GST wherever applicable and highlighting that they are not contractually liable for the services provided by third-party suppliers.
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