Tax Collection at Source for Multi-Operator E-commerce Transactions

Tax Collection at Source (TCS) is a vital provision under Section 52 of India's Goods and Services Tax (GST) Act. This regulation mandates that Electronic Commerce Operators (ECOs) collect tax on specific supplies facilitated through their digital platforms. This article explores the complexities of TCS liability when multiple ECOs are involved in a single transaction.

Understanding TCS Applicability under Section 52

All e-commerce operators, excluding those acting solely as agents, are required to collect TCS. This collection applies to the net value of taxable goods or services supplied by vendors through their platform, particularly when the ECO manages the payment collection from the buyer on behalf of the supplier. There are specific exceptions to this rule.

ECOs must collect TCS at a rate of 1% on the net value of these taxable supplies. For instance, if a product sells for INR 1000, the ECO would collect INR 10 as tax. Suppliers can then utilize this collected TCS amount as credit in their electronic cash ledger, based on the details submitted in the ECO's monthly statement.

Navigating TCS Challenges in Multi-Operator E-commerce

Traditionally, an e-commerce platform involves a single ECO managing both the buyer and seller interfaces. In such a model, the ECO collects payment from the buyer, deducts the TCS, credits it to the seller's GST cash ledger, and then transfers the remaining amount to the seller after subtracting service charges.

However, the emergence of platforms like the Open Network for Digital Commerce (ONDC) and similar frameworks has introduced scenarios where multiple ECOs participate in a single transaction. This setup might involve one ECO providing the interface for the buyer and another for the seller. In these cases, the buyer-side ECO might collect the payment, deduct its commission, and then pass the balance to the seller-side ECO.

This multi-operator involvement has created uncertainty regarding which ECO is responsible for deducting TCS under Section 52 of the CGST Act. Both the buyer-side and seller-side ECOs typically meet the definition of an ECO under Section 2(45) of the CGST Act, leading to potential ambiguities.

CBIC Clarification on TCS in Multi-ECO Transactions

To resolve these ambiguities, Circular No. 194/06/2023-GST provides clear guidelines on TCS liability under Section 52 of the CGST Act, 2017. The Central Board of Indirect Taxes and Customs (CBIC) clarified two distinct scenarios involving multiple ECOs:

Scenario 1: Supplier-Side ECO is Not the Actual Supplier

When multiple ECOs facilitate a transaction and the ECO on the supplier's side is not the direct supplier of the goods or services, the supplier-side ECO bears the responsibility for Section 52 compliance, including TCS collection. This is because the supplier-side ECO ultimately processes and releases the payment to the actual supplier for the supply made through their platform.

For example, if a buyer-side ECO collects payment from the customer, it deducts its commission and forwards the balance to the seller-side ECO. Subsequently, the seller-side ECO disburses the payment to the actual supplier after deducting its own fees. In this situation, the seller-side ECO is required to collect and remit the applicable TCS to the government as per Section 52 of the CGST Act.

Scenario 2: Supplier-Side ECO is Also the Actual Supplier

In situations where multiple ECOs are involved in a single transaction, and the supplier-side ECO is also the actual supplier of the goods or services, the buyer-side ECO is responsible for collecting TCS. This occurs when the buyer-side ECO collects payment from the buyer, deducts its fees, and directly remits the remaining amount to the supplier (who, in this case, also functions as an ECO as defined in Section 2(45) of the CGST Act). Under these circumstances, the buyer-side ECO must collect the applicable TCS and pay it to the government as mandated by Section 52 of the CGST Act.