Government Circular Clarifies TCS Liability for Multiple E-Commerce Operators

The Ministry of Finance, Department of Revenue, Central Board of Indirect Taxes and Customs (‘CBIC’) has issued Circular No. 194/06/2023 dated 17.07.2023. This circular is here to provide important guidance on Tax Collection at Source (‘TCS’) liability under s. 52 of the Central Goods and Services Tax (‘CGST’) Act, 2017. In simpler terms, this document addresses situations where multiple E-commerce Operators (‘ECOs’) are involved in a single transaction. Think of it like a scenario in the world of online shopping, especially in setups like the Open Network for Digital Commerce (‘ONDC’) and similar systems.

The main purpose of this circular is to clarify who is responsible for collecting the TCS and making sure they follow the rules outlined in s. 52 of the CGST Act. It provides vital guidance to businesses that operate in e-commerce, helping them understand their TCS obligations and what they need to do when dealing with ECOs in their transactions. The goal of this circular is to make sure everyone interprets and follows the legal rules consistently and clearly.

Traditionally, in the platform-centric e-commerce model, a single ECO manages both the buyer and seller interfaces. This ECO is responsible for:

• Collecting payments from the buyer.

• Deducting the required TCS as per s. 52 of the CGST Act.

• Crediting the TCS amount to the seller's GST cash ledger.

• Distribute the remaining funds to the seller after deducting service charges.

However, this circular becomes important when situations arise where one ECO manages the buyer's side, while another ECO takes care of the seller's side. In these cases:

• The ECO handling the buyer's side is responsible for collecting the payment from the buyer.

• It deducts its commission from the collected amount.

• The ECO then transfers the remaining funds to the ECO responsible for the seller's side.

The emergence of platforms like ONDC and similar models has introduced a new complexity, where a single transaction may involve multiple ECOs, one representing the buyer and another representing the seller. CBIC received enquiries and requests for clarification regarding the responsibilities related to TCS and other compliance matters under s. 52 of the CGST Act in these multifaceted scenarios.

Issue 1: Multiple ECOs, Supplier-side ECO Not the Direct Supplier

In cases where a transaction involves multiple ECOs facilitating the sale of goods or services through their platform, and the seller-side ECO is not the primary supplier, the clarification stipulates the following process:

1. The buyer-side ECO is responsible for collecting payment from the buyer.

2. After deducting its fees, the buyer-side ECO transfers the remaining balance to the seller-side ECO.

3. It then becomes the responsibility of the seller-side ECO to collect TCS and ensure compliance in accordance with s. 52 of the CGST Act.

Issue 2: Involvement of Multiple ECOs, Seller-side ECO Also the Supplier

In scenarios where multiple ECOs are engaged in a transaction, and the seller-side ECO qualifies as both the supplier and an ECO as defined in s. 2(45) of the CGST Act, the following procedure applies:

1. The buyer-side ECO is responsible for collecting payment from the buyer.

2. After deducting its fees, the buyer-side ECO transfers the remaining balance to the supplier, who is also an ECO.

3. In such cases, it is the duty of the buyer-side ECO to collect TCS during the payment process and ensure compliance with s. 52 of the CGST Act.

Conclusion

This circular provides much-needed clarity regarding the roles of buyer-side ECOs and supplier-side ECOs in these complex scenarios. It also encourages all stakeholders to promptly report any challenges they encounter in implementing these guidelines to the CBIC.

In summary, when the supplier-side ECO is not the actual supplier, they are obligated to collect TCS and comply with s. 52 of the CGST Act. Conversely, when the supplier-side ECO is indeed the actual supplier, the responsibility for TCS collection and compliance under s. 52 shifts to the buyer-side ECO.

This underlying objective of this clarification is to establish a consistent and standardized approach to legal implementation across all field formations, thereby enhancing the efficiency and transparency of e-commerce transactions involving multiple stakeholders.

Authored by Sushma Gowda, Associate at Metalegal Advocates. The views are personal and do not constitute legal opinion.