GST on E-Commerce – A Case Study
XYZ Pvt. Ltd. (registered in UP) is India’s largest online B2B marketplace, connecting buyers with suppliers. With 60% market share of the online B2B Classified space in India, the channel focuses on providing a platform to Small & Medium Enterprises (SMEs), large enterprises as well as individuals. It offers products that enable small & medium size businesses generate business leads (online catalogs/store-fronts), establish their credibility (third party verified trust profile) and use business information (finance, news, trade shows, tenders) for their business promotion.
|S No.||Particulars||Amount in Rs.|
|1||Advance from Customer||11,42,93,900|
|2||Revenue – Catalogue, listing, utilization, others – Domestic||4,88,78,48,271|
|3||Revenue – Catalogue, listing, utilization, others – Foreign||2,99,90,336|
|4||Advertisement and marketing services||5,49,22,963|
|5||Interest Income – Others||15,411|
|6||Sale of Fixed Assets||5,37,213|
|7||Profit on Mutual Funds||5,12,83,151|
|8||Interest on FDR||2,58,65,307|
|9||Interest Income- Tax Refund||64,170|
|10||Interest income on security deposits||34,83,460|
|11||Notice Pay Recovery||10,655|
- Sale of fixed assets includes an sale value of an asset amounting Rs.2,20,000, sale after 9 months, which was purchase for 5,00,000 and ITC has been availed amounting Rs.90,000.
- Another asset on which ITC has been taken Rs.6,000and remaining ITC amt. Rs.3,000 with respect to reduction with 5% quarterly under section 18(6) lost during the year. Tax rate on sale and purchase of fixed assets is 18%.
- Sale value of mutual fund Rs.86,39,00,000.
- DWIP revenue include sale of services Rs.70,000 to one of its related party AB Ltd.
- As per sales policy of XYZ. Ltd. payment has been received in advance, prior provision of service. Order verification has been done and after that, Invoice has been generated with specific service and reported in GSTR-1 as supply by transferring advance to “DWIP”.
-After preparation of website and hosting the amount is transferred to deferred revenue.
Expense details: –
|Apr 18 – March 19|
|S No.||Particulars||Taxable value||Tax charged, if any|
|2||Staff Parties, Meeting & Conferences||3,93,37,220||28,32,279||1,01,962||1,01,962|
|3||Staff Meal Expenses- Lunch||61,02,173||0||1,52,554||1,52,554|
|4||Staff Meal Expenses-Snacks||2,10,54,209||0||5,26,355||5,26,355|
|8||R & M – Air Conditioner, UPS and Office Equipment||78,45,897||5,64,904||20,336||20,336|
|9||R & M Vehicle||40,204||2,894||104||104|
|10||House Keeping Consumables||51,49,732||3,70,780||13,348||13,348|
|11||Office Construction & Renovation||30,98,370||2,23,082||8,030||8,030|
|12.||Boarding & Lodging Expenses– domestic||1,52,07,505||10,94,940||39,417||39,417|
|13.||Food& Other travel Expenses –domestic||74,62,551||5,37,303||19,342||19,342|
|14.||Legal & Professional Charges||2,73,32,580||19,67,945||70,846||70,846|
|15||Director’s Sitting Fees||41,10,363||2,95,946||10,654||10,654|
|17||Outsourced Manpower- Salary||31,83,67,538||2,29,22,462||8,25,208||8,25,208|
|18||Rent a cab||1,74,05,926||0||10,44,355||10,44,355|
- Out of Legal & Professional Expenses, Rs.5,00,000 has been paid to an advocate firm registered in Delhi and Rs.6,00,000/- has been paid to a legal firm registered in Uttar Pradesh, date of invoice and date of payment is provided hereunder:
|Taxable value||CGST||SGST||Date of issue of invoice||Date of payment to Advocate firm|
- Boarding & Lodging expense amount includes hotel charges for Rs.10,000/- with IGST Rs.1,800 and invoice has been raised on the name of XYZ co. with other state registration.
- Staff parties and meeting Expense includes parties and meal expenses during meeting Rs.1,38,00,000 and tax charged thereon CGST Rs.3,45,000/-, SGST Rs.3,45,000/- and balance amount is for meeting hall booking and management.
- Out of total Insurance expenses 35,00,000 and 3,00,000 includes for Life insurance of employees and car and motor vehicle respectively. Tax charged is as follows:
Life insurance of employees: IGST 18% = Rs.6,30,000/-
And on Motor vehicle insurance: CGST 9% = Rs.27,000/- and SGST Rs.27,000/-
- Cab services has been procured by the company for their employees. The company is deducting cab expenses from the salary of its employees to recover a part of total invoice value raised by the cab service providers.
- Calculated GST liability.
- Time of Supply in case of legal Expenses (RCM services) and Interest on non-compliance of Time of Supply in the below case.
|Taxable value||CGST||SGST||Date of issue of invoice||Date of Tax payment|
- Taxability on sale or lost of fixed Assets?
- Block ITC under Section 17(5)?
- Treatment of Tax liability on sale of mutual fund?
- Taxability on Notice Pay recovery.
- Eligibility on IGST charge on the Hotel services regarding the above adjustment.
- Whether cab services provided by the employer to employee is levy of GST. Whether ITC is available for payment of the liability?
- Taxability on sale of Rs. 70,000/-to one of its related party AB Ltd.
- Invoice Issued for Export under LUT does not contain first proviso under rule 46 of CGST Act, 2017 what will be the consequences for Non-compliance of rule.
- As per the revenue booking policy of XYZ, calculate the Tax due and paid by categorized in B2B, B2C and Export Wise with unadjusted advances.
|Advances (18%)||11,42,93,900||1,94,31,368||5,70,766||5,70,766||Note 1(a)|
|Revenue – Catalogue, listing, utilization, others – Domestic (18%)||4,88,78,48,271||80,68,64,057||3,64,74,316||3,64,74,316||Note 1(b)|
|Revenue – Catalogue, listing, utilization, others – Foreign (18%)||2,99,90,336||0||0||0||Note 1(c)|
|Advertisement and marketing services (18%)||5,49,22,963||46,45,537||26,20,298||26,20,298||Note 1(b)|
|Interest Income – Others||15,411||0||0||0||Note 1(d)|
|Sale of Fixed Assets||3,53,213||63,578||0||0||Note 1(e)|
|Sale of Mutual Funds||86,39,00,000||0||0||0||Note 1(f)|
|Interest on FDR||2,58,65,307||0||0||0||Note 1(d)|
|Interest Income- Tax Refund||64,170||0||0||0||Note 1(d)|
|Interest income on security deposits||34,83,460||0||0||0||Note 1(d)|
|Notice Pay Recovery||10,655||0||0||0||Note 1(g)|
1(a) GST has been paid on basis of receipt of advances @18% with regard to its main supply.
1(b) Revenue from Catalogue, listing, utilization, and advertisement & marketing services others is covered under scope of supply of service, hence, GST shall be levied.
1(c) Revenue from Catalogue, listing, utilization, others – Foreign is export of service without payment of tax.
1(d) Interest Income on account of FDR, Income Tax refund, security deposits and other interest is exempt from levy of GST, hence, GST shall not be levied.
1(e) Sale of Fixed Assets: Refer Q. 4
1(f) Mutual funds are excluded from the definition of goods as well as services, hence, GST shall not be levied.
1(g) GST shall not be levied on notice pay recovery. Refer Q.6 for detailed reason.
- GST implication on Legal Expenses considering time of Supply (RCM services) and Interest on non-compliance of Time of Supply in the below case.
|Taxable value||CGST||SGST||Date of issue of invoice||Date of Tax payment|
|Taxable value||IGST||CGST||SGST||Date of Tax payment|
Services provided or agreed to be provided by an individual advocate or firm of advocates by way of legal services, directly or indirectly to any business entity shall pay tax on reverse charge basis under NN 13/2017- CT (R)even if the firm or advocate is registered under GST Laws.
Therefore, GST liability to be paid under RCM is as under:
IGST: 5,00,000* .18 = Rs.90,000/-
CGST & SGST: 6,00,000*.09 = Rs.54,000 each
As per section 13 of CGST Act time of supply in In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earlier of the following dates, namely:––
(a) the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or
(b) the date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier:
Provided that where it is not possible to determine the time of supply under clause (a) or clause (b), the time of supply shall be the date of entry in the books of account of the recipient of supply:
In the given situation it is not possible to determine the time of supply under clause (a), so TOS will be determined by the (b) as the date of issue of Invoice is determined-
Date on which Time of supply should be recognized –
Date of issue of invoice (20-04-2018) + 60 days= 19-06-2018
Date of payment of Tax liability in 3B &entry in the books=20-08-2018
Delay in Time of supply in days = 62 days
For the delay payment of tax, XYZ ltd. is liable to pay Interest liability under section 50 at the Rate of 18% per annum.
Calculation of Interest Liability –
|Tax Type||Amount of Tax||Delay in Days||Rate of Interest||Amount of Interest|
- Taxability on sale or lost of fixed Assets?
Ans:–Sale of fixed assets is taxable supply under section 7 of CGST Act, 2017.In this case GST is payable as per applicable rate on sale value of fixed asset under section 15, if the ITC is not availed on the same and Tax invoice has to be prepared, other than sale of second hand motor vehicle on which ITC has not been taken. In case of lost or disposed of assets without any consideration shall not be liable to pay tax on the same
If ITC has been availed on the capital goods at the time of its purchase, tax liability shall be calculated Under section 18(6) with rule 44(1)(b).
As per section 18(6) read with rule 44, in case of sale of capital goods on which input tax credit has been taken pay an amount equal to the input tax credit taken on the said capital goods reduced by 5% quarterly or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher. In case of lost or disposed of an asset without any consideration on which earlier ITC has been availed, shall pay tax with above compliance.
Case-I :-Taxability on sale proceeds Rs. 220000 received from fixed asset on which ITC has been availed. –
Tax on sale proceeds under section 15:-2,20,000* 18% = 39,600
Tax liability or reversal under section 18(6):-
Total ITC availed – 5%each for 1 quarter or proportionate
=Rs. 90,000 – (90,000*5%*3) (9 month from ITC availed = 3 quarter)
= Rs. 76,500
As per above calculation amount of ITC to be reversal (Rs.76,500) is higher than the amount of tax (Rs.39,500) to be paid on sale value. The tax liability of Rs.76,500 is added to the output tax liability.
Case-II:-Asset on which ITC has been taken amounting Rs. 6,000 and remaining ITC amt. Rs.3,000 with respect to reduction with 5% quarterly under section 18(6) lost during the year.
In the case of lost if ITC has been taken, the ITC shall be reversed on the basis of 5% quarterly from the date of Availment of such ITC. So ITC amounting Rs. 3,000 shall be reversed or to be added to the output tax liability.
Case-III:-Tax liability on rest of the sale value of fixed assets Rs.3,53,213.
Depreciation has been on the said assets, no ITC has been availed, so Tax liability shall be calculated under section 15 on the sale value of asset.
Tax liability – 3,53,213*18% = Rs.63,578.
- Block ITC under section 17(5)?
Block ITC expenses Incurred by XYZ ltd.
|Particulars||Expense Value (Rs.)||IGST (Rs.)||CGST (Rs.)||SGST (Rs.)||Remarks|
|Party and meeting meal||1,38,00,000||0||3,45,000||3,45,000||Note 4(a)|
|Office Construction & Renovation||30,98,370||2,23,082||8,030||8,030||Note 4(b)|
|Life insurance||35,00,000||0||3,15,000||3,15,000||Note 4(c)|
|Motor Vehicle Insurance||3,00,000||0||27,000||27,000||Note 4(c)|
|Boarding & Lodging Exp||10,000||1,800||0||0||Note 4(d)|
4(a) Meal expense during parties and meeting, snacks an lunch-
As per the provision Section17(5)(b) ITC for food and beverages expenses are block, so the amount of meal expense during parties and meeting, snacks and lunch expenses are block.
4(b) Office Construction & Renovation-As per section17(5)(d)- goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. Hence, ITC of construction expenses of own business building covered under block ITC.
4(c)Life Insurance and motor Vehicle Insurance- Out of total Insurance expenses Rs. 35,00,000; CGST Rs.3,15,000; SGST Rs. 3,15,000and Rs. 3,00,000 CGST Rs.27,000; SGST Rs.27,000 includes for Life insurance of employees and car and motor vehicle respectively. As per section17(5)(1) ITC for any type of expense on car and motor vehicle are not allowed, so ITC on Insurance expense is also not allowed. Further, ITC for life insurance is also not allowed under clause (b).
4(d) Boarding & Lodging Expenses – Invoice has been raised in the name of company but with other registration state, hence, ITC shall not be allowed.
- Treatment of Tax liability on sale of mutual fund.
Ans – ‘Securities’ have been explicitly excluded from the purview of GST, by virtue of its exclusion from the definition of ‘goods’ and ‘services’, as contained in Section 2(52) and Section 2(102) of the CGST Act respectively.
Knowing well that several businesses engage in transactions in securities, even while it is not its core business and that such transactions are undertaken for efficient deployment of unused funds or for hedging commodity price and, the GST law has sought to ensure that ITC attributable to such activities undergo reversal.
Section 17(2) and Section 17(3) of the CGST Act read with Explanation 2(a) to Chapter V of the CGST Rules, seek to achieve this, relevant provisions of which are extracted below-
|Section 17(2)||Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under GST Acts and partly for effecting exempt supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.|
|Section 17(3)||The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building|
|Explanation 2(a) to Chapter V of the CGST Rules||for determining the value of an exempt supply as referred to in sub-section (3) of section 17-… (b) the value of security shall be taken as one per cent. of the sale value of such security|
It is noted that Section 17(2) of the CGST Act casts a restriction on availing ITC to the extent it is attributable to an ‘exempt supply’.
As per above explanation and section sale of security constitute an exempt supply, for which value of exempt supply shall be taken 1% of sale value of Mutual fund and reversal shall be made under section 42 of the CGST Act.However, it is litigated issue for reversal of 1% as security is outside the ambit of goods and services. But yet no clarification has been issued from under GST Act.
Calculation for reversal on sale of mutual fund by XYZ ltd.
Sale proceeds from Mutual Fund- Rs.8,63,90,000
Value of exempt supply for the purpose of Reversal = 8,63,90,000*1% = Rs.8,63,900
Now, the reversal determined on the basis of E/F*C2(Aggregate exempt supply/ total turnover)* common credit.
So, Rs. 8,63,900 is added to the Exempt supply and total turnover , then reversal amount of ITC shall be attributed on the basis of common credit.
Taxability on Notice Pay recovery?
Ans- Generally, Employees after tendering resignation are required to serve notice period for certain period as per agreement. If employee fails to serve notice for agreed time period, employer recovers a pre-agreed amount from the employee’s salary which is called notice pay recovery.
Under GST regime, no tax has been paid by the taxpayers with reference to the schedule III of CGST Act,2017 which stated that services by an employee to the employer in the course of or in relation to his employment is non- GST supply. Employer has merely facilitated the exiting of employees and hence, notice pay recoveries cannot be considered as taxable services.
In case of XYZ Ltd-Income notice pay recovery is Rs.10,655shall not be subject to levy of GST.
- Eligibility on IGST charge on the Hotel services (in Delhi).
-Boarding & Lodging Expenses amount includes hotel charges Rs.10000 with IGST amounting Rs. 2400 and invoice has been raised on the name of XYZ co. (UP) ITC has been availed on it.
Ans- The place of supply has been defined in Section 12(3) (b) of IGST Act, 2017 read as follow:
The place of supply of services by way of lodging accommodation by a hotel, inn, guest house, home stay, club or campsite, by whatever name called, and including a house boat or any other vessel shall be the location at which the immovable property or boat or vessel, as the case may be, is located or intended to be located.
If the service providers supply the service to the interstate located recipient of service in this case recipient of service cannot take the input tax credit related to hotel accommodation/stay because the place of supply for these particular services is of the service provider (immovable property) and service provider charge always CGST and SGST, even if the service recipient is located in interstate.
In case of XYZ Ltd. Hotel charges 10,000with IGST amounting Rs. 2400, IGST cannot be levied because Gujarat shall be the correct Place of supply as per foresaid provision, so CGST will be charged and no ITC shall be availed for the Hotel Charges.
- GST liability on the value of supply of cab services provided by employer to employees. Whether ITC can be availed on further supply of services to the employees by XYZ ltd?
Ans-Employer and employee are related persons in terms of section 15 and value of supply shall be determined in terms of section 15 read with Rule 28 under GST Act,2017. However, a part of the service is charged from the employees by the company, but GST liability shall be paid on the whole amount of services given to employee under the above rule.
NN 11/2017-CT (R) was amended vide NN 20/2017-CT (R) to reduce the rate of 18% to 12%. Vide NN 31/2017-CT (R) dated 13-Oct-17 to change the condition. The service of renting of motor cab was taxable 12% with ITC.
The company is procuring supply of services of transportation of passenger in a motor vehicle for further supply of the same services to its employees. Thus, subject to the provisions of section 17(5)(1) of the CGST Act, the company is eligible to claim the benefit of ITC of tax paid on procurement of said supply.
Amount of Tax paid and ITC availed by the company @12%
|Rent a cab||1,74,05,926||10,44,355||10,44,355|
- Taxability on sale of Rs.70,000/- to one of its related party AB Ltd?
Ans- When the supplier and recipient of supply are related persons, the valuation of supply shall be done according to Rule 28 of the CGST Rules. As per Explanation to Section 15 of the CGST Act, inter alia, employer and employee, holding Company and subsidiary Company are related persons.
Further, as per rule 28 of the CGST Rules, the value of the supply where the supplier and recipient are related, shall be:
(a) open market value (OMV) of such supply;
(b) if OMV is not available, the value of supply of goods/services of like kind and quality;
(c) the value shall be 110% of cost of acquisition of goods/provision of services in other cases.
As per XYZ Ltd, goods are sold 110% of cost of acquisition of goods to their related parties and further, related parties are engaged in making taxable supplies and eligible for full input tax credit. Thus, the value declared in the invoice for supply is the open market value as the recipients are eligible for taking full input tax credit.
Tax on sale value to be payable – 70,000@18%
= 6,300 CGST, 6,300 SGST.
- Invoice Issued for Export under LUT does not contain the endorsement as prescribed under first proviso of rule 46 of CGST Act,2017, what will be the consequences for Non-compliance of rule?
Ans-Rule 46 prescribes the particulars shall be contained in invoice Subject to rule 54, a tax invoice referred to in section 31. As per rule 46 first proviso In case of Export of goods or services under Bond or LUT (letter of undertaking) the invoice shall carry an endorsement
“Supply meant for export/supply to SEZ unit or SEZ developer for authorised operations under bond or letter of undertaking without payment of Integrated Tax”.
As per section 122(1) of the CGST Act Non- compliance of rule 46 or supplies any goods or services or both without issue of any invoice or issues an incorrect or false invoice with regard to any such supply shall be liable to pay a penalty of ten thousand rupees or an amount equivalent to the tax evaded. Further, as per rule 89, at the time of refund of unutilised ITC regarding inputs used in export services, shall have a proper invoice under section 46. Non-compliance may cause to unnecessary delay in the refund process.
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