Organised By All India Federation of Tax Practitioners (NZ)
In Association with Income Tax Bar Association Varanasi

Theme : “A Bright Sail Towards Tax Proficiency”  

 Venue: Kanhaiya Vilas, Akatha Balue Road, Sarnath, Varanasi

Date : 11th & 12th November 2019

All India Federation of Tax Practitioners (NZ) is hosting a two days Tax Conference at Varanasi on 11th and 12th November 2019 (Monday and Tuesday), in association with the Income Tax Bar Association, Varanasi on the occasion of Dev Deepavali.

The Dev Deepavali (“the Diwali of the Gods” or “Festival of Lights of the Gods”) is the festival of Kartik Poornima celebrated in Varanasi, Uttar Pradesh, India. It falls on the full moon of the Hindu month of Kartika and takes place fifteen days after Diwali. The steps of all the ghats on the riverfront of the Ganges River, from Ravidas Ghat at the southern end to Rajghat, are lit with more than a million earthen lamps (diyas) in honor of Ganga, the Ganges, and its presiding goddess. The gods are believed to descend to Earth to bathe in the Ganges on this day. The festival is also observed as Tripura Purnima Snan. The tradition of lighting the lamps on the Dev Deepawali festival day was first started at the Panchganga Ghat in 1985. During Dev Deepawali, houses are decorated with oil lamps and colored designs on their front doors. Firecrackers are burnt at night, processions of decorated deities are taken out into the streets of Varanasi, and oil lamps are set afloat on the river.


10th November, Sunday

4:00pm onwards

Swachh Bharat Abhiyan, Ek kadam swachhata ki ore

Chief Guest – Dr. Ashok Sarraf (National president AIFTP)

11th November 2019, Monday

9.30 a.m. to 11.00 a.m.

Inaugural Session

Chief Guest – Honourable Justice Sharad Arvind Bobde, (Judge Supreme Court of India)

Guest of Honour – Honourable Justice Govind Mathur (Chief Justice Allahabad High Court)*

Guest of Honour- Sri Pramod Chandra Mody (Chairman CBDT)*

1st Technical Session

11.30 a.m. to 1.30 p.m.

Current Issues and Critical Aspects of Goods and Service Tax

Key Note Speakers

1. Shri. A. K. Batra, Advocate, New Delhi, 2. Shri. Sujeet Ghosh, Advocate, Supreme Court, New Delhi

1.30 p.m. to 2.30 p.m.

Lunch Break

2nd Technical Session

2.30 p.m. to 4.00 p.m.

Crack Down on Black Money –

Key Note Speaker – Shri Rajendra Nrisinh, Mumbai (Retired member ITAT)

3rd Technical Session

4.00 p.m. to 5.00 p.m.

Mann ki Baat – Panel discussion with High officials of Direct and Indirect Tax Departments with Tax Professionals and Tax payers.

Cultural Evening to be followed by dinner (7p.m. onwards)

12th November 2019,Tuesday

4th Technical Session

9.30 a.m. to 12.00 p.m.

Technical session (Recent changes and technical” problems under GST)

Key Note Speaker : CA Vimal Jain

5th Technical Session

12.30 p.m. to 1.30 p.m.

Valedictory Session : Chief Guest – Amlrag Thakur (Deputy Finance Minister)

Dev Deepawali Celebration on the bajra (big sized boat)
2:30 pm onwards followed by dinner.

(*confirmation awaited)


Conference Registration only for Delegates

₹ 3500/-

Conference 11th & 12th up to lunch

Conference Registration for Spouses

₹ 3000/-

Conference 11th & 12th up to lunch

Dev Deepawali registration (Per person)

₹ 5500/-

Sail on Bajra (big sized boats) with snacks followed by dinner

Corporate registration

₹ 5000/-

Only for conference

RTGS / NEFT Payment Details

Account Name : “DEV DIPAWALI TAX CONFERENCE”    Bank Account No. : 38538863089
Bank Type : Saving Bank A/c    Bank Name : State Bank of India
Branch : M. A. Road Varanasi    IFSC Code : SBIN0007233

Cheques and drafts should be in favour of : “DEV DIPAWALI TAX CONFERENCE”

For further Enquiries Contact

Adv. Arvind Shukla 9415201059,    Adv. Om Prakash Shukla 9415204837    Adv. Prakash Gupta 9161492109
CA Surendra Kumar Dwivedi 9415203012    Adv. Ajay Kr. Singh 9415618150    Adv. Sanjay Verma 9839612290
Adv. Ashutosh Singh 9415269345    Adv. Sanjay Kumar (Alld) 9415216798    CA Jamuna Shukla 9450361366
CA Punit Kumar Singh 9935535185    For Hotel Booking Contact: Adv. Asim Zafar 9415203535

Query 1

GST on Co-operative Housing Societies

Please explain about taxation of Co-operative Housing Societies under GST

Under GST, tax base is widened. Vide certain provisions it is believed that the Co-operative Housing Societies are liable to GST when they collect contribution from the Members. At the first sight the above belief appears to be illogical. Co-operative Housing Societies are based on doctrine of mutual co-operation. They are formed for managing the property and administration of the building on behalf of members as there are several separate members. It is based on doctrine of mutuality. Recently Hon. Supreme Court had an occasion to decide doctrine of mutuality in case of incorporated club vis-à-vis levy of tax i.e., in case of State of West Bengal vs. Calcutta Club Limited (Civil Appeal No. 4184 of 2009 & others dated 3.10.2019). While dealing with the issue of levy of tax on charges made on members, Hon. Supreme Court has held that there is no commercial transactions between club and members as the club is working under doctrine of mutuality. There cannot be commercial transactions between club and members.

The working of co-operative society is also based on doctrine of mutuality. There is no element of profit motive. It is working as agent of the members for managing common property.

However, the applicability of above judgment to the co-operative society under GST requires conscious decision. In other words there should be clear legal precedent on above issue. Till such precedent comes, the current position, as coming out of provisions under GST Act will remain applicable.

The said provisions can briefly be noted as under:-

Under GST, the tax is levied on taxable person.

The definition of ‘person’ in section 2(84) of CGST Act is as under:

“(84) “person” includes—

(a) an individual;

(b) a Hindu Undivided Family;

(c) a company;

(d) a firm;

(e) a Limited Liability Partnership;

(f) an association of persons or a body of individuals, whether incorporated or not, in India or outside India;

(g) any corporation established by or under any Central Act, State Act or Provincial Act or a Government company as defined in clause (45) of section 2 of the Companies Act, 2013;

(h) anybody corporate incorporated by or under the laws of a country outside India;

(i) a co-operative Society registered under any law relating to co-operative societies;

(j) a local authority;

(k) Central Government or a State Government;

(l) Society as defined under the Societies Registration Act, 1860;

(m) trust; and

(n) every artificial juridical person, not falling within any of the above.”

The Co-operative Society is specifically included in definition of person.

The ‘Taxable person’ is defined in section 2(107) of CGST Act as under:

(107) “taxable person” means a person who is registered or liable to be registered under section 22 or section 24.”

Section 22(1) of CGST Act about registration reads as under:

22. (1) Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees:

Provided that where such person makes taxable supplies of goods or services or both from any of the special category States, he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees.”

Thus, if there is taxable supply and aggregate turnover exceeds the specified limit i.e. ₹ 20 lakh, he is liable to be registered.

For knowing whether ‘supply’ is taxable or not, reference is required to be made to meaning of ‘supply’ given in section 7 of CGST Act. The said section is as under:

7. (1) For the purposes of this Act, the expression “supply” includes––

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business;

(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II….”

As per this section the supply will be covered by CGST, if such supply is in course or furtherance of business.

Therefore, it is necessary to see the definition of ‘business’.

The meaning of ‘business’ is given in section 2(17) of CGST Act, which reads as under:

“(17) “business” includes––

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);

(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;

(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;

(e) provision by a club, association, Society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;

(f) admission, for a consideration, of persons to any premises;

(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;

(h) services provided by a race club by way of totalisator or a licence to book maker in such club; and

(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities.”

As per sub-clause (e) in above definition, a Society providing facilities or benefits to members is considered as business.

Though there is strong position to argue that Society is working on principle of mutuality and no element of business in activities of Society, so far as position and understanding of GST department stands today, it will be considered to be in business.

As per above discussion, at present the Cooperative Society is to be considered in business and hence to the extent of supplying services against collection, it will be liable to pay GST.

Being liable to pay on supply side, Society can claim ITC on inward supply. Say for an example, when Society is liable to pay GST on outward services of repair, it is entitled to get ITC on inward supply of repair services or good used for same. Reference can be made to recent Circular No. 109/28/2019- GST dated 22.7.2019 issued by Central Board of Indirect Taxes & Customs wherein, amongst others, it is clarified as under:-

Sl. No.




Is the RWA entitled to take input tax credit of GST paid on input and services used by it for making supplies to its members and use such ITC for discharge of GST liability on such supplies where the amount charged for such supplies is more than ₹ 7,500/- per month per member?

RWAs are entitled to take ITC of GST paid by them on capital goods (generators, water pumps, lawn furniture etc.), goods (taps, pipes, other sanitary/hardware fillings etc.) and input services such as repair and maintenance services.

Thus, it is recognized that against outward services, ITC is available for inward supply.

It is possible that the repair activity is considered as resulting in immovable property.

Normally, when inward supply results in immovable property, ITC is not allowed.

However, in present case, Society will be eligible as per exception provided in section 17(5)(c) which reads as under:-

“(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:—

(a) …

(b) …

(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;”

Thus, if the inward service for construction of immovable property is for outward supply, then ITC is eligible. Similarly, for goods also ITC will be eligible. In present case, even if it is assumed that Society is procuring inward services for construction till ITC is eligible as it is for further supply to members. Therefore the ITC will be eligible.

In case of society, the GST is applicable when the charges to be collected are exceeding ₹ 7,500/- per month per member. In particular month, if it does not exceed ₹ 7,500/- no GST. In other words, the liability is to be seen per month, per member.

The further issue can be that if the charges exceed ₹ 7,500/- per month whether GST is to be levied on whole amount or only on amount which is in excess of ₹ 7,500?

This has become dicey issue. There is Advance Ruling by Tamil Nadu Advance Ruling Authority in case of TVH Lumbini Square Owners Association (TN/25/AAR/2019 Dt. 21.6.2019), wherein it is held that once the collection crosses ₹ 7500, then the GST is payable on full amount and deduction of ₹ 7500/- is not permissible. No doubt prior to above A.R., there were CBIC – E-Filers (which is also referred to in the AR) stating that if the contribution exceeds ₹ 7,500/- then GST is payable on excess collection i.e. on amount which is in excess of ₹ 7,500/- and ₹ 7,500/- remains exempt.

However, after above A.R., the position has become debatable and unless any contrary Advance Ruling comes in Maharashtra by Maharashtra Advance Ruling Authority, the department authority will follow above Advance Ruling.

Further, the CBIC in circular referred to above dt. 22.7.2019 has also towed the same view of Tamil Nadu Advance Ruling. In para 5, it is stated as under:


How should the RWA calculate GST payable where the maintenance charges exceed ₹ 7,500/- per month per member? Is the GST payable only on the amount exceeding ₹ 7,500/- or on the entire amount of maintenance charges?

The exemption from GST on maintenance charges charged by a RWA from residents is available only if such charges do not exceed ₹ 7,500/- per month per member. In case the charges exceed ₹ 7,500/- per month per member, the entire amount is taxable. For example, if the maintenance charges are ₹ 9,000 per month per member, GST @18% shall be payable on the entire amount of ₹ 9,000 and not on [₹ 9,000 ₹ 7,500] = ₹ 1,500.

Though there is arguable case that the tax should be levied on contribution exceeding ₹ 7,500/-, till due to above AR and circular, the department will charge from Re. 1 and will not give any exemption. The more difficult part is that the above position will apply from 1st July, 2017 and even though the societies may have been misled by earlier E-flyer still no relief till the date of circular and the tax will remain applicable from 1.7.2017. There should be relief till date of new circular, where no tax is collected on ₹ 7,500 by the societies. However, this is matter of representation and fair appreciation by the authorities.

The above is outline for liability of Co-operative Housing Societies under GST. The society is required to consider various provisions minutely including tax position of various supplies under GST for discharging tax liability and compliance etc.

1. Domestic Taxation

1.1. The digitalization of every aspect of life has led to an exponential growth of e-commerce transactions in the recent years, which necessitates the need to regulate and tax these transactions. This paper discusses the taxation of e-commerce transactions under the GST Act, 2017 and the Income-tax Act, 1961. It is divided in two parts. The first part deals with the taxation of e-commerce transactions within the country i.e., domestic taxation and the second part deals with the taxation of international e-commerce transactions i.e., international taxation. The domestic aspects of taxation are discussed here in reference to the GST Act, 2017. This part is sub-divided in various sections, which elaborate on the challenges in taxation of the e-commerce under the earlier indirect tax regime [i] and the need for the GST Act and its advantages over the earlier regime. [ii] Further, it explains the taxation of e-commerce taxation in two parts i.e., taxation of the e-commerce operators under the CGST Act, IGST Act and the SGST Act [iii] the taxation of intermediaries under IGST Act [iv].

A. Challenges in taxation of The E-Commerce under the earlier Indirect Tax Regime

1.2. With digitization of every aspect of life, the economy is no exception. The phrases like “borderless world” and “modern technology defies geography” have become reality in digital economy. The e-commerce industry has expanded tremendously over the years. The size of the e-commerce industry in India is estimated to be approximately $40.3 billion. [UNIDO, Inclusive and Sustainable Industry Development Working Paper Series WP 15, National Report on Development of E-commerce Development in India, 2017<>]. Thus, the regulation and taxation of the electronic-retail businesses and other e-commerce transactions have gained momentum over the years. E-commerce includes the supply of goods, services or both, including digital services, over digital or electronic network. [Section 2 (14), Central Goods and Services Act, 2017]

1.3. Earlier, the e-commerce was taxed under various legislations in India. This caused multiplicity of problems for the taxation of the transactions, which included multiplicity of legislations leading to double taxation and cascading effect in taxation of e-commerce entities, different tax liability and compliance mechanisms for the manufacture, sale and supply in different states, lack of clarity about the taxation of the services provided by e-commerce operators and the intangible goods. [Institute of Chartered Accountants of India (ICAI), STUDY PAPER ON TAXATION OF E-COMMERCE UNDER GST (2017)
<>]. In light of these issues, the government envisioned “One Nation One Tax” and consolidated around
17 indirect tax legislations into a single legislation i.e., the GST Act, 2017.

B. GST: A Ray of Hope for The Challenges of E-Commerce Taxation

1.4. The GST regime brought uniformity in the taxation of e-commerce transactions. It reduced the cascading effect of taxes and reduced the overall rate of taxation. E-commerce transactions are defined as the transactions which involve the supply of goods and services through an online platform. [Section 2(14), Central Goods and Services Tax Act, 2017] There are various bodies that can supply such goods and services. In accordance with the provisions of the CGST Act, 2017, SGST Act, 2017 and the IGST Act, 2017 there are two ways of taxing the suppliers of such goods and services-taxation of e-commerce operators [i] and taxation of intermediaries [ii]. These aspects are discussed in detail in the following sections.

C. Taxation of E-Commerce Operators

1.5. Section 2 (43B) of CGST Act, 2017 defines e-commerce operator is a person who, directly or indirectly, owns operates an electronic platform (virtual/digital), which is engaged in the supply of any goods and/or services. Indian law is based on the inventory model. This implies that the supply of goods and services by a person on his/her own accord will not qualify them as e-commerce operator, but merely acting as a platform for supply of goods and services between two persons will make him/her the e-commerce operator. The E-commerce operators and persons supplying goods and services through the e-commerce platform are mandated to obtain registration in each State where they trade [Section 24, CGST Act, 2017]. However, an exception has been created for the persons supplying goods and services through the e-commerce platform on the basis of their aggregate value of the supplies made by them i.e., if the aggregate value of such supplies made is less than ₹ 20 lakh in states and less than ₹ 10 lakh in “special states” they are not bound to get registered. [CGST Notification No. 65/ 2017- Central Tax, dated November 15, 2017, Ministry of Finance (Department of Revenue, Central Board of Excise and Customs) <>].

1.6. The taxation of e-commerce transaction under the GST regime is based on the place of supply because GST is a destination-based tax. The correct determination of the place of supply is crucial because an error in this can lead to payment of taxes to the wrong State. For example, if the place of supply is Bangalore, Karnataka and the place of recipient is Nagpur, Maharashtra, IGST and CGST will be applicable since it is an inter-State supply. But, if the place of supply and place of recipient is both Bangalore, Karnataka, CGST and SGST will be applicable. The separate grounds for taxation on the basis of place of taxation are taxation of intra-State supply [i] and taxation of inter-State supply [ii].

i Taxation of intra-State transactions

1.7. Section 9 of IGST Act, 2017 defines intra-state supply as the supply of goods or services or both in such a manner that the place of supply and recipient of supply are in the same State or the same Union territory. Central Goods Services Tax and State Goods end Services Tax are applicable for an intra-state supply [Section 8, IGST Act, 2017].

1.8. The taxation of supplied made through the e-commerce platform is difficult on the basis of a destination-based tax. This is because of the fact that the supply is made through a virtual platform, which makes it difficult to keep track of the transactions and affix the liability on the beneficiary of the supply. Thus, the tax is collected at the source. The E-commerce operator has to collect tax at the rate of 1% (0.5% CGST and 0.5% SGST) of the net value of the taxable supplies, supplied through its platform. [Notification No. 52/2018, dated 20th September, 2018<>]. This tax is called tax collected at source (TCS) and is applicable on the supplies only if the value of the supply is above ₹ 2.5 lakh. The amount collected by the e-commerce operator has to be paid to the Government by the 10th day of the next month and the return of the same has to be filed in GSTR-8 Form. The failure to pay GST is punishable with a penalty of ₹ 100 per day for CGST and ₹ 100 per day for SGST and the maximum penalty is ₹ 5000.

ii. Taxation of inter-state transactions

1.9. These separate categories are created on the basis of place of supply. According to section 8 of IGST Act, 2017 the supply of goods and services through the electronic platform between two States, two union territories, a Union territory and a State will constitute inter-State supply. The inter-State supply by an e-commerce operator is regulated by section 13 of the Integrated Goods and Services Tax Act, 2017. This section is vital in determining the nature of the transaction, because that in turn will help in deciding whether it is inter-State tax or intra-State tax. The only tax applicable to the inter-State transactions is the Integrated Goods and Services Tax. IGST is also applicable on the e-commerce inter-State transactions for the import of goods and for the transfer of online information and database access or retrieval services.

D. Taxation of Intermediaries

1.10. Intermediaries, as defined under section 2(13) of the IGST Act, 2017, includes the brokers, commissioning agent or any other person, who provides platform for the supply of goods or services or securities between two people but do not initiate the transaction on their own accord. If the place of receipt is outside the territory of India, the place of supply provided by the intermediaries for the place of supply is considered to be the location of supplier i.e., India. If the services location of the recipient is within the territory of India, the place of supply will be the location of the recipient. [Section 13, IGST Act, 2017]

1.11. The courts and tribunals have laid down certain clarifications regarding the persons liable as intermediaries. These are as follows:

1.11.1. Third Party Transactions will not amount to intermediary services: The Hon’ble Supreme Court held in the case of Commissioner vs. AIA Engineering Ltd. [2016 (41) S.T.R. J262 (S.C.)] i.e. the purchase and subsequent sale of goods and services will not amount to an intermediary service under the GST Act. In this case, the assessee had recorded two separate transactions i.e., purchase of goods by them from WSL and the sale of goods by them to ACC. The assessing officer taxed them as intermediary service. The court gave the decision in favor of the assessee and held that these are two separate transactions of sale and purchase and this will not amount to intermediary service. This implies that only the act of providing a platform for supply of goods, services or securities will make a person liable as an intermediary under the GST Act, 2017.

1.11.2. Support and marketing services: When a person negotiates and purchases some goods and services from the principal and later sells them to the customer, it will not be considered an intermediary service because these are two separate transactions and the act of negotiation of the prices with the principal is not on the behalf of the customer. However, support services in shipping in such an act will constitute intermediary service only when the negotiation is done on behalf of the customer. Further, the marketing services provided to global universities are “intermediary” services.[In Re: Global Transportation Services Pvt. Ltd. 2016 (45) S.T.R. 574 (A.A.R.)]. Lastly, the back office support services, payroll processing, maintenance of records of employees and the customers provided to the customer outside India will be considered as the intermediary services and will be considered as the intermediary services. The service provider will be made liable in capacity of an intermediary [Vservglobal Private Limited [2018 (19) G.S.T.L. 173 (A.A.R. – GST)].

1.11.3. Zero-rated supply and intermediary services: Earlier, the services provided to entities outside India, were considered to be export services, which implied that they will be zero-rated supply and thus, they were not taxable under the GST Act. However, there has been a change in this position. Certain services provided to the overseas clients are considered to be services taxable in India. In a recent decision the Maharashtra Advance Authority Ruling held that the act of arranging/facilitating the supply of the goods between the overseas clients and their customers in India would qualify as an intermediary service. The appellant, who was providing the services of back-office documentation, administrative support and payroll-processing to the overseas clients, was declared as an intermediary[GST- ARA, Application No. 03 dated 9 April, 2018]. The services provided by it would not be considered as export and hence zero rated supply under section 16 of the GST Act, 2017. They were considered as inter-state supply and hence taxable under IGST. [Section 7, Integrated Goods and Services Tax Act, 2017] The services were taxed as services provided by the intermediary and the location of supply i.e. India was considered as the place of supply and thus the supply was made taxable.

E. Dispute Resolution Mechanism

The CGST Act, 2017 has introduced the provision of seeking advance ruling under section 97. If the assessee wants a clarification regarding the classification of goods, applicability of the notification, the time and value of the supply of goods, services or both, admissibility of the input tax credit paid on the tax paid, determination of liability to pay tax or the requirement of registration of the applicant, he/she can file an application (FORM GST ARA-01) to the authority of advance ruling set-up under the SGST Act. [Section 96, 97, CGST Act, 2017, Rule 104, 105 CGST Rules, 2017] Once the application is admitted, the authority for the AAR shall give its ruling within thirty days. The appeal will be binding on the assessee and the department for the given matter. [Section 98, CGST Act, 2017] However, it will not be binding on other assessees in other cases i.e. it will not be a binding precedent. The appeal filed by the assessee (FORM GST ARA-02) to the Appellate Authority of Advance Ruling has to be filed within 30 days of the order of the AAR along with a fee of ₹ 10,000/-, while the appeal filed by the officer (FORM GST ARA-03) has to be filed within thirty days and no fees has to be submitted along with that. [Sections 49 and 98, CGST Act, 2017; Rule 106, CGST Rules, 2017] The AAAR is bound to give the decision in ninety days of the date of filing the appeal and it shall be binding on the asssesse and the revenue department. [Section 101, CGST Act, 2017]

2. International Taxation

2.1. This part discusses the aspects of taxation of the income earned by the non-residents by the means of online services and supply of goods through online platforms in India. It is discussed in reference of the provisions of Income Tax Act, 1961. It is further divided in two parts i.e. the taxation by equalization levy [i] and the taxation by the means of significant economic presence and the virtual service permanent establishment [ii].

A. Taxation of Digital Transactions under The Income Tax Act, 1961

2.2. The income through the online transactions can be taxed in two ways:

i. Equalization levy

ii. Significant Economic Presence and Virtual Service Permanent Establishment

i. Equalization Levy

2.3. The challenge of taxation of e-commerce transactions was dealt with and discussed at length in by the OECD as a part of Base Erosion Action Plan (Task force on Digital Economy with G-20 countries). As a result of this, a 15-point Action Plan was devised and the action plan 1 dealt with the tax challenges of digitalization (Report by Task Force on Digital Economy). This is relevant because it was greatly relied on by the committee on taxation of e-commerce, in its report titled “Equalization levy on specified transactions”. On the basis of these findings, equalization levy was proposed in the Finance Act, 2016. It introduced the concept of Equalization levy and significant economic presence.

2.4. Equalization levy was introduced as a measure to prevent the tax evasion on the online services, provided by the residents to the non-residents. It was introduced at a rate of 6% of the amount of the consideration for the specified services received or receivable by a non-resident not having a permanent establishment in India, from a resident in India who carries out business or profession, or from a non-resident having permanent establishment in India. “Online” means a facility or service or right or benefit or access that is obtained through the Internet or any other form of digital or telecommunication network. For the purpose of equalization levy, the “specified service” means online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement. [Section 165, Finance Act, 2016]

2.5. In order to ensure that the levy does not affect the business of the micro, medium and small enterprise businesses, the government specified a limit of consideration on which the equalization levy won’t be applicable i.e. it won’t be applicable if the total amount of consideration does not exceed one lakh rupees. [Explanatory notes to Finance Act, 2016: Circular No.- 3/2017, para 32] This provision came into effect from June 1, 2016 [Notification No. 37 (SO 1904E)]

ii. Significant Economic Presence and Virtual Service Permanent Establishment

2.6. Even prior to the incorporation of significant economic presence the courts have relied on the similar parameters to determine the existence of permanent establishments in India. It was held by the ITAT Bangalore in the case of ITO v. Right Florists (2013) 143 ITD 445 (Kol.)(Trib.) that on the basis of the the domain name, specific website for the Indian users, the number of users, the revenue generated and the usage of the servers for the purpose of revenue generation by the companies in India, the service permanent establishment can be constituted in India. Thus, the advertising revenues of the tech giants such as Google and Yahoo would be taxed as the revenue generated by the Permanent Establishments.

2.7. In the Finance Act, 2018 the concept of Significant Economic Presence was introduced by the government to prevent the evasion of taxation by the companies, who do not have physical presence in India but, still solicit business and earn income from India. The section 9 of the Income Tax Act, 1961 was amended and explanation 2A was inserted. [Section 4, Finance Act, 2018] The conditions for significant economic presence have been included in the parameters for the constitute business connection in India. This implies that even if the non-resident companies do not have a physical presence in India, they can be taxed in India if they have significant economic presence in India. The twin conditions for significant economic presence in India are: the transactions regarding the sale-purchase or transfer of goods, services or any other tangible or intangible property if they are above the prescribed threshold [i] and the systematic and continuous solicitation of business by the NRE, which involves interaction with the customers [ii] (Section 9, Explanation 2A, Income Tax Act, 1961). The fulfillment of these conditions constitutes business connection of the Non-resident enterprise in India. The introduction of these parameters is a great step in taxation of the digital economy, but the government is yet to notify the threshold for constituting significant economic presence. It had released a public consultation paper for this in 2018 and the comments received are under consideration. [Public Consultation on the proposal for amendment of Rules for Profit Attribution to Permanent Establishment- reg, F. No. 500/33/2017-FTD.I] According to this committee report, the threshold for significant economic presence can be based either on the number of local users or the amount of local revenue generated. In terms of the number of users, the committee has advised to assign 10% weightage to the users in the companies with business models with low or medium user density and 20% weightage to the users in the companies with business models with high user density.

2.8. Recently, the ITAT Delhi rendered the landmark judgment of M/s Nokia Networks OY vs. JCIT, (2018) 65 ITR (Trib.) 23 (SB) (Delhi)(Trib.) held that the foreign company did not have a permanent establishment in India and was thus, not liable to be taxed as a permanent establishment in India. It held that if the parent company of an Indian company does not explicitly fulfill the criteria laid down for forming a permanent establishment in the Double Taxation Avoidance Agreement, it cannot be made liable because the Indian Company is a virtual projection of its parent company. [Permanent Establishments and Virtual Projection: The case of Nokia Networks, Kluwer International Tax Blog, September 3, 2018, <>]

2.9. Another peculiar issue in the taxation of e-commerce is the taxation of the expenditure incurred in the creation of market intangibles such as goodwill. This issue was recently discussed by the ITAT Bangalore in the case of M/s Flipkart India Private Limited vs. CIT (2018) 170 ITD 751 (Bang.)(Trib.). The issue for consideration here was whether the profits foregone in the earlier years can be regarded as the expenditure incurred for the creation of market intangibles (brand value and good will) and thus, taxed accordingly? The ITAT held that this cannot be done and the loss incurred cannot be disallowed on this ground. The ITAT followed the decision of the Supreme Court in the case of CIT vs. A. Raman & Co. (1968) 67 ITR 11 (SC) and CIT vs. Calcutta Discount Co. Ltd., (1973) 91 ITR 8 (SC) and held that only the actual sale price of the product can be considered while computing the profits and loss of the assesse, not the cost price or the profits foregone. Unless, section
145 (3) of the Income Tax Act, 1961 has been invoked, the profits and losses have to be considered only on the basis of the profit and loss account of the assessee.


3.1. Prior to the payment of taxes, if the assessee wants any clarification regarding the payment, extent of the amount and applicability of the taxes/notification to the assessee, he/she can approach the Authority for Advance Ruling (AAR) under the Income Tax Act, 1961 and the CGST Act, 2017 and the respective State or Union Territory GST Acts.

3.2. Advance Ruling for the GST matters: If the assessee wants a clarification regarding the classification of goods, applicability of the notification, the time and value of the supply of goods, services or both, admissibility of the input tax credit paid on the tax paid, determination of liability to pay tax or the requirement of registration of the applicant, he/she can file an application (FORM GST ARA-01) to the Authority of Advance Ruling (AAR) set-up under the SGST Act. [Section 96, 97, CGST Act, 2017, Rule 104, 105 CGST Rules, 2017] Once the application is admitted, the authority for the AAR shall give its ruling within thirty days. The appeal will be binding on the assessee and the department for the given matter. [Section 98, CGST Act, 2017] However, it will not be binding on other assesses in other cases i.e. it will not be a binding precedent. The appeal filed by the assessee (FORM GST ARA-02) to the Appellate Authority of Advance Ruling has to be filed within 30 days of the order of the AAR along with a fee of ₹ 10,000/-, while the appeal filed by the officer (FORM GST ARA-03) has to be filed within thirty days and no fees has to be submitted along with that. [Sections 49 and 98, CGST Act, 2017; Rule 106, CGST Rules, 2017] The AAAR is bound to give the decision in ninety days of the date of filing the appeal and it shall be binding on the assessee and the revenue department. [Section 101, CGST Act, 2017] There is no specific provision in the GST act for appealing against the decision of the AAAR. In a recent decision, the Hon’ble Bombay High Court held that the decision of the AAAR cannot be challenged on merits before the High Court under the writ jurisdiction. However, the court can look into the order, if there is a violation of principles of natural justice, the AAAR exceeded its jurisdiction or committed errors of law and ensure the compliance with the principles of natural justice. [JSW Energy Limited vs. Union of India and 3 others, Writ petition no. 5 of 2019, Order dated 07 June, 2019].

3.3. Advance Ruling for income tax matters: If the assessee, who is a non-resident, wants a clarification regarding a taxability of a transaction undertaken or proposed to be undertaken, he/she can file an application to the Authority of Advance Ruling (AAR). A non-resident can file an application (Form No. 34 C) to the AAR with a fees of ₹ 2,00,000. A resident can file an application (Form No. 34 D), if he is doing a transaction with the non-resident if the value of the transaction or transactions, undertaken or proposed to be undertaken by him is ₹ 100 crores or more (Form No. 34 DA) by filing a fee of ₹ 5,00,000 (if the transaction value is between ₹ 100 crores and ₹ 300 crores) or a fee of ₹ 10,00,000 (if the transaction value is above ₹ 300 crores). The application to the AAR cannot be filed if the question is pending before an ITAT bench, High Court or Supreme Court, if the question involves the determination of the fair market value of a property or when the question relates to a transaction, prima facie for the evasion of tax. [Section 245N, Income Tax Act, 1961; Notification No. 73/2014, dated 28-11-2014 <>] The AAR shall give its decision within 6 months of filing of the application. The order will be binding only on the applicant to the extent of the transaction for which the ruling is sought. Further, there is no provision for filing an appeal against the ruling of the AAR. However, a writ petition can be filed against this in the respective High Court [Articles 226, 227 Constitution of India, 1950] and a special leave petition can be filed against the order of the AAR [Article 136 Constitution of India, 1950] as the AAR falls under the definition of a “tribunal” under Article 227 and 136 of the Constitution of India [Columbia Sportswear Company vs. DIT, TS-59-SC-2012].

3.4. Thus, in case of a transaction where GST is applicable, an application before the AAR can be filed by any applicant, irrespective of the fact, whether he/she is a resident or a non-resident, while, in case of a transaction, where income tax is applicable, the non-resident can file an application, a resident entering into a transaction with the non-resident can file an application or a resident doing or proposing to do a transaction worth ₹ 100 crores can file an appeal. Further, an order given by the AAR under the GST Act can be appealed against at the Appellate Authority for Advance Ruling within 30 days of the order of AAR, while for the order by the AAR under the Income Tax Act cannot be appealed against. Only recourse available is to file a writ petition in High Court.


4.1. The inclusion and coverage of e-commerce transactions in the GST regime has consolidated multiple indirect taxation legislations and has reduced the double taxation and cascading effect in taxation of e-commerce entities. It is equally true that the e-commerce operators are faced with some drawbacks, such as the exclusion from claiming input tax credit, registering for composition and separately registering in each State. There are various advantages and disadvantages of the implementation of GST Act on e-commerce, but in the opinion of the researcher, the advantages outweigh the disadvantages to a great extent. The present reforms in the Income-tax Act, 1961 i.e. Equalization Levy and the Significant Economic Presence are great measures by the Government to tax the income generated in the digital economy and to bring Indian taxation practices in consonance with the prevailing international standards. In order to prevent further tax evasion by the non-resident enterprises because of the unique nature of the digital economy, the Government should set the threshold for the significant economic presence and thus, put it into effect.


The Government has issued slew of notifications to amend the GST rules. An attempt is made in this article to critically examine the notifications issued after the GST Council meeting to bring out the controversies and complexities of the provisions made therein.

Notification No. 49/2019

Firstly and most intriguingly, ‘CGST (Sixth Amendment) Rules, 2019’ are framed and the amendments to the various provisions of the CGST Rules, 2017 are carried out, is issued under S.164 of the CGST Act, 2017. For the ease of reference, S.164 is reproduced below:

S.164 (1) The Government may, on the recommendations of the Council, by notification, make rules for carrying out the provisions of this Act.

(2) Without prejudice to the generality of the provisions of sub-section (1), the Government may make rules for all or any of the matters which by this Act are required to be, or may be, prescribed or in respect of which provisions are to be or may be made by rules.

(3) The power to make rules conferred by this section shall include the power to give retrospective effect to the rules or any of them from a date not earlier than the date on which the provisions of this Act come into force.

(4) Any rules made under sub-section (1) or sub-section (2) may provide that a contravention thereof shall be liable to a penalty not exceeding ten thousand rupees”.

[Emphasis provided]

It will be evident from the careful perusal of S. 164 that in terms of sub-section (1) thereof, the Central Government is empowered to make, by notification, rules for carrying out the provisions of the Act. Needless to say, such powers vested in the Central Government ‘to make rules’ would include the powers ‘to amend the rules’ in any manner as deemed fit. However, such notification making (or amending) the rules can be issued by the Central Government only on the recommendation of the Council.

This being the case, it is rather shocking that there is absolutely no mention in the subject notification that it has been issued on the recommendation of the Council! This puts a very big question mark over the very validity of the notification and in fact, may render it invalid and without authority of law. It may be pointed out here that the powers conferred upon the Central Government under sub-section (2) and (3) are for specified purpose only and do not exist independently but flow from the powers conferred on the Central Government under sub-section (1). Under these circumstances, the subject notification could not have been issued by the Central Government without recommendation of the Council. If these amendments are not discussed in the GST Council meeting, the very validity of notification No. 49/2019 – CT is in question. Some of the amendments made by the notification have far reaching implications.

Against the backdrop of the above root issue, the nature and implications of certain significant amendments made by the present notification are briefly discussed hereinbelow:

1. Suspended registrants not to issue tax invoice and not to charge tax:

R. 21 A of the Central Goods and Services Tax Rules, 2017 – relevant extract:

2. a) in sub-rule (3), the following explanation shall be inserted, namely:-

“Explanation.-For the purposes of this sub-rule, the expression “shall not make any taxable supply” shall mean that the registered person shall not issue a tax invoice and, accordingly, not charge tax on supplies made by him during the period of suspension”.


The provision deals with ‘suspension of registration’ of a taxpayer in certain circumstances as specified in R. 21A. Sub-rule (3) of Rule 21A provides that a registered person shall not make any taxable supply during the period of suspension and shall not be required to file any return under S. 39 of the CGST Act, 2017. Now, the explanation is added to the effect that the suspended registrant can make taxable supply but shall not issue a tax invoice and shall not charge on supplies made by him during the period of suspension.

This is a strange explanation! Does it mean that a registered person, during the period of suspension, can make taxable supply, but cannot issue tax invoice nor charge tax on it? If so, how will he be able to make the taxable supply in the first place? And if the intention is to not allow him to make the taxable supply during the period of suspension then where was the need for such an explanation? If the registered person is allowed to make taxable supply during the period of suspension but without issue of a tax invoice and without charging a tax on it (a very incongruous proposition, indeed!), will it not create complications at a later date in the recovery of tax if the suspension is upheld and the registration is finally cancelled?

2. Restriction on availment of input tax credit:

In R. 36, after sub-rule (3), the following sub-rule shall be inserted, namely:-

“(4) Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 20 percent of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37″.


Firstly, the amendment straight away restrict the input tax credit to 20% of eligible credit shown in GSTR 2A by disregarding or over looking the provisions of S. 42. S. 42 set out elaborate procedure if when the inward supply of registered person does not match with the corresponding details of outward supply furnished by the corresponding registered person (supplier) in his valid return for the same tax period or any preceeding tax period.

Secondly, S. 38 r.w. R. 60 provide opportunity to the supplier of input or input service or both to rectify the errors by way of furnishing the same in Form GSTR 2. The said form is kept in abeyance.

Thirdly, S. 43A prescribe the procedure for furnishing return and availing input tax credit with the non-obstante clause of over-riding of S. 41, 42 & 43. This provision has not yet seen the light of the day and therefore prescribing the artificial limit in case of un-matched credit is premature.

Fourthly and most importantly, S. 16 pertaining to eligibility and condition for taking input tax credit does not prescribe or authorize the Central Government to allow partial credit.

In sum and substance it can be said that allowing partial credit of 20% of the eligible credit is outside the authority of law and susceptible to challenge.

Now let us come to the practical issues in the artificial limit to the credit:

  • Supposing Mr. X, a registered person has 100 invoices of various suppliers having different rate of tax during the month of October 2019. There is mis-match in case of 20 invoices of some of the suppliers whose supplies attract different rate of tax. Mr. X limits his credit to the extent of 20% of value of eligible ITC appearing in 2A. The rest being carried forward in his books. In the month of Nov. 2019, some of the suppliers of which the credit was not available in the earlier month, files their returns or make amendment in the subsequent period. On what basis Mr. X will be allowed credit against the invoices of these supplies for the remaining credit of 80%? This exercise can go on infinitely on month on month basis. Whether Mr. X will need to keep track of partial allowance from supplier to supplier and if so, whether it is feasible to keep a track of claimed, unclaimed or partially claimed credit of each invoice of each supplier? This a herculean task, almost impossible probably being not thought of by the famers of the notification.

  • In the above case if the supplier corrects his return in the subsequent period but Mr. X is eligible for 20% of credit in the current period. Does it mean that he will have to pay interest on the shortfall arising out of the restricted credit?

  • What will happen if Mr. X is required to file a monthly return, however if some of the supplier are required to file quarterly return?

  • Payment under RCM is not reflected in GSTR 2A. Whether the credit will be lost as it appears from the amendment.

3. A very significant amendment validating GSTR 3B retrospecti-vely from 01.07.2017:

In R. 61 substitution of sub-rule(5) and omission of sub-rule(6):

Substituted sub-rule (5):

(5) Where the time limit for furnishing of details in FORM GSTR-1 under section 37 or in FORM GSTR-2 under section 38 has been extended, the return specified in sub-section (1) of section 39 shall, in such manner and subject to such conditions as the Commissioner may, by notification, specify, be furnished in FORM GSTR-3B electronically through the common portal, either directly or through a Facilitation Centre notified by the Commissioner: Provided that where a return in FORM GSTR-3B is required to be furnished by a person referred to in sub-rule (1) then such person shall not be required to furnish the return in FORM GSTR-3.”


The Government faced a piquant challenge of loosing a very sizeable revenue and derailment of the whole process when the Hon’ble Gujarat High Court granted STAY on recovery proceedings of late fees for late filing of Form GSTR 3B for the period 01.07.2017 to 30.09.2018 for which the returns are furnished between 01.07.2017 to 21.12.2018 pronouncing that there is a strong prima facie case that the return in Form GSTR 3B is not a valid return as provided u/s. 37, 38 & 391. To ward off this challenge, the Government amended rule 61 by substituting sub-rule (5) and omitting sub-rule (6) to validate the return in Form GSTR 3B retrospectively from 01.07.2017. The substituted R. 5 is as follows:

4. Notification No. 20/2019 – CT (R) amending notification No. 11/2017 – CT (R):

The most clueless amendment – in Entry 26:

Insertion in clause (i) by way of in column (3), after item (ia) and the entries relating thereto in columns (3), (4) and (5):

(ib) Services by way of job work in relation to diamonds falling under chapter 71 in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975);


(ic) Services by way of job work in relation to bus body building;


(id) Services by way of job work other than (i), (ia), (ib) and (ic) above;


Amendment in clause (iv)

Insertion of the brackets, words and figures “(ib), (ic), (id) after the words, (ia):

Clause (iv) now looks like,

Manufacturing services on physical inputs (goods) owned by others, other than (i), (ia), (ib), (ic), (id), (ii), (iia) and (iii) above”



The way the entries are drafted, it is very difficult to make out the implications, particularly of the job work other than the types of job works prescribed in sub-clauses (i), (ia), (ib), (ic). These entries will have the rate of tax as shown in column 4 against them.

In respect of sub-clause (id), the rate of tax can be 6% CGST [as per clause (i)] or it can also be 9% CGST if clause (iv) is taken into account. This is because service by way of job work as prescribed in (id) of clause (i) and Manufacturing services on physical inputs (goods) owned by others is also essentially a job work. The only tie-breaker test could be the definition of job work as provided in S.2(68) of CGST Act.

Job work means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly”.

Thus, it can be said that when a registered person sends goods for a treatment or process or manufacturing, it would amount to fall in sub-clause (id) liable for 6% CGST and when unregistered person sends such goods for similar activity it would be liable for 9% CGST. However, this is really an incongruous provision and possibly if Albert Einstien comes back to the earth, he may shrug his head in despair!!!


1. In a WRIT challenging the validity of form GSTR 3B in case of Aap & Co vs. UOI [(2019)108 590 (Guj)]