The growth of app-based transportation platforms has revolutionized the way we travel. Gone are the days when one had to step out, wait and hope to catch a taxi or an auto-rickshaw. We are in an era where taxis, or auto-rickshaws are just a few taps away.
With the increasing dependence of India on these app-based transportation platforms such as Ola, Uber, Rapido and others, and with the rise of the gig-economy, the GST law recognized the impracticality behind the traditional approach of taxing thousands of service providers listed on such platforms. Such platforms are termed as e-commerce operators under GST law.
With an aim to plug the tax evasion, Section 9(5) of the CGST Act was introduced, placing the onus of paying tax on the e-commerce platform through whom these supplies are supplied to the customers.
Background
Section 9(5) of the CGST Act allows the Government to notify supplies, the tax on which is required to be paid by the e-commerce operator if such services are supplied through it. One such supply which was notified under Notification No. 17/2017-Central Tax (Rate) dated 28 June 2017 (‘ECO notification’) was passenger transportation services by motor vehicles.
On a combined reading of Section 9(5) and definition of e-commerce operator, it is evident that the taxability is based on the test as to whether or not, a service is truly supplied ‘through’ the platform.
Rational for opting subscription model
In the recent past, the phrase ‘supplied through’ has become the focal point in several Advance Rulings, especially in cases wherein the drivers or service providers are paid a fixed subscription fee rather than a commission for operating on the platform. The subscription amount is charged from the drivers on monthly basis for providing the platform to them, rather than the same being dependent on each supply undertaken by them. The idea behind the same is to allow independent provision of the transportation services from the service providers to customers.
By adopting the subscription approach, the e-commerce platforms sought to distinguish themselves from actual provision of services through the platforms and confine their role to that of facilitators. The platforms were hopeful that this could shield them from liability under Section 9(5) of CGST Act.
Karnataka AAR’s take on above model
When the matter reached the Karnataka Authority for Advance Ruling, the authority granted relief to certain taxpayers such as Juspay Technologies Pvt. Ltd.[1], Multi-verse Technologies Private Limited[2], M/s Natural Language Technology Research[3] by ruling in their favour and exempting them from payment of GST. Considering the fact that the ride is not monitored by them, fare is not known and they do not have ride details etc., it was held that Section 9(5) of CGT Act is inapplicable in such cases.
On the other hand, to the utter dismay of the other taxpayers such as Uber[4], Rapido[5], Opta Cabs, it was ruled that Section 9(5) of CGST will be applicable on them and thus, they were held liable for payment of tax. The authority while pronouncing the ruling emphasized the integrated involvement of the app in the supply of service by onboarding of drivers, enabling ride requests, estimating fares, and tracking rides in real-time.
Impact of contradictory rulings
While determining the applicability of Section 9(5), a clear distinction is required to be made on the point whether these apps merely connect the users and service providers or play a more operational role in actual delivery of the services. The more embedded a platform is in the delivery of the end service, more likely it is to qualify as a Section 9(5) supply.
The conflicting rulings have necessitated the need for a sharper lens, one that distinguishes passive enabling platforms from the platforms which are actively involved in the supply.
With these conflicting rulings, one thing that became clear to the taxpayers was that one-size-fits-all approach will not suffice. This led them to turn to Court and represent to Central Board of Indirect Taxes and Customs (CBIC) to examine the issue and clarify the stance.
Even if Section 9(5) is held to be applicable, the other issue which requires clarity is the registration requirement on such e-commerce platforms. Since these e-commerce platforms are not legally the service providers, one has to see if a single registration under GST would suffice or does it necessitate registration in each state wherein the individual drivers are located.
In conclusion, the conflicting rulings have put the taxpayers with unfavorable rulings in a tight spot, undermining their competitive edge. Without clear guidance from either the Government or the courts, the core uncertainty surrounding the interpretation and application of Section 9(5) is poised to remain a persistent roadblock for the industry. Until such clarity is delivered, businesses will continue grappling with ambiguity and an uneven playing field.
[The authors are Executive Partner, Associate Director and Senior Associate, respectively, in GST practice at Lakshmikumaran & Sridharan Attorneys, New Delhi]
[1] [2023 (9) TMI 1121]
[2] [2022 (11) TMI 256]
[3] [2024 (10) TMI 194]
[4] [2024 (11) TMI 330]
[5] [2024 (7) TMI 1505]
