Answer By law4u team
With the rapid growth of online marketplaces, ensuring tax compliance for both the platform itself and its third-party sellers has become a critical responsibility. In India, the Goods and Services Tax (GST) and e-invoicing are crucial elements in ensuring transparent and accurate tax filings for online transactions. Marketplaces may be required to help sellers comply with these regulations, especially in the case of e-commerce transactions that involve large volumes of goods and services. Failure to comply with these obligations could lead to penalties, fines, and legal consequences for both sellers and platforms.
Legal Responsibilities of Marketplaces Regarding GST and E-Invoicing Compliance
GST Registration and Collection
Under the GST laws in India, e-commerce marketplaces play an important role in GST collection and compliance for third-party sellers. The marketplace itself is often responsible for ensuring that sellers are registered for GST if they meet certain thresholds. Here's how GST compliance works for online platforms:
- GST Collection: Marketplaces may need to collect GST on behalf of their sellers for transactions conducted through their platform. The marketplace can also be held responsible for remitting the GST collected to the government.
- GST for Cross-Border Transactions: For cross-border sales, exporters and importers also need to comply with GST laws, and marketplaces may have to assist in ensuring GST on exports is handled properly.
Responsibility:
The marketplace is jointly responsible with sellers for ensuring that GST registration is obtained, the correct GST rates are applied, and proper invoicing is done.
E-Invoicing Requirement
The e-invoicing system, which is now mandatory for businesses with an annual turnover above a certain threshold, requires businesses to generate digital invoices that are authenticated by the GST Network (GSTN). Online marketplaces also have compliance obligations related to e-invoicing for sellers:
- Issuing E-Invoices: If a seller is subject to e-invoicing requirements, the marketplace may need to ensure that the seller issues GST-compliant invoices through the government portal.
- Integrating E-Invoicing Systems: Marketplaces must integrate e-invoicing systems into their platforms if they have sellers with turnover exceeding the threshold.
- Validating Invoices: The marketplace may also need to validate that invoices issued by sellers are authenticated by GSTN and that GST returns are filed correctly.
Thresholds:
The e-invoicing rule applies to businesses with an annual turnover of ₹10 crore or more, but this may vary depending on the jurisdiction.
Marketplace as a Facilitator
In India, marketplaces have been assigned the role of a facilitator in ensuring GST compliance for sellers. They have a few key responsibilities:
- GST Returns: The marketplace must ensure that GST returns are filed correctly for transactions on the platform.
- Documentation and Records: They must maintain accurate records of transactions to assist with audit purposes or in the event of a tax investigation.
- Liability: If a seller fails to comply with GST regulations (e.g., not registering for GST or not issuing valid e-invoices), the marketplace could be penalized or held liable for the non-compliance.
Penalties and Consequences for Non-Compliance
Penalties for GST Non-Compliance
For Sellers: Sellers who do not comply with GST registration and e-invoicing requirements can face fines and penalties for failing to file returns or issue invoices correctly. This could lead to GST assessments, interest, and penalty fees.
For Marketplaces: If a marketplace is found to be facilitating transactions where GST compliance is not followed by sellers, it can be subject to penalties or fines from tax authorities. For example, under the GST Act, marketplaces can be penalized for failing to collect the correct GST from the seller or for assisting in fraudulent invoicing practices.
E-Invoicing Compliance Failures
For Sellers:
Sellers must ensure that all invoices generated comply with the e-invoicing mandate. If they fail to comply, they could face fines, interest, and additional scrutiny from tax authorities.
For Marketplaces:
If a marketplace does not integrate e-invoicing systems and enables non-compliant invoicing for transactions, it could be penalized or forced to pay the taxes owed.
Legal Action for Non-Compliance
If non-compliance continues, both sellers and marketplaces may face legal actions from tax authorities. This could include investigations into tax fraud, suspension of business licenses, or forced payment of outstanding GST.
Example
Scenario:
An online marketplace, ShopWorld, operates in India and facilitates the sale of goods through third-party sellers. One of its sellers, TechStore, has annual revenue exceeding ₹15 crore but fails to register for GST and does not issue e-invoices for the products sold through ShopWorld.
Consequences:
- For TechStore (Seller): TechStore faces GST penalties for failing to register for GST and issue e-invoices. It must pay the outstanding taxes and penalties for not complying with the tax rules.
- For ShopWorld (Marketplace): ShopWorld is found to be complicit in facilitating non-compliant transactions by TechStore. As a result:
- Fines are imposed on ShopWorld for failing to ensure GST compliance.
- ShopWorld must pay the back taxes and ensure correct invoicing for future transactions.
- Legal scrutiny may lead to further audits or investigations into the platform's handling of taxes.
Conclusion:
Yes, online marketplaces are responsible for helping ensure GST compliance and e-invoicing adherence for their third-party sellers. While the responsibility for tax registration, invoicing, and returns ultimately lies with the sellers, the marketplace is obligated to facilitate compliance and take reasonable steps to ensure that transactions are tax-compliant. Failing to do so can result in penalties, fines, and legal consequences for both the marketplace and the sellers. Therefore, marketplaces must have systems in place to monitor and verify that their sellers are complying with GST and e-invoicing requirements.
