E-commerce is the buying and selling of goods and services or the transmitting of funds or data, over an electronic network, internet or online social networks. These business transactions occur either as business, business to consumer, consumer to consumer or consumer to business. Indian e-commerce industry is unique because of its sheer number of transactions, complexity and the employability of the unorganized sector.

The e-commerce keeps on evolving itself in various new formats for different types of transactions. There are many models for making supplies through e-commerce like direct sales model, inventory model, market place, Managed Market place model, fulfillment model and hybrid model.

INDIRECT TAX SYSTEM

The current indirect taxation system comprising service tax, state vat and central sales tax(CST) is not geared up to recognize and accommodate the evolving business models of e-commerce. But there are no specific provisions for the e-commerce operators to pay taxes on sale of goods or to make any deductions from the payments being made by them to actual seller of the goods.

In the existing indirect taxation system, the e-commerce sector faces many difficulties. Goods inviting payment of VAT/CST or as ‘services’ inviting payment of service tax. Both state VAT/CST authorities and service tax authorities want to exercise their right over digital transactions like downloads invoking software, music e-book, etc. leading to dispute and endless litigations. There is a lack of clarity on taxation and documentation management for typical e-commerce sector transactions such as e-wallet, cash on delivery, gift vouchers, drop-shipment etc.

Problems in taxation are currently being faced mostly in models where the e-commerce operator does not directly buy or sell the goods from the seller but claims to only facilitate the sale. From a taxation point of view it is important that online transactions of goods and service are taxed fairly. In the GST era, the challenging is of tracking and taxing interstate sales. The matter of incidence of CST on interstate trade through e-commerce is already in litigation in a number of Indian states.

The scheme of one central registration valid for the entire country is absent in the structure of GST. This will pose a great obstacle for small and occasional dealers who otherwise wish to increase their sales through e- commerce. Although the tax collected by the e commerce operator and paid by the vendors would be acailable as credit to be utilized later for payment of output tax, it is estimated by a major e-commerce operator .