Section 9(5) CGST: Is Your E-Commerce Platform a Connector or Service Provider?

Imagine booking a ride through a platform like Uber. The platform connects you with a driver, arranges the trip, and handles payments. But this raises an important question: is the platform merely a facilitator between the passenger and the driver, or does it also qualifies as the provider/supplier of the transportation service itself?

Now, consider an online tutoring platform that connects students with teachers. Here, the platform serves purely as a medium for connection and has no involvement in the actual service delivery.

These examples set the stage for understanding the broader dilemma faced by e-commerce operators in India’s GST framework. While one platform actively facilitates transactions and manages various aspects of the service, the other merely acts as a bridge between the service provider and the consumer without any interference. This distinction is significant, as it determines whether the e-commerce operator bears tax liability under Section 9(5) of the CGST Act. Let’s delve into the nuances of this debate.

Overview of Section 9(5) of the CGST Act, 2017

Section 9(5) of the CGST Act, 2017 states that:

“(5) The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services”

…………………emphasis supplied

This provision stipulates that all the provisions of the CGST Act 2017 shall apply to electronic commerce operator, as if it were the supplier of the specified services and becomes liable to pay tax subject to the following conditions:

a) The services must fall under the specified categories listed below.

b) The supply of the specified services must be intra-state.

c) The services must be supplied "through" the electronic commerce operator.

Further, this section empowers the Government to notify services where the e-commerce operator (“ECO”) is liable to pay tax if the services are supplied through it. In exercise of this power, the central government, following the recommendations of the council, issued Notification No. 17/2017-CT(R), dated 28.06.2017, specifying the following services where the tax liability is shifted to the ECO:

1. Passenger transportation service by a radio-taxi, motorcab, maxicab, motorcycle, or any other motor vehicle.

2. House-keeping services, such as plumbing, carpentering, etc.

3. Restaurant services other than those supplied by restaurants, eating joints, etc.

4. Accommodation services in hotels, inns, guest houses, clubs, campsites, or other commercial places meant for residential or lodging purposes.

While Section 9(5), read in conjunction with the above-mentioned notification, shifts the tax liability to e-commerce operators for these services, some operators, despite qualifying as ECOs u/s 2(45) of the CGST Act, may not be subject to this provision due to non-fulfillment of the third condition—specifically, "the supply of the service is through the electronic commerce operator”.

Moreover, if an ECO does not fall under Section 9(5) due to the non-fulfillment of this condition but, due to lack of information or knowledge, registers and pays the tax, it unnecessarily increases the tax burden and compliance requirements for such operators. This contradicts the very purpose of the GST system, which was introduced to reduce tax ambiguities and streamline compliance processes. This has led to legal disputes and ambiguity regarding tax liabilities.

Numerous advance rulings have been issued by tax authorities to clarify whether e-commerce operators are liable for GST under Section 9(5). It is important to note that these rulings are binding only on the applicant and the jurisdictional tax authorities with respect to that particular applicant.

In the sections that follow, we will examine the third condition in greater detail, using the insights from advance rulings to address its implications and the challenges it presents.

Let’s explore some of these rulings to gain further insight into the complexities of this issue.

Rulings Favoring E-Commerce Operators

➣ M/s Multi-Verse Technologies Private Limited (2022(10)LCX0061(AAR)

The Karnataka Authority for Advance Rulings (AAR) ruled that while the applicant qualified as an e-commerce operator under the CGST Act, it did not meet the specific conditions of Section 9(5). Consequently, the service provided by the driver was not deemed a supply by the applicant, and it was not liable to collect and pay GST on transactions facilitated through its app.

In this case, the AAR observed the following:

• The applicant merely acted as a connector between the driver and passenger.
• The applicant neither collected the fare nor controlled the actual provision of service.
• It lacked control over ride details, a control room, or a call center.
• The services were provided independently of the applicant, with its role limited to identifying the service provider.

Thus, the supply of services was not considered to be "through" the e-commerce operator as required by Section 9(5). As a result, the applicant, despite qualifying as an ECO, was not liable for tax under this section.

Key Excerpts from the Ruling:

“16. It could be inferred from the definitions supra that Electronic Commerce Operator (ECO) means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce i.e. for the supply of goods or services or both, including digital products over digital or electronic network. In the instant case the applicant owns digital platform (APP MYn ), for the supply of goods or services or both. Thus the applicant squarely fits into the definition and qualifies to be an Electronic Commerce Operator.

18. In this regard, we invite reference to Merriam Webster dictionary, in accordance to which the word ‘through’ is used as a function word to indicate means, agency, intermediacy such as by means of, by the agency of etc. The word ‘through’ is also used as a function word to indicate extent, period of time such as during entire period, from the beginning to the end, to and including etc. Thus the word through in the phrase services supplied through electronic commerce operator, in Section 9(5) ibid, gives the meaning that the services are to be supplied by means of / by the agency of / from beginning to the end /during entire period by e-commerce operator. In the instant case, it is observed that the applicant, because of their unique business model, merely connects the driver and passenger and their role ends on such connection; they do not collect the consideration; they have no control over actual provision of service by service provider; they do not have the details of the ride; they do not have control room/call centre etc. The supply happens independent of the applicant and the applicant is involved only in the identification of the supplier of services and doesn’t take responsibility for the operational and completion of the ride. Thus it is observed that supply of services are not through the electronic commerce operator, but are independent. Therefore, the applicant does not satisfy the conditions of Section 9(5) for the discharge of tax liability by electronic commerce operator. Thus the applicant, though qualifies the definition of being an e-commerce operator, is not the person liable for discharge of tax liability under Section 9(5) of the CGST Act, 2017.”

➣ Natural Language Technology Research (2024(09)LCX0232(AAR))

Similarly, the AAR concluded that the applicant was not liable under Section 9(5) as the ECO did not assume sufficient control over the supply.

➣ Juspay Technologies (2023(09)LCX0070(AAR))

This case further reinforced the principle that liability under Section 9(5) depends on the nature of the ECO’s involvement in the transaction.

Rulings Supporting Section 9(5) Liability

➣ Uber India Systems Private Limited (2024(11)LCX0048(AAR))

The AAR concluded that Uber satisfies the definition of an e-commerce operator and the conditions under Section 9(5) of the CGST Act. Based on Notification No. 17/2017-CT(R), Uber was held liable to collect and pay GST on services supplied by drivers through its platform.

Key Observations from the Ruling:

· Onboarding drivers.

· Providing user interfaces for drivers and riders.

· Enabling riders to set trip start and end points and calculate fares.

· Sharing trip details, including pickup and drop-off points, route, and ride completion notifications.

Relevant Excerpt from the Ruling:

“19. In view of the above, to examine whether services are provided through the applicant, further information on the intended operations of the applicant was sought through a questionnaire dated 30.04.2024, to which the applicant replied vide letter dated 31.05.2024. From the submissions made in the application and the reply dated 31.05.2024, the following facts are brought out:

………………………..

It is apparent, from the aforesaid facts, that the App (digital platform) does not merely connect the rider with the driver but provides a platform for communication between the driver and rider without which the contract for providing the passenger transportation service cannot be completed. The App provides for onboarding the drivers, provides for user interface for drivers and riders, enables selection of start and end point by the rider, calculates and displays a fare Once ride is confirmed, the location of customer & pick up point is shared by the App; start of ride, route taken for ride, end of ride are captured and notified to customer by the App. Thus effectively the services of transportation of passenger by the driver is supplied through the Applicant’s App/digital platform/portal from beginning to end and also during the entire period of the ride. Thus the third condition that the services are supplied through electronic commerce operator is also satisfied.”

➣ M/s Gensol Ventures Pvt. Ltd. (2021(08)LCX0176(AAR))

In this case, the AAR reaffirmed that applicant actively involved in facilitating specific notified services are liable under Section 9(5), emphasizing the importance of the ECOs role in the transaction.

Criteria for Determining GST Liability under Section 9(5) of the CGST Act

In examining the various rulings and the legal framework surrounding Section 9(5) of the CGST Act, it becomes clear that the term "through" is pivotal in determining the liability of an electronic commerce operator (ECO) such as Uber. The reproduction of Section 9(5) is as follows:

"The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services."

Although the word "through" is not explicitly defined within the CGST Act, its interpretation plays a decisive role in identifying whether an ECO is responsible for tax liabilities under this section. To better understand this, its general meaning can be referred to in standard dictionaries, such as:

· Merriam-Webster: “by means of”, “by the agency of”, or “with active involvement throughout the entire processs”.

· Oxford Advanced Learner’s Dictionary: "from one end or side to the other," or "from the beginning to the end of an activity or situation."

Thus, the level of involvement of the ECO in the entire service delivery process is a determining factor in GST liability.

The term "through" in Section 9(5) thus significantly influences the ECO's responsibility for GST. Active involvement in the service delivery process, as seen in the case of Uber, solidifies its role as an ECO liable for GST. Uber is not merely a platform that connects drivers and riders; it is an integral part of the entire service experience. This ongoing involvement—tracking the route, calculating the fare, notifying both driver and rider, and managing the overall flow of the service—makes it clear that the transportation services are supplied through Uber’s platform. Thus, Uber qualifies as an electronic commerce operator, as it satisfies the conditions outlined in Section 9(5) for being responsible for the tax on intra-state supply of transportation services.

In contrast, other rulings have favored e-commerce platforms where the operator's involvement was deemed limited. These rulings distinguish between platforms that merely facilitate a connection and those that actively participate in service delivery. In cases where the platform’s role is limited to connecting service providers and consumers, without being part of the service itself, the advance ruling authority have concluded that such platforms are not liable for GST under Section 9(5), as the services are not supplied "through" the platform in the same comprehensive manner as observed in Uber's operations.

Further Considerations: The Role of Contractual Arrangements in defining the term “through”

In addition to examining the platform's involvement in the service, the contractual arrangements between the e-commerce operator (ECO) and the third-party supplier are critical in determining who the actual service provider is. If the contract clearly indicates that the third-party supplier assumes all the risks, responsibilities, and obligations related to the service, the ECO can argue that it is not the service provider. This would strengthen the case for the ECO not being liable for GST u/s 9(5) of the CGST Act.

Therefore, the term "through" depends heavily on the contractual terms and conditions executed between the parties. These contracts help determine whether services are supplied "through" the platform, and thereby, whether the ECO is liable to pay tax under Section 9(5) of the CGST Act. This aspect is highly subjective and varies on a case-to-case basis. Therefore, a detailed analysis of the contractual arrangements is imperative to conclude whether an ECO fulfills the third condition of Section 9(5).

Failure to account for this condition can lead to unnecessary burdens. If an ECO does not fall under Section 9(5) but, due to lack of information, registers and pays the tax, it imposes avoidable compliance requirements and financial strain. Such outcomes contradict the GST system's intent of reducing tax ambiguities and compliance burdens.

Comparison of Uber’s Case and Rulings Favoring E-Commerce Operators

Conclusion

The confusion around the application of Section 9(5) of the CGST Act has caused uncertainty for e-commerce operators, leading to mixed interpretations of their tax responsibilities. Some platforms, like Uber, have been made responsible for collecting GST due to their active role in managing the service, while others are not held liable because they simply connect service providers and consumers.

In my opinion, the government should provide clearer guidelines on what counts as "active involvement" in delivering services, especially for platforms that fall somewhere in between being just a connector and a service provider. Clear definitions and examples will help operators understand their tax obligations better.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.