CA. Dr. Gaurav Gupta
Introduction
COVID pandemic is laying the foundation of new era in world history. The physical movement has been restricted across globe and almost all businesses are halted. What goods and services were earlier an essential part of lifestyle, is seen as a non essential and are not functioning as of now. There are many sectors which have been hit majorily by this COVID epidemic including automobiles, restaurants, cabs, airlines, hosptility, saloons and spas, hotels, etc. have taken a setback in a major manner. We all know that new problems pave way for new possibilities and thus, new ventures, primarily which are on internet and are virtual, have emerged during this period. Amongst others, the latest one is the annoucement of Facebook shops. We shall examine the implications of setting up Facebook shops under GST law in India.
What is Facebook Shops
It is announced by Mr. Mark Zuckerberg that any small business can easily start a shop to sell things directly across Facebook apps. To quote:
“Facebook Shops are free and easy to create. When a Facebook shop, it will appear on your Facebook and Instagram accounts to start and soon on Messenger and WhatsApp too. Shops are native and fast, which means no more app-switching to a slow mobile web browser where you have to reenter your credit card when you tap on an interesting product you see in feeds. Lastly, in the near future Shops will use our AI and augmented reality tech to create better shopping experiences. Small businesses will also be able to personalize their storefronts to first show products that are most relevant to you and use augmented reality to let you virtually try on things like sunglasses, lipstick or makeup to see how they might look on you before buying, or what furniture might look like in your room.”Â
Thus, what we are looking at is a virtual shop from where you can buy and sell goods. Yes, its not something absolutely new. Earlier also there were websites showcasing the goods and services being sold by various persons. But, when a technology gets become an inseperable part of society, it becomes a norm and thus, I forsee that this concept of Facebook Shops shall change the way the society shops their regular and luxury segment. E commerce sites like Amazon, flipkart are different from this. They were marketplace where sellers showcase their products and buyers were buying the same. Thus, they were showcasing goods and not shops per se. Facebook Shops are different – they shall showcase specific shops and their goods particular to a shop and also would allow personalised shopping experience of each shop to a customer. These Facebook Shops would allow buyers to make live communications using other apps like whatsapp etc with their suppliers. They shall also be integrated with other marketplace apps like Shopify, Bigcommerce etc. Thus, what we are speaking about is a Virtual reality in shopping and which is now just round the corner.
Every Facebook Shop needs GST registration
Facebook has called in for bank details, registration details of such persons, however, we still have to live with the fact that such business may tomorrow turnout to be mere virtual businesses. Gone are the days when persons used to roam around to display their products, the new virtual world allows the same sitting in front of a mere computer. When a person showcasing product in a exhibition is required to obtain registration, so does a person supplying through E commerce operator. In present case, it is likely that facebook (who collects payments from customers shopping from these shops) shall be made liable as a E commerce operator and to comply with all requisites of Section 52 of CGST Act, 2017. Thus, every person opening a Facebook Shop shall be required to get himself registered under Section 24(x) of the CGST Act. As a precuation Facebook Page is calling for such details in some countries, may be as a mandatory information.
Implications under GST for assessee
GST is a law which registers a person qua his premises and registers a principal place of business of a person. Emergence of these concepts of virtual shops shall surface some major challenges under GST before both the assessee and government. Thus it would require revisiting of the manner in which Shops are reflected on facebook viz. a viz their actual operations. Some of the pertinent questions which arise on part of assessee are:
a. Virutal Shop v Actual Shop: There can be a very fancy shop showcasing hundreds of goods while in actual, the person may be a small time operator having back to back procurement. If the two are same, issues are still limited. However, in case of joint management of virtual shops (multiple persons selling through one Facebook Shop – integration of products so as to attract more customers), there would be disputes and litigations as how to compute the turnover and levy GST. In my humble opinion, the person whose contact shall be primary would be seen as supplying goods to buyers and procuring same from other co managers. The turnover in such cases may be seen in a consolidated manner and no bifurcation of turnover to different owners may be possible (thus, 5 persons cannot run a Facebook shop having turnover of 1.8 Crores without GST registration stating they are below their threshold of Rs. 40 Lakhs each).
b. Identity of Owner – Facebook should own the responsibility of identifying persons opening Facebook Shops and should allow buyers ; government to look through to identify the actual seller to avoid operation of fraudulent shops. This is more important looking in the concept of ‘fly by night’ operators who issue invoices and make supplies and are not traceable later.  There shall also be questions tomorrow when one finds that the Page owner / person whose detail is appearing on such page is different from the one managing the Facebook Shop and thus, it would be tough to fasten the tax liability in such cases.  Noone should allow the use of his registration details for running a Facebook shop by another person. Its a bearer cheque handed over to another person.Â
c. Issuance and Management of invoices – Person issuing and signing should be duly authorised and identified.
d. Place of Business: It is very tough to establish the nature of actual shop looking at the virtual shop. The actual shop may not be there. A person may have his shop at his home and function on virtual shop seamlessly. In case of back to back integration with vendors, a person can oeprate without maintaing physical stock (JIT inventory system). thus, in such cases, question would be – what premises should be registered with authorities?
e.  Maintainence of records and e way bill management: Assessee will have a big challenge in maintaining books as these are not physical shops and not properly managed. Many of them may be home driven shops, cooperative groups, freinds coming together for business and many more ventures which are not by proper businessman as there is very little investment needed in absence of a physical shop. Thus, unstructured business would find challenge in maintaining structured books.
Regulation by Government
Government would find tough to regulate such shops in absence of a new law. They can impose a restiction of collection of tax or reporting as they have done in the case of E commerce companies when supplies are made through such platforms. In this case, a position may be taken that since there is no supply made through Facebook and its an indepedent shop of a person (can be equated with a small website within a big system) and thus, Facebook is not required to comply with Section 52 of CGST Act, 2017 or is also not required to supply any information of such supplies made by such shops to government. This new virtual shop system might require amendment to be incorporated in the following provisions of CGST Act, 2017:
Section 24 (x) – compulsory registration in certain cases – Amendment required:Â Registrations in case of virtual shops be made mandatory.
Section 9 – E commerce companies who are required to pay taxes – This might be a bit harsh a step considering other e commerce operators acting like a marketplace. In this case, GST may be paid by Facebook in case of supplies by Small Shops operating through such pages so that small shop owners are not required to obtain registration. However, the Credit chain would then require these small shop pages to procure supplies on GSTIN of Facebook and Facebook would monitor all tax compliances. This is important as the entire payment is also also being routed through Facebook. In such case, the facebook Shop owner would be primiarily be a manager getting a all tax paid amount from facebook (after deducting vendor payment, facebook management charges and GST).
Section 10 – persons who can opt for Composition scheme:Â The amendment may provide that any person opening a virtual Shop cannot opt for composition.
Section 52 – Collection of Tax by E commerce operator: It must be explicitly made clear to provide that such operations of Virtual shops would also fall within the ambit of Section 52 and such supplies would be considered as made through an E commerce operator.
Apart from above, Section 14 of IGST Act, 2017 may also be examined from the perspective of amending definition of Online Database Acceess or retreival services to provide for some compliance for such platform and Shop owners.
Apart from above, Government should also notify the requirement of reporting for transactions undertaken for goods / services supplied, orders placed and commissions earned etc, should be maintained by the platform owner and period of maintainence should also be specified.
Can Virtual Shops be granted registrations:
A person may start a small shop on Facebook having turnover over and above the threshold prescribed under law. Such person can be a graduate. Since the investment is not much and the business can grow exdponentially over the net with minimal investment. GST law provies in absence of a physical premises of business, the location of supplier shall be construed as his place of residence. In such cases, what are the implications? The problems grows manifold when such person who has started a virtual shop is a tenant or is residing in a guest house. How will this virtual shop owner get the registration as such premises are not permitted to carry on trade. A very pertinent question would then arise – can Virtual Shops be granted a registration? The law as on today does not have such provisions. The person has to take a shop on rent in such case and pay monthly rent only to obtain his registration. Thus, the physical premises would pose a big challenge in the new Virtual world and in absence of an amendment such virtual shops cannot get registration. It would be proper to amendment the law to incorporate the provisino that of a person provides his aadhar and his hom address, even his virtual shop can be registered. The buyer in such cases are believing that such showcasing of goods on Facebook are monitored by Facebook and thus, there will be no frauds as E commerce operators have operated their business over time.
Possibility of frauds and safeguards thereof
Also, it is important to examine as what will happen in case a person has submitted wrong GSTIN details (of another person) and has undertaken huge business under such false identity. Will any liability be fastened on facebook or the person whose identity has been used falsely by such fraudulent person. A registration can only be verified if the OTP on the registered mobile is shared with Facebook which is not possible unless the integration happens between GSTN and Facebook pages. In absence of such OTP, the dormant registrations may be used for any fraud or fictious transactions from such pages.
Conclusion:
The new era would force both the regulator and the regulated to redevice their way of working and reporting. Virtual world is tough to comply with and tougher to regulate.  We may soon find in place new mechanisms which shall be deviced by the government to integrate directly with these new concepts and direct data of supply may be taken from such platform providers. There are many aspects to this aspect which require reading between fine lines. The contracts for Facebook Shops, their final working model and other aspects would finally define the liability on facebook and shop owners in coming days. Accordingly, this new world requires a new set of regulation – the virtual world!!
