When the Platform Becomes the Taxpayer

 

You run a food delivery app. You operate a cab aggregator. You manage an accommodation booking platform. Every day, hundreds or thousands of transactions happen through your platform. But here is the question that keeps you awake at night. Who pays the GST on those transactions? The restaurant? The driver? The hotel owner? Or you?

 

For most businesses on e-commerce platforms, the seller pays the GST. But for certain services, the law turns this rule on its head. Section 9(5) of the CGST Act makes the e-commerce operator the supplier. The platform becomes the taxpayer. The actual service provider is completely off the hook.

 

This is not a minor technicality. This is a fundamental shift in compliance responsibility. It changes how you invoice. It changes how you file returns. It changes how you manage your cash flow. And if you get it wrong, you are staring at notices, interest, and penalties.

 

The confusion is real. The stakes are high. And the recent developments only add to the complexity. Let me break it down for you.

 

What Section 9(5) Actually Says

 

Section 9(5) of the CGST Act gives the government the power to notify categories of services where the tax liability shifts from the actual supplier to the e-commerce operator. The operator is treated 'as if' they are the supplier of those services.

 

This is a deeming fiction. Even if you are just a facilitator, the law says you are the supplier. You have to issue the invoice. You have to pay the tax. You have to file the returns. The actual service provider does nothing.

 

The government has notified four categories of services under this provision:

 

Passenger transport services. This covers radio-taxis, motorcabs, maxicabs, motorcycles, and omnibuses. Any ride-hailing platform like Uber, Ola, or Rapido falls under this.

 

Accommodation services. Hotels, inns, guest houses, clubs, campsites. Platforms like OYO, Airbnb, and MakeMyTrip are affected. But there is a catch. This applies only where the supplier is not already liable for registration under the turnover threshold.

 

Housekeeping services. Plumbing, carpentering, and similar services provided through platforms. Urban Company is a classic example.

 

Restaurant services. This was added from 1 January 2022. Food delivery platforms like Swiggy and Zomato are now required to pay GST on the restaurant services supplied through their platform.

 

For these services, the e-commerce operator pays the full GST in cash. The actual supplier does not need to register merely because they are listed on the platform. They continue to enjoy the threshold exemption if their turnover remains below the limit.

 

The Two Types of Tax Liability for E-Commerce Operators

 

Every e-commerce operator has two distinct tax obligations. Understanding both is critical.

 

First, there is the TCS obligation under Section 52. For regular supplies of goods and services made through your platform, you must collect tax at source. The rate is 1 percent of the net value of taxable supplies. 0.5 percent central GST and 0.5 percent state GST for intra-state supplies. For inter-state, it is 1 percent integrated GST. You collect this from the seller and deposit it with the government by filing GSTR 8. The seller claims this as input tax credit.

 

Second, there is the direct tax liability under Section 9(5). For the notified services I just listed, you are not collecting TCS. You are paying the full GST yourself. The rate depends on the service. For restaurant services, it is typically 5 percent. For passenger transport, it is 5 percent. You issue the invoice. You pay the tax through the electronic cash ledger. You cannot use input tax credit to pay this liability.

 

Here is the critical difference. For supplies under Section 52, the seller remains liable for GST. You just collect and deposit the TCS. For supplies under Section 9(5), you are the supplier. The actual service provider has no liability. You bear the full tax burden.

 

The ITC Trap That Everyone Misses

 

Here is where even experienced operators get confused. You, as the e-commerce operator, procure inputs and input services to run your platform. You pay GST on software subscriptions, office rent, employee expenses, and technology infrastructure. You claim input tax credit on these expenses.

 

Now the question arises. Can you use this credit to pay your Section 9(5) tax liability?

 

The answer is a clear no. The Central Board of Indirect Taxes and Customs has clarified this through Circular No 240 of 2024. The full tax liability on supplies under Section 9(5) must be discharged through the electronic cash ledger only. You cannot use the input tax credit you have accumulated.

 

But you are not required to reverse your input tax credit proportionately. You can still claim the full credit on your inputs and input services. You just cannot use it to pay the Section 9(5) tax. You can use it for your other tax liabilities, like the tax on platform fees and commissions.

 

This distinction is subtle but critical. Many operators have received notices for incorrect utilisation of ITC. At CA Dhiraj Ostwal, we ensure our clients maintain separate tracking of their ITC and cash payments to avoid this trap.

 

The Subscriptions Model Debate – A Live Issue

 

This is where the law becomes truly interesting. And where the ambiguity is creating real problems.

 

Traditional aggregators like Uber and Ola operate as full-stack platforms. They manage fare discovery. They collect payments from riders. They disburse earnings to drivers after deducting commissions. There is no question that Section 9(5) applies to them.

 

But a growing number of platforms operate on a different model. They use a subscription or SaaS model. Drivers pay a fixed monthly fee to use the platform. The platform does not intermediate payments. Fares are settled directly between the driver and the passenger.

 

The industry has argued that Section 9(5) should not apply to such platforms. They say they are just technology providers. They match riders and drivers. They do not control the transaction. They do not set prices. They do not collect payments.

 

The Authority for Advance Ruling has given conflicting decisions. Some rulings have granted relief to subscription-based platforms. Others have held that Section 9(5) applies regardless of the business model. The Karnataka AAR has ruled in favour of some taxpayers like Juspay Technologies. But in other cases involving Uber and Rapido, it has held that Section 9(5) applies.

 

This uncertainty is causing real pain. Platforms are facing compliance risks that their competitors do not face. The industry has approached the Finance Ministry seeking clarity. But no clear guidance has emerged yet.

 

If your platform operates on a subscription model, this is a live issue you cannot ignore. At CA Dhiraj Ostwal, we monitor these developments closely and advise our clients on the safest compliance path.

 

Compliance Requirements You Cannot Ignore

 

Let me walk you through what you actually need to do if Section 9(5) applies to your business.

 

First, registration. You must obtain GST registration irrespective of your turnover. The standard threshold exemption does not apply to e-commerce operators. Even if your turnover is zero, you need to register before commencing operations.

 

Second, invoicing. You must issue the invoice for the notified services. The invoice must be in your name, not the service provider's. It must contain all the mandatory details. GSTIN, HSN code, tax rate, amount, and the words 'tax payable under Section 9(5)'.

 

Third, return filing. You file your returns like any other taxpayer. But the supplies under Section 9(5) are reported separately. In GSTR 1, they go in Table 15. In GSTR 3B, they go in Table 3 point 1 point 1. Make sure you report them correctly. The department cross-checks these figures.

 

Fourth, cash payment. Remember that you cannot use input tax credit to pay the Section 9(5) tax. You must maintain sufficient balance in your electronic cash ledger. Plan your cash flow accordingly.

 

Fifth, no TCS on these supplies. Since you are paying the full GST, you do not collect TCS on these notified services. The TCS obligation under Section 52 applies only to other supplies made through your platform, not to those under Section 9(5).

 

What Happens If You Get It Wrong

 

The consequences of non-compliance are serious.

 

If you fail to register, you face a penalty of ten thousand rupees or the amount of tax evaded, whichever is higher. If you fail to pay the tax, you are liable for interest at 18 percent per annum. If you do not file your returns on time, you face late fees. And if the department issues a show cause notice, you have to respond within the prescribed time. Failure to respond leads to a demand order with even higher penalties.

 

At CA Dhiraj Ostwal, we have seen operators take casual approach to Section 9(5). They do not register on time because they think their turnover is small. They ignore the ITC utilisation rule because they think it is a minor issue. They mix up their TCS and tax payment obligations because they do not understand the difference. These are expensive mistakes. Do not make them.

 

A Quick Summary of Section 9(5)

 

What it does. Shifts GST liability from the actual service provider to the e-commerce operator for notified services.

 

Which services. Passenger transport, accommodation, housekeeping, and restaurant services supplied through platforms.

 

Who pays. The e-commerce operator pays the full GST. The service provider has no liability.

 

Payment method. Only through electronic cash ledger. Input tax credit cannot be used.

 

Invoicing. The operator issues the invoice in their own name.

 

TCS. No TCS collection on these supplies. The TCS obligation applies only to other supplies.

 

Registration. Mandatory for the operator. The service provider gets threshold exemption.

 

What the Future Holds

 

The Section 9(5) landscape is evolving. The conflicting rulings on the subscription model are likely to be resolved by a higher authority. There is also growing scrutiny on the classification of services. Platforms that offer multiple services must carefully categorise which ones fall under Section 9(5) and which ones do not.

 

At CA Dhiraj Ostwal, we stay on top of these developments. We advise our clients on the latest circulars, rulings, and judicial interpretations. Compliance is not optional. But with the right guidance, it is manageable.