Unregistered Sellers on E-Commerce Platforms: New GST Compliance Burden on Operators
GST law makes e-commerce operators responsible for preventing unregistered sellers from operating on their platforms, backed by strict penalties and mandatory tax compliance duties.
E-commerce is a common part of daily life in India. People order food, book cabs, buy clothes, and call plumbers through apps. Platforms connect sellers with customers. This growth creates opportunities and also tax challenges under the Goods and Services Tax (GST) regime.One major issue under GST is the presence of unregistered sellers on e-commerce platforms. Many sellers supply goods...
E-commerce is a common part of daily life in India. People order food, book cabs, buy clothes, and call plumbers through apps. Platforms connect sellers with customers. This growth creates opportunities and also tax challenges under the Goods and Services Tax (GST) regime.
One major issue under GST is the presence of unregistered sellers on e-commerce platforms. Many sellers supply goods or services through online platforms without GST registration. Some sellers remain below the turnover limit. Some sellers avoid registration. This situation creates risk for tax collection. The GST law now places strict responsibility on e-commerce operators.
Meaning of E-Commerce Operator under GST
An e-commerce operator is a person who owns, operates, or manages a digital platform. The platform allows supply of goods or services. Websites and mobile apps fall under this definition. Marketplaces, food delivery apps, cab platforms, and service aggregators fall under this category.
The operator does not own the goods in most cases. The operator connects sellers and buyers. The operator controls payment flow in most cases. The law assigns compliance duties to the operator.
Also Read: GST on E-Commerce Aggregator Models: Why Uber is Treated as Supplier but Amazon is Not
Section 2(45) defines -
"electronic commerce operator" means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce;”
The Karnataka AAR in Re: Roppen Transportation Services (Rapido) held that a ride-hailing app that controls booking, pricing, and trip flow qualifies as an e-commerce operator under section 2(45). The AAR held that such control is sufficient even if the platform does not own vehicles.
In contrast, the West Bengal AAR in the Yatri Sathi App case held that where the app only provides technology support and the transport service is supplied independently by drivers, the app developer does not qualify as a supplier under section 9(5). This distinction shows that control over transaction flow is decisive.
Problem of Unregistered Sellers
GST works on registration and reporting. Every taxable supply must be linked to a registered person. Unregistered sellers break this system. Tax authorities cannot track turnover or tax liability. Revenue leakage occurs. Registered sellers face unfair competition.
GST law addresses this issue through mandatory registration rules. Section 24(ix) of the CGST Act provides:
“(ix) persons who supply goods or services or both, other than supplies specified under sub-section (5) of section 9, through such electronic commerce operator who is required to collect tax at source under section 52;”
This provision removes threshold-based relief for sellers operating through e-commerce platforms. Sellers must register even at low turnover. Many sellers did not follow this rule in earlier years. Enforcement now focuses on operators.
Penalty for Allowing Unregistered Sellers
The most critical provision for operators is the penalty clause. Section 122(1B) of the CGST Act states:
“[Any electronic commerce operator, who is liable to collect tax at source under section 52,]—
(i) allows a supply of goods or services or both through it by an unregistered person other than a person exempted from registration by a notification issued under this Act to make such supply;
(ii) allows an inter-State supply of goods or services or both through it by a person who is not eligible to make such inter-State supply; or
(iii) fails to furnish the correct details in the statement to be furnished under sub-section (4) of section 52 of any outward supply of goods effected through it by a person exempted from obtaining registration under this Act,”
This provision fixes direct liability on the operator. Intent does not matter. Seller error does not protect the operator. System failure does not excuse the operator.
Because of this section, seller onboarding is no longer a business decision alone. It is a legal compliance function. Operators must block non-compliant sellers. Automation becomes essential.
Duty of E-Commerce Operators
An e-commerce operator must not allow supply by an ineligible seller. The operator must check seller registration status. The operator must verify GSTIN or valid exemption. The operator must keep records of seller details.
Tax Collection at Source is the main compliance tool. Section 52(1) of the CGST Act states:
“(1) Notwithstanding anything to the contrary contained in this Act, every electronic commerce operator (hereafter in this section referred to as the "operator"), not being an agent, shall collect an amount calculated at such rate not exceeding one per cent., as may be notified by the Government on the recommendations of the Council, of the net value of taxable supplies made through it by other suppliers where the consideration with respect to such supplies is to be collected by the operator.”
If the operator allows supply by an unregistered seller who does not qualify for exemption, penalty applies. Section 122(1B) of the CGST Act imposes strict penalty. The penalty amount can reach ten thousand rupees or higher. The operator bears this risk.
Seller onboarding is no longer a business task alone. It is a tax compliance task. Operators must build strong verification systems. Manual checks do not work at scale.
The Karnataka AAR in M/s Changejar Technologies Pvt Ltd held that an app facilitating digital gold transactions qualifies as an e-commerce operator and must collect TCS under section 52. The AAR also held that such operators must obtain compulsory registration under section 24(x).
This ruling confirms that even digital or intangible supplies routed through apps fall within the TCS framework.
Also Read: GST on E-Commerce Aggregator Models: Why Uber is Treated as Supplier but Amazon is Not
Power of Tax Authorities over Operators
GST law grants wide powers to tax officers. Section 52(12) of the CGST Act states:
“(12) Any authority not below the rank of Deputy Commissioner may serve a notice, either before or during the course of any proceedings under this Act, requiring the operator to furnish such details relating to-
(a) supplies of goods or services or both effected through such operator during any period; or
(b) stock of goods held by the suppliers making supplies through such operator in the godowns or warehouses, by whatever name called, managed by such operator and declared as additional places of business by such suppliers, as may be specified in the notice.”
This provision allows scrutiny of transaction data. It allows inspection of warehouse stock. Operators must respond within fixed timelines. Failure attracts penalty.
This makes data accuracy critical. Operators must reconcile seller data every month. Mismatch leads to notices. Historical corrections remain limited.
Limited Relief for Small Sellers
The government has granted limited relief to small sellers of goods. Certain sellers can supply without GST registration. This relief applies only under strict conditions. The seller must supply goods only. Services do not qualify. Inter-State supply is not allowed.
Such sellers must obtain an enrolment number on the GST portal. Supply without enrolment is not allowed. This relief exists under Notification No. 34/2023-Central Tax.
This relief does not reduce operator responsibility. It increases monitoring duties. The operator must ensure correct classification. The operator must ensure no inter-State orders are processed. The operator must ensure turnover limits are not crossed.
Deemed Supplier Concept under Section 9(5)
GST law also treats operators as suppliers for certain services. Section 9(5) of the CGST Act provides:
“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:
The provision also covers cases where the operator has no physical presence in India. This applies to cab services, restaurant services, accommodation, and local delivery. In such cases, the operator pays GST in cash. Input tax credit does not apply for this liability.
This provision shows the extent of responsibility placed on operators. The law does not treat operators as passive intermediaries.
Impact on E-Commerce Business
Compliance has become a core function. Operators must invest in systems and staff. Legal exposure has increased. Audit exposure has increased.
Large platforms manage this cost. Small platforms struggle. Entry barriers rise. Compliance cost passes to sellers. Sellers pass cost to customers.
The law turns platforms into compliance gatekeepers. This role was not part of early e-commerce models. It is now mandatory.
Conclusion
GST law places strict responsibility on e-commerce operators. Unregistered sellers create direct legal risk. Operators must control platform access. Operators must monitor supplies. Operators must enforce GST rules.
This approach improves tax visibility. It reduces leakage. It also increases compliance burden.
