TCS under Section 52 of CGST Act, 2017 – A toothless provision?

Absence of recovery mechanism in case of default

The effectiveness of any statutory obligation to collect an amount, hinges entirely on the existence of express recovery provision in the case of default. 

The scheme of Tax Collection at Source (‘TCS’) under Section 52 of the CGST Act, 2017 deserves closer attention, particularly from the standpoint of its enforceability, in the absence of any express recovery mechanism under the CGST Act or Rules framed thereunder. 

What is Section 52 of CGST Act, 2017?

Section 52 of the CGST Act, 2017 introduces a special compliance framework, applicable to e-commerce operators facilitating taxable supplies through their digital platforms. It obligates operators to collect an amount not exceeding one per cent., of the net value of taxable supplies made through it by other suppliers. The amount so collected shall be paid to the Government within the prescribed time.

It further mandates filing of periodic statements by the operators, inter alia containing the details of outward supplies effected through it, and the amount collected during that period. On filing of the monthly statement by the operator, the amount collected by the operator would get credited to electronic cash ledger of the supplier.

While Section 52 meticulously outlines the mechanics of collection, reporting, and matching, it stops short of prescribing any consequences or recovery procedure in the event of non‑collection of TCS by the e-commerce operator.

Can e-commerce operators be made liable to pay TCS in the event of default in collection? 

The aforesaid question becomes relevant when the e-commerce operator fails to collect and deposit the TCS, and the revenue proceeds to recover the same from the operator. In such a case, the issue is no longer confined to compliance architecture; it becomes a question of jurisdiction and enforceability. If the Act does not contain any recovery machinery treating the operator as liable for the payment of TCS not collected, can a demand nevertheless be sustained against the operator merely because Section 52 casts a collection obligation? 

A striking feature of Section 52 is the repeated use of the expression ‘amount’ collected, throughout the Section, as opposed to the term ‘tax’, while remaining conspicuously silent on the consequences and recovery mechanism in case of default. In fiscal legislation, the distinction between ‘tax’ and ‘amount’ is of substantive significance, particularly in the context of recovery. While ‘tax’ denotes a compulsory exaction, an ‘amount’ remains a generic expression, unless statutorily elevated to the status of a recoverable levy. When that is so, the recovery of an amount cannot be assumed to follow the general recovery provisions applicable to tax, unless the statute expressly provides otherwise. 

What further assumes significance is the absence of any deeming fiction fastening tax liability on the e‑commerce operator in the event of default. In the entire CGST Act and Rules, there is no provision treating the e‑commerce operator as ‘assessee in default’ in the event of non-collection of tax under Section 52.

The legislative omission under Section 52 becomes evident, when contrasted with Section 51 of the CGST Act, which governs Tax Deduction at Source (‘TDS’). Section 51 not only mandates deduction of tax but also provides a complete framework for deposit, consequences of default, and recovery. The deductor’s failure is clearly addressed, and statutory consequences are unambiguously prescribed. This contrast demonstrates that the legislature was fully conscious of the need to provide recovery and consequence provisions where it so intended. The absence of similar recovery provisions under Section 52, therefore, appears to be deliberate, rather than accidental.

similar degree of legislative clarity exists under the Income‑tax Act, 1961. Section 206C, read with Section 201 thereunder, expressly provides that if a person responsible for collecting tax at source, fails to do so, such person shall be deemed to be an ‘assessee in default’. The statute further prescribes interest, penalty, and recovery consequences. This deeming fiction forms the legal foundation for recovery proceedings. The CGST Act, however, contains no analogous provision deeming the e‑commerce operator liable for payment of tax not collected in terms of Section 52.

Plausible explanation of legislature for not providing recovery provision in case of non-collection of tax by e-commerce operator

The absence of a recovery mechanism under Section 52 becomes understandable when one examines the true design of the provision. TCS under Section 52 is not a substitution of the supplier’s output tax liability. It is not as though, once the operator collects tax, the supplier is required to pay only balance of the tax otherwise payable on the supply. The supplier remains liable to discharge the entire GST liability on the outward supply, irrespective of whether the e-commerce operator has collected tax or not. In other words, once the supplier discharges entire GST liability on the outward supply, there is no question of recovering any further tax from the e-commerce operator in case of default under Section 52.

An illustration makes this clear. Assume: 

• A supplier makes a taxable inter-state supply of goods worth INR 1,00,000/- through an e-commerce platform in a particular month. 
• The applicable rate of IGST on the said inter-state supply is 18%, and therefore the total amount of IGST is INR 18,000/-.
• Assuming TCS at 0.5% of the net value of such inter-State taxable supplies, the TCS would be INR 500/- (0.5% of INR 1,00,000)

In this scenario, the buyer pays INR 1,18,000/- (INR 1,00,000 + INR 18,000) to the e-commerce operator, because the operator is collecting the consideration on behalf of the supplier. Out of INR 1,18,000/-, the operator deposits INR 500/- with the Government, and passes on the balance INR 1,17,500/- (INR 1,18,000 – INR 500) to the supplier. The TCS of INR 500 gets reflected in the supplier’s electronic cash ledger, and the supplier’s output GST liability on the supply remains Rs.18,000/-. It is not as though, the supplier’s output tax liability reduces to INR 17,500/- (INR 18,000 – INR 500). Had that been the case, then it was crucial to have a clear recovery mechanism in place, so to as recover INR 500, which the e-commerce operator failed to collect.

Recently, the Hon’ble Karnataka High Court, in the case of Hiveloop Technology Private Limited1, also dealt with a question of applicability of TCS provision under Section 52 of the CGST Act, and recovery of TCS from e-commerce operator under Section 74 of the Act. The Court categorically held that, ‘there is no provision in the CGST / KGST Act to treat the petitioner as an assessee in default, under which, the person responsible for collecting tax becomes liable to pay tax which is a liability of the supplier of goods or services;’. Thus, reinforcing the settled principle that recovery cannot be sustained in the absence of clear statutory provision.

That said, one note of caution is necessary. Hiveloop1 is an important and persuasive pronouncement. However, the Revenue may proceed to challenge this Order in Division Bench of High Court and later to the Supreme Court. In such scenario, the aforesaid issue of absence of recovery provision in TCS remains to be tested before the Court and will remain open till the time it attains finality in Court. 

Conclusion

Viewed holistically, Section 52 presents a fundamental dilemma. While the provision appears designed primarily for tracking and reporting supplies facilitated through e-commerce operators, the absence of a recovery mechanism raises critical questions regarding its enforceability. If the supplier’s tax liability remains entirely independent of the TCS collection, the lack of a dedicated recovery provision is perhaps explicable. However, if the Department intends to initiate recovery proceedings against e-commerce operators for non-collection, the statutory basis for such action remains precarious. In the absence of an express recovery mechanism or a deeming fiction, the law fails to provide a clear foundation for such liability. It is this unresolved tension in the design and enforceability of Section 52 that lies at the heart of the present controversy.

[The authors are Executive Partner and Senior Associate, respectively, in Indirect Tax practice at Lakshmikumaran & Sridharan Attorneys, Mumbai]