18% GST on sale of ad space on e-commerce sites

In a move that could impact the entire e-commerce space, Karnataka's Authority for Advance Ruling (AAR) on July 1 came up with a ruling on an application filed by e-commerce player Myntra, wherein Myntra had sought taxation clarity from the authority on what should be the tax rate if it sells space to an advertising agency.

Myntra had approached Karnataka AAR in December 2021, seeking this clarity, it was then in Feb 2022, when AAR heard the matter, and on July 1, the authority observed that "Sale of Advertising Space (except on commission) is taxable to 9 percent CGST and 9 percent SGST."

Myntra has signed one such ad agreement with a Singapore-based advertiser for leasing advertisement space  Lenzing Singapore Pte Ltd.

The e-commerce platform wanted to know from the Karnataka AAR "what should be the tax treatment when the space is provided to the advertisers for the advertisement."

The AAR, after hearing the matter, observed that "Myntra has no control over the manner in which the advertiser uses the space, nor is there any privity of contract between Myntra and the ultimate content to which advertisement relates."

"The content provided by the users of the platform is not reviewed and no warranty or undertaking in relation to the display of any such content or information, including any search results displayed on the platform is provided."

However, AAR did not rule on the ad agency being located abroad as it doesn’t fall under its jurisdiction.

According to experts, this is a ruling which will be relevant to all advertisements on e-commerce portal websites, mobile applications,s or any other platform of the e-commerce players.

"Although the transaction has been classified as taxable at  18 percent, the next question which needs to be analysed by corporates is the eligibility of it being termed as export of services by the e-commerce entity. Should that be the case, no GST would be payable. Further, a refund of input taxes would also be available to the e-commerce player." said Anita Rastogi, partner GST and indirect taxes at PwC.

She further mentioned that in other words, export benefits would accrue to the e-commerce corporate. As the AAR does not have the power to rule on the exports aspect of GST, which determines the export of a transaction.

Source form - https://www.cnbctv18.com/legal/myntra-plea-on-gst-leads-to-18-percent-tax-on-ad-space-sale-on-websites-14120352.htm