Marketplace Versus Inventory Based Model | Government Initiatives | Types and Models of E commerce | IRDA | Regulatory Framework

1. 1

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Emergence of e-commerce in India
The rate of digital buyers in
India has increased
enormously in India in the
last two years.
Research say that almost 27 %
of the internet users in India
are involved in digital shopping
Government
Initiatives Increase in
internet
seepage.
Elevation of
Smartphone
adoption.
Evolution of
different
payment
options
Continuous
Innovation

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Amendments and new regulations introduced
a) Introduction of FDI policies specifically on e-commerce.
b) Simplifying Tax liabilities with introduction of GST.
c) Regulations on FBOs
Digital India Start Up India Make in India Skill India
Government Initiatives

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What is E-Commerce?
The Department of Industrial Policy &
Promotion (DIPP) defines e-commerce
as:
E-commerce means buying and selling of goods
and services including digital products over digital
and electronic network.
Further, E-commerce entity has been defined as:
“..a company incorporated under the Companies
Act 1956 or the Companies Act 2013 or a foreign
company covered under section 2 (42) of the
Companies Act, 2013 or an office, branch or
agency in India as provided in section 2 (v) (iii) of
FEMA 1999, owned or controlled by a person
resident outside India and conducting the e-
commerce business.”
Chapter XI B of Model GST Law
contemplates:
Electronic Commerce to mean:
i. Supply or receipt of goods and/or
services, or
ii. Transmitting of funds or data, over an
electronic network, primarily the internet,
iii. by using any of the applications that rely
on the internet, like but not limited to e-
mail, instant messaging, shopping carts,
web services, etc. irrespective of the fact
whether the payment is conducted online
and whether or not the ultimate delivery
of the goods and/or services is done by
the operator.

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Types of E-Commerce Activity
Business-to-business (B2B): This model provides a platform
for businesses to find other competitive suppliers. It includes
distribution services, procurement services, digital / online
market place like services etc. (Example: Amazon Business)
Business-to-consumers (B2C): This involves direct dealings
between businesses and consumers. (Example: Titan selling
its products through the electronic medium)
Consumer-to-consumer (C2C): This model brings together
consumers on a single platform for trading on goods.
(Example: OLX, Quickr.)
Consumer-to-business(C2B):In this model, consumers
(i.e. individuals) provide services/ goods to businesses
and create value for the business. (Example: Elance,
Fiverr.)
Business-to-business-to consumer (B2B2C): This
is a variant of the B2C model wherein there is an
additional intermediary business to assist the first
business transacts with the end consumer.
(Example: Flipkart)

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Models of E-commerce
Inventory based model of e-commerce – Ecommerce
activity where the inventory of goods and services is owned
by the e-commerce entity and is sold to the consumers
directly. Example – Big Basket, Zovi
Marketplace based model of e-commerce- providing of an
information technology platform by an e-commerce entity
on digital and electronic network to act as a facilitator
between buyer and seller. Example – Flipkart and Amazon
Aggregator:Aggregator to mean a person, who owns and manages
an electronic platform, and by means of the application and
communication device, enables a potential customer to connect
with the persons providing service of a particular kind under the
brand name or trade name of the said aggregator. Examples – Ola
and Uber Cabs
Bricks-and-Clicks retailers: Where a company sell
their goods at traditional stores and over the Internet
– Say Pizza Hut
Pureplay – Just online and no / very minimal
vertical integration. These players are involved in
one category of products

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Brand
A
Brand
B
Brand
C
Brand
D
e- Commerce.com
online portal Consumers
e- Commerce.com
inventory
Wholesaleprice
DiscountedPrice
INVENTORY BASED MODEL OF E-COMMERCE

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Brand
A
Brand
B
Brand
C
Brand
D
e-commerce.com
online portal Consumers
MARKETPLACE BASED MODEL OF E-COMMERCE

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100% FDI under automatic route is permitted in marketplace model of e-commerce.
FDI is not permitted in inventory based model of e-commerce.
Single Brand product retail trading--- Automatic route up to 49%, approval
beyond 49%
“An Indian manufacturer is permitted to sell its own branded products in any
manner i.e. wholesale, retail, including through e-commerce platforms.”
Multi Brand Retail Trading 51% approval route
“Retail trading, in any form, by means of e-commerce, would not be
permissible, for companies with FDI, engaged in the activity of multi-
brand retail trading.”
FDI policies.
E-commerce marketplace may provide support services
to sellers in respect of warehousing, logistics, order
fulfilment, call centre, payment collection and other
services
ii) E-commerce entity providing a marketplace will not
exercise ownership over the inventory i.e. goods
purported to be sold. Such an ownership over the
inventory will render the business into inventory based
mode
iii) An e-commerce entity will not permit more than 25%
of the sales affected through its marketplace from one
vendor or their group companies.
iv) In marketplace model goods/services made available
for sale electronically on website should clearly provide
name, address and other contact details of the seller.
Post sales, delivery of goods to the customers and
customer satisfaction will be responsibility of the seller.
v) In marketplace model, payments for sale may be
facilitated by the e-commerce entity in conformity with
the guidelines of the Reserve Bank of India.
vi) In marketplace model, any warrantee/ guarantee of
goods and services sold will be responsibility of the
seller.
vii) E-commerce entities providing marketplace will not
directly or indirectly influence the sale price of goods or
services and shall maintain level playing field.

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Challenges
• Significant dependence on sellers
• Lack of a robust due diligence mechanism
• Delivery logistics
• Returns and refunds -Platform owners
providing reverse logistics increase the
cost of delivery and operational
efficiencies for the logistic providers.
OPERATIONAL CHALLENGES
• Different States have different laws
and rules.
• Section 81 of the IT Act provides that
nothing contained in the IT Act will
restrict any person from exercising
the rights granted to them under the
Copyright Act, and the Patents Act,
1970.
• Section 79 has to be read in
conjunction with Section 81 of the IT
Act - Super Cassettes Industries Ltd.
Vs. Myspace Inc. and Anr.
(2011(48)PTC49(Del)).
REGULATORY CHALLENGES

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Information Technology Act, 2000 and the Information Technology
(Intermediaries guidelines) Rules, 2011
Section 2(1)(w): "Intermediary" with respect to any particular
electronic records, means any person who on behalf of another
person receives, stores or transmits that record or provides any
service with respect to that record and includes.., online market
places and cyber cafes.
While the Information Technology Act and the allied Rules prescribe the
general compliances that apply to e-commerce operators, certain
industry specific compliances have also been contemplated by the
legislature.

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Compliances for Food Business Operators:
The Food Safety and Standards Authority of India has issued Draft norms for e-commerce Food Business
Operators on 20th September, 2016.
E-commerce FBO are required to obtain compulsory license from the Central Licensing Authority under
Schedule I of the Food Safety and Standards(Licensing and Registration of Food Business) Regulation
2011.
Every FBO shall
ensure that all the
articles of food
satisfy the
requirements of the
FSS Act and the rules
and regulations made
thereunder at all
stages.
They are required to
sign an agreement
with the sellers
stating that the
sellers are in
compliant with the
FSS
They should ensure
legible and clear
picture on the
principle display
panel.
The picture should
be an indicative
image of the same
product.
The FBO must
display the license/
registration on their
platform.
Mandatory food
information like
storage conditions ,
disclaimers shall be
provided without
additional cost.
The Food product
by the FBO shall be
liable for sampling
at any point of the
supply chain.
FBO should comply
with the basic
hygiene as per the
Act.
E-Commerce FBO include
Sellers, Vendors, importers, processors, packagers or
manufacturers, who display or offer their food products, including
food services, catering services, sale of food or food ingredients for
sale to the customers, through either the market based model or
the inventory based model of e-commerce.
Operating and providing storage and/or distribution services to
sellers, vendors, importers or manufacturers, or food products
listed on their market place
Providing transportation services to the sellers, Vendors, Importers
or Manufacturers, of food products and/or providing last mile
delivery to the end customers.

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E-commerce entities providing listing/directory services to the sellers, vendors, importers
or manufacturers of the food products may not obtain the license.
1) E-commerce entities shall ensure that no misleading or false information or incorrect image is available on
their platform.
2) They have to specify on their platform that the liability of any violation of the FSS and applicable Rules and
Regulations made thereunder would be with the sellers, restaurant owners, vendors, importers or
manufacturers of the food products.
The FBO Should maintain a Consumer complaint Cell
1) The Cell would notify the sellers, manufacturers, importers immediately on receiving any complains
2) The consumer shall also be re-directed to the consumer call center of the manufacturer.
3) The FBO will co-operate with the sellers, vendors etc. who are liable to take action based on the complaint
The FBO shall delist any food product listed which is not in compliance with the FSS Act or the rules
and Regulation.
Continued

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E-Pharmacy sector
In India at present there are no specific laws in respect regulating the sale of drugs
over internet.
In the 48th meeting of the Drugs Consultative Committee (“DCC”) held on 24th July,
2015 at New Delhi, the impact of advent of e-commerce in pharmaceutical sector
was discussed.
The DCC constituted a sub-committee to examine the issue of sale of drugs on the
internet in the light of practices being followed in the developed countries.
Subsequently, the Office of Drugs Controller General released an Office Order
dated 30th December, 2015, clarifying that although the Drugs and Cosmetics Rules,
1945 ("Rules") do not distinguish between the conventional and over the internet
sale / distribution of drugs and the provisions of the Rules have to be complied with
in both the cases.

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IRDA on Web Aggregators
Compulsory
registration of the
Insurance Web-
Aggregator.
Shall have a minimum paid up
capital/ contribution of rupees
twenty-five lakhs, where as for
LLPs, the contributions must be
in cash.
The Insurance Web-Aggregator shall
submit to the Authority a net worth
certificate duly certified by a Chartered
Accountant every year after finalisation of
books of accounts
The Principal Officer, shall submit to the
Authority, at the end of each financial year,
a certificate confirming that the Insurance
Web-Aggregator has complied with all the
Regulations during the financial year
Increase in foreign
investment limit from
26% to 49%

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Regulatory Framework- Cab Aggregators
Motor Vehicles (Amendment) Bill, 2016
• Aggregator services: The Bill defines an aggregator as a digital intermediary or market place.
• The aggregator’s services may be used by a passenger to connect with a driver for
transportation purposes.
• The Bill requires these aggregators to obtain licenses : Section 93: Agent or canvasser or
aggregator to obtain licence.
• The aggregators will also be required to comply with the Information Technology Act, 2000
Key Compliances for Karnataka Cab aggregators.(Karnataka On-demand Transportation Technology
Aggregators Rules, 2016)
1. Licence mandatory for Aggregators.
2. Conditions for grant/renewal of licence:
i. A minimum fleet of 100 taxis – owned or contracted.
ii. Monitoring facilitated through GPS/GPRS installed and control room in place.
3. Required vehicle profile for grant of licence
4. Must be installed with GPS, digital fare meter capable of generating printed receipts.
5. Limits of hire charges fixed .

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Consumer Protection Act- pipeline
Consumer Protection Act,1986 (“CPA”) governs the relationship between consumers
and service/goods providers.
Scope of ‘Consumer’ proposed to be enhanced under the Consumer Protection Bill,
2015:
The scope of definition of consumer has been widened to include persons buying
goods or hiring service for a consideration through any mode, inclusive of but not
limited to, offline, and online through electronic means, teleshopping or direct
selling or multi level marketing.
Prior to this, the Principal Act did not cover transactions through electronic means,
teleshopping or direct selling or multi level marketing.
As per recent media reports, Union Minister for Consumer Affairs, Food and Public
Distribution, Ram Vilas Paswan has informed that he is hopeful that new Consumer
Protection Bill 2015 (“Amendment Bill”) will be passed in the winter session of the
parliament.

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E-commerce in Real estate Sector
The Real Estate Sector is regulated by Real Estate (Regulation and Development) Act, 2016.
Online real estates portals such as magicbricks.com and common-floor are now within the ambit of Real estate
agents under the Real Estate (Regulation and Development) Act, 2016.
They have to
i. Obtain registration from Real Estate Regulatory Authority (“Authority”) for facilitating sale/purchase in a
registered real estate project.
ii. Facilitate the possession of all the information and documents, as the allottee, is entitled to, at the time of
booking of any plot, apartment or building, (as the case may be).
iii. Ensure that they do not indulge in any unfair trade practices such as making any statement which falsely
represents the promoter’s, standard of services provided by the real estate project and permitting publication
of any advertisement of amenities that are not intended to be offered.
iv. Ensure that they do not facilitate the sale or purchase of any plot, apartment or building, in a real estate
project which is not registered with the Authority;
If a real estate agent fails to obtain registration, he shall be liable to pay a penalty.
Penalty of ten thousand rupees for
every day on which such default
continues. It may cumulatively go
up to five per cent of the cost of
plot, apartment or buildings, (as
the case may be), of the real estate
project, for which the sale or
purchase has been facilitated as
determined by the Authority

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Challenges in the Tax Regime
 Central Sales Tax Act, 1956 (“CST Act”)
 Section 6 imposes a duty on every dealer to pay tax under the CST Act for all inter-state
sales effected by him.
 According to Section 2 of the CST Act, Dealers are persons engaged in business of buying,
selling, supplying or distributing goods – directly or indirectly for cash or deferred
payments, commission remuneration or any other consideration and includes any agent
of such dealers.
• Characterization as intra-state or inter-state supply of goods:
• In case of inter-state sales, CST is levied in the state from which goods
commence/originate their movement.
• The States where the e-Commerce consignments are delivered often allege that the
appropriation has happened in the destination state and demand CST to be paid.
• When such e-commerce companies merely offer their warehouse facility to their sellers,
they are treated as agents of dealers and are made to pay CST and VAT.
• VAT authorities after considering the logistic model followed by e-commerce, suggested
that they are stock transfers, therefore CST on such transfers cannot be levied.
• There is a need of clarification required on this aspect.

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• E-commerce operator needs to obtain registration under Section 19 in every such State
in which he is so liable irrespective of the value of supply made by them.
• A supplier of goods/services supplying through e-commerce operator needs to obtain
registration under Section 19 in every such State in which he is so liable irrespective of
the value of supply made by them.
• An aggregator is also liable to the same registration.
• The e-commerce operator is required to collect TCS or Tax collection at source
• The amount collected by the operator is to be paid to the credit of appropriate
government within 10 days after the end of the month.
• The suppliers can claim credit of the TCS.
• The TCS collected from the Operator shall be matched with the claims of the Supplier.
GST
TCS: an amount out of the
consideration paid or payable to the
actual supplier of goods or services in
respect of supplies of goods and /or
services made through such operator.
The timings for such
collection/deduction are earlier of the
two events:
(i) the time of credit of any amount to
the account of the actual supplier of
goods and / or services;
(ii) the time of payment of any amount
in cash or by any other mode to such
supplier

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Speaker
Indranil Choudhury
Founder & Chief Executive Officer
Lexplosion Solutions Private Limited
indranil.choudhury@lexplosion.in

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