-by P.Jitendra Kumar, B.com BL(Hons)
With a view to bring the Online Information and Database Access or Retrieval (OIDAR) Services providers located in non-taxable territory under the service tax net, the Central Government has brought in new provisions under the Service Tax laws to tax such cross-border transactions.
At present, services received from service provider from non-taxable territory is exempted from service tax if such service is received for a purpose other than commerce, industry or any other business or profession. The services received for commerce, industry or any other business or profession constituting as B2B service is liable for service tax under RCM.
|What is Online cross border B2C services.||Online Cross border B2C services means, the service provider is in non-taxable territory and the service recipient (non-assessee online recipient) is in taxable territory.
Automated; buy on pressing button and with minimal manual intervention; few of such services are:
1. Online advertising – advertisement by amazon.com
2. Digital data storage (selling space) – Cloud Services
3. Online Games, e-books, movie, music, software, et c – outright purchase or online
4. online supplies of digital content
|Amendments:||i) Definition of OIDAR Services is redefined under clause (ccd) of Rule 2(1) of ST Rules, 1994 which makes the scope of online services wider;
ii) The place of provision for OIDAR service is shifted from provider of service to the recipient of Service.
iii) Exemption to OIDAR service is removed from Mega Exemption notification.
iv) “Non-assessee online recipient” is defined in ST Rules, 1994
|Effect:||Not all cross border B2C OIDAR services.
Only services provided in the taxable territory to a “non-assessee online recipient” is liable for levy of service tax.
|Who is “non-assessee online recipient” (Service recipient)?||Government, Local Authority;Government authority;Individual
Purpose of Commerce is covered under B2B while non-commercials purpose is covered under this
|Services which are kept out of the purview of OIDAR Services||i) Supply of goods wherein orders & processing is made electronically;
ii) Services of lawyers and consultants who advise clients through mail;
iii) Booking of services, tickets, hotels etc;
iv) Educational or professional courses where it is delivered over electronic network or internet;
v) Advertising in newspapers, posters, television.
|Who is liable to collect and pay tax||a) Foreign Service provider or his agent in India; or
b) Intermediary of Service provider in India.
|The threshold limit for taxing is Rs.10 lacs. If service provider crosses Rs.10lac threshold in previous F.Y, registration is mandatory.
Small scale exemption is available as per N.N.30/2012-ST (Not applicable to SP providing services under brand name or trade name)
|Online registration in FORM ST 1A & (FORM ST 2A is deemed to be issued from the date of application)
A simple registration procedure is prescribed in the circular.
|Conditions for identifying the non-assessee online recipient.||If two of the following conditions are fulfilled, then it shall be deemed that person receiving OIDAR service is located in taxable territory.
i) Location of address provided by recipient via internet, is in taxable territory;
ii) Payment is made through plastic cards issued in taxable territory;
iii) Billing address is in taxable territory;
iv) IP Address is of taxable territory;
v) Bank A/c;
vi) Country code of SIM used by recipient;
vii) Location of recipient fixed landline;
|List of OIDAR Services||List of indicative OIDAR services is prescribed in para 16 of the Circular.|
Though the provisions for levy of Service tax on OIDAR Services looks in a way to providefor a level playing field for the domestic online service providers, this will have a major impact on the individual consumers in India who are availing the online services from foreign service providers. We could foresee the difficulty in its implementation more particularly when tax is to be collected and paid by the service provider who is in a non-taxable territory whereas in case of B2B transaction, RCM is implemented where service recipient is liable to pay the tax.
With the wider definition of OIDAR Services, the government is looking ahead that the service provider may appoint an intermediary or the agent to remit the tax to the government. In case violation or default, the service providers will be penalised under the provisions of Finance Act however, more clarity is required about how government of India will catch hold of the defaulting service providers since they are in non-taxable territory. It is presumed that the only action which will be taken by the government is to block the websites of the defaulting foreign service provider.The success and failure lies in itself which is to be seen after its implementation and development in this regard.
(Author is an associate at SAPAA)
- Notification No.46/2016-ST dated 9th Nov 2016
- Notification No.47/2016-ST dated 9th Nov 2016
- Notification No.48/2016-ST dated 9th Nov 2016
- Notification No.49/2016-ST dated 9th Nov 2016
- Circular No.202/12/2016-ST dated 9th Nov 2016
P.Jitendra Kumar, B.com, BL(Hons)
Advocate – Associate SAPAA