The Hon’ble AAAR, Karnataka, in the matter of NCS Pearson Inc., [Order No. KAR/AAAR/07/2020-21 (dated, November 13, 2020)] held that, the scoring done by the human scorer is to be regarded as being within the realm of minimum human intervention. Sets aside AAR’s findings of disqualifying classification of a Type-3 test offered by the  M/s. NCS Pearson Inc. to its client in India as Online Information Database Access and Retrieval (‘OIDAR’) service.


M/s. NCS Pearson Inc (“Company/ Respondent”), a Minnesota Corporation, having a business division ‘Pearson VUE,’ engaged in the provision of computer-based test (“exams”) administration solutions to its clients (“test sponsors”) like educational institutes, professional licensing organizations, etc. and is registered with Bangalore West Commissionerate as a supplier of OIDAR services. The Company offers three types of test-administrative solutions on behalf of its clients to the test-takers in India. Test-takers are typically individual candidates across the world including candidates from India, who are not registered under GST. Relevant test is described below:

  • Type 3 Test: These tests contain a mixture of multiple-choice questions and analytical writing assessment section i.e. essay-based questions. For candidates from India, the test is taken at test centres in India at a computer workstation which is physically administered and supervised by an invigilator. The candidates may create a profile, schedule the appointment and remit payment using a registration centre (call centre). The test is completed in parts viz. at the end of the exam, the test-taker is able to see the final score for multiple choice questions and an indicative score (which is not final) for essay-based questions marked by the computer-based algorithm. However, the essay-based questions are then sent to a human-evaluator in the USA for assessment and final scoring. In addition to this, the essay is scored by an automated essay scorer. In case the difference in score for a single essay question between the electronic computed based algorithms scoring vis-a-vis human scoring is more than I point, then the essay-based questions are again sent to an expert evaluator for assessment and scoring. Once the entire aforesaid scoring activity is completed, the test-taker is then e-mailed a URL to access their official score.

The Company has entered into contractual arrangements in India with independent third-party service providers including a subsidiary company of the Respondent to act as Pearson VUE Authorized Test Centres (“Testing centres”) to provide secure test centre services to the Company for delivery of the tests including verification of candidates identity, invigilation etc.

This appeal has been filed by the Department against the ruling given by the Authority for Advance Ruling in the case of M/s NCS Pearson Inc. [Order No.- KAR ADRG 37/2020 (dated, May 22, 2020)] wherein, the AAR arrived at the conclusion that Type 3 test does not qualify as OIDAR services, and it was held that there will not be any liability on the supplier located outside India and hence the entire transaction is exempted both in the hands of the supplier and also the recipient.


Whether the service provided for type 3 test classifies as OIDAR Services? 


The Hon’ble AAAR, Karnataka, in Order No. KAR/AAAR/07/2020-21 held as under:

  • Observed that, the Company accepts the electronic request for a rescore of the essay and returns the result to the candidate electronically. The candidate who is the service receiver has received a fully digitally provided service. When the Type-3 computer-based test is viewed as a whole, the scoring done by the human scorer is to be regarded as being within the realm of minimum human intervention. As such the ingredient of ‘minimum human intervention’ required to classify the service as OIDAR is also satisfied.
  • Noted that, since there are no guidelines in Indian laws regarding the concept of minimum human intervention in electronically provided services, the Authority would refer to the European Commission VAT Committee Working Paper No 896 wherein the notion of ‘minimal human intervention’ was discussed in the context of determining whether or not a service can be said to fall within the definition of electronically supplied services. The European VAT Committee had agreed that for the assessment of the notion of ‘minimal human intervention’, it is the involvement on the side of the supplier which is relevant and not that on the side of the customer.
  • Held that, the focus here is on a computer-based test where the intent is to also assess the performance of the candidate using an automated system. The reliability of the Automatic Essay Scoring System (“AES”) is validated by the near agreement to the score given by the human scorer. Therefore, the involvement of the human element in the assessment of essay responses is well within the realm of ‘minimum human intervention’. Further, even from the perspective of the candidate, the human involvement is minimum in the entire process of the Type-3 computer-based test starting from the manner of registering for the test, the actual test-process and the outcome of the test, as all stages are automated. The decision of the lower Authority that the Type-3 test is not an OIDAR service, cannot be accepted. Service provided for the Type-3 test is classifiable as an OIDAR service.

Relevant provision:- 

Section 2(17) of the IGST Act: 

“Online information and database access or retrieval services” means services whose delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention and impossible to ensure in the absence of information technology and includes electronic services such as,- 

(i) advertising on the internet; 

(ii) providing cloud services; 

(iii) provision of e-books, movie, music, software and other intangibles through telecommunication networks or internet; 

(iv) providing data or information, retrievable or otherwise, to any person in electronic form through a computer network; 

(v) online supplies of digital content (movies, television shows, music and the like);

(vi) digital data storage; and 

(vii) online gaming.”


DISCLAIMER: The views expressed are strictly of the author and A2Z Taxcorp LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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May 2021