“Aggregator Service” – Government Levies Service Tax on Aggregators Who Are Neither Service Providers Nor Service Receivers

I recently received an email from Uber mentioning that the Finance Minister has recently asked the ‘Aggregator’ of taxi services to collect and remit Service tax on behalf of driver partners for fares on all rides. Consequently, they informed me that going forward (with effect from 1st March 2015), all taxi fares collected by the drivers shall include Service tax. An excerpt of the email is mentioned below:

Hey Nimish,

In the Union Budget 2015-2016 presented by Hon’ble Finance Minister, Mr. Arun Jaitley, an amendment was made to Service Tax rules. This change requires Uber – as an aggregator, on behalf of driver-partners – to collect and remit service tax on fares for all rides on the platform.

Accordingly, our fare structure has been revised to cover service tax applicable. Tax collected will be transferred to the Government of India.

The fares you see in-app, on our website and on your ride receipts will be all-inclusive, as always. If you’d like an invoice with a tax breakdown, please download it by following the link in your ride receipt or visit riders.uber.com and login with your Uber credentials.

This is quite different from the way service tax is currently charged and collected. In a normal situation, it is the responsibility of the service provider to charge and collect service tax from the service recipient and then deposit it with the Revenue. However, the Government vide Rule 2 of the Service Tax Rules, 1994 has made provisions where the responsibility to deposit tax in some cases shifts to the service recipient. This is typically known as the ‘reverse charge mechanism’. However, if you note that in any situation it is either the provider or the recipient of the service that is made liable to pay service tax. But, not in the case of the “Aggregator of service” model.

It is interesting to note ‘radio cab services’ were brought in the ambit of service tax in 2014 wherein the responsibility to charge and collect service tax is on the service provider. The service providers in these cases are the owners of radio cabs such as ‘Meru or Easy Cabs’. Meru/Easy Cab typically owns the cabs and the drivers are hired on commission. The law mandates Meru/Easy cab to charge service tax on the taxi fares from the passengers and deposit with the Revenue. A fairly simple model of service provider (Meru) providing a taxable service (radio cab service) to the recipient (customer) and service tax being collected and deposited by Meru.

However, with the advent of new technology and rapid usage of Mobile Apps, companies like Uber and Ola Cabs found an innovative way to manage the taxi business. These companies designed their mobile App and tied up with people having their personal cars that could ply as cabs. The mobile App allows any customer to simply log on to the App, identify the nearest cab and then book it. Through technology, the drivers get intimation and reach the pick up point and then drop the client at their required destination. The cabs are not owned by either Uber or Ola but are in the ownership of the drivers. Since Uber does not own the cabs, the point of contention was whether Uber is a provider of a radio cab/passenger transport service or was they not since they do not own the cab and by merely owning the mobile App that connects the actual cab owners with the customers were they actually providing the service. The contention probably was that the privity of contract to provide passenger transport/ radio cab service is between the driver owner and the customer and consequently, Uber/Ola were nowhere in the picture to pay tax.

Since, the majority of the cab owners with Uber are individuals, the Government was probably finding it difficult to tax them and simultaneously unable to tax the mobile App owners as well. That meant loss of revenue to the Exchequer.

From March 1, 2015 the Government has amended Rule 2 of the Service Tax Rules and has made the “Aggregator of Service” the person liable to pay tax in India. The term “Aggregator” has been defined as follows:

‘Aggregator’ means a person, who owns and manages a web based software application, and by means of the application and a communication device, enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator”

Thus, by virtue of the above definition, a company like Uber that owns a web based software App and which through a mobile device enables a customer to connect with persons providing the service (i.e. cab drivers) and where the service is provided under the brand ‘Uber’, would now be obliged to pay service tax on the amounts collected from the cab drivers. The relevant amendment has been made in the Rules allowing Aggregator to pay such tax under the reverse charge mechanism.

Relevant provisions have been made to ensure that the Aggregator deposits service tax in India even if it doesn’t have any presence in India. Even when the Aggregator does not have any presence in India, it would have to appoint an agent to manage such tax compliances. Quite innovative indeed but needs to be tested on its practicality.

Interestingly, if one looks at the definition of ‘Aggregator’ it is apparent that this category includes all types of service providers including companies like Flipkart, Snapdeal, Zomato, Groupon etc.

This is an interesting way to levy and collect tax and it is apparent that the Government is leaving no stone unturned to collect revenue from as many sources as possible. It now remains to be seen, how GST would unfurl the nuances around such intricate issues and whether the Government is ready to handle them in the new regime.

Wishing all the stakeholders good luck…


Nimish is the Indirect Tax Head and Partner with International Business Advisors and has a vast experience of more than 13 years in Customs, Excise, Service tax and VAT. He also runs a blog www.gstbench.com that captures the daily GST news and provides insights on GST. Nimish has been a part of EY India and then with KPMG in Europe where he learnt the nuances of GST and is a regular author of articles on issues related to indirect taxes including GST. For any professional assistance, he can be reached on nimish.goel@ibadvisors.co.

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0 responses to “Service tax on Aggregators who are neither Provider nor Receiver”

  1. vikky says:

    nice article


    In Aggregator Model – There are people involved like Aggregator, Operator, Driver, Customer

    Aggregator is paying Service Tax on total amount received from Customer as service tax payable by any person liable for paying service tax other than the service provider. (reverse-charge-mechanism-vide-notification-72015st-dated-01032015). Please also note the aggregator is neither provider of service.

    Operator is providing service to Customer as the amendment done dated 01.03.2015 itself clarifies that the Operator is providing service and not the Aggregator. Since, the incidence of taxation is fixed on aggregator – the same should not be subject to taxation( tax paid service ). – However the clarification in the same regards should be made by the Government

    Driver have principle and agent / service relationship with Operator and hence guided by the relationship.

    Customer taking the service, inspite of any status , can’t be liable to tax as the same service is expressly taxable by Aggregator.

    For amount retained by Operator or say paid by Aggregator to Operator – the service provision is service provided to Customer and the same is taxed earlier. Hence the same should not be subject to tax again. This is my personal opinion. Some argue that the Operator is taking services from Operator and hence the same is taxable. The Aggregator might be liable to tax on reverse charge in case of transit of passengers by motor cab ( if the service provider is Individual/ HUF/ Partnership ) or the Operator is liable to tax in other cases. However the same should not be intention. Aggregator is nor output service provider and any input service credit would not be available also.

  3. Susmita Dutta says:

    Nice article………….

  4. Prasanna K says:


    Excellent article. Very useful for the tax practitioners.

  5. Ganesh says:

    Hi nimish
    Superb article insight into aggregators. But I didn’t understand one thing as to why the term reverse charge is being associated with aggregators?? Because aggregators just pay service tax on Amount collected from drivers..

  6. rajkaran ahir says:

    Realy presentation is nice

  7. Manish says:

    Yes True that, Reverse Charge is not a Service receiver concept anymore, rather its is now a – “we dont take it from provider” charge.

  8. j v krishna says:

    Dear Nimish, thank you v.much for the article. Regards.

    J Venkata Krishna
    ACS Co.Secy.

  9. Prashanth says:


    Explained very well, even a layman can understand the article.

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