Service Tax on Online Information & Database access or retrieval service

Shashikant Chandrakant Munnaswami

Scope of Online Information and Database access or retrieval service (definition is given at the end) has been expanded by recent amendments. This article focuses on the recent amendments regarding Service Tax on Online Information and Database access or retrieval service. Any service can come under the net of charging section Sec 66-B only if it satisfies the conditions given in the section. Accordingly, Service Tax can be levied only if the service is provided in the taxable territory. To find whether the place of provision of service is in Taxable territory, we have Place of Provision of Service (POPS) Rules.

Earlier

We had Rule 9 of POPS Rule specific for Online Information and Database access or retrieval service. According to Rule 9, POPS of such service was place of Service provider. This has limited the scope of Service Tax on such services as ‘it made such services provided by person in non-taxable territory(in general words J&K and Foreign countries) to person in taxable territory’, non taxable, as POPS is of service provider which is not taxable territory.

What has happened?

Now the scope of the Service Tax on such services has been expanded by Government with very logical moves by making various amendments. To overcome the above mentioned issue, now the POPS of such services will be Place of Service receiver. To do so Online Information and Database access or retrieval service has been deleted from Rule 9 and added to general rule Rule-3. Therefore according to Rule 3 POPS will be place of recipient of service.

According to Sec 68 Service provider is liable to pay service tax. But in respect of any taxable services provided or agreed to be provided by a person in non taxable territory to a person in taxable territory 30/2012 (Reverse Charge) is applicable. Therefore in above case Service receiver is liable to pay service tax. But what will be the case if the service is receivable by non-assesse online recipient (detailed definition given at the end) like common man who is not registered for service tax. Then in such cases Service Provider, even though is in non taxable territory, is liable to pay service tax. Such service provider has to appoint agent in taxable territory (if he does not have any presence in taxable territory) and comply with service tax formalities.

Also one important aspect one must focus is there is exemption if Service is received by Government, Local authority, Government authority or an Individual from a person in non taxable territory as per Entry No 34 of 25/2012. The same entry has been amended vide notification No 47/2016. Now it provides that the said exemption will not be applicable in case of Online Information and Database access or retrieval service. Therefore in such cases too service provider in Non-taxable territory is liable to pay service tax as per Notification 49/2016.

Registration, invoicing and other procedural aspects in case of person located in non taxable territory liable to pay service tax due to above amendments are prescribed in respective rules.

Implications

Due to above mentioned notification and circulars there is very interesting change in taxability of online information and database access or retrieval services. Now even those services provided by person in non taxable territory to person in taxable territory will be taxable. Therefore foreign B2C service providers will be liable to pay service tax. They are now required to obtain service tax registration and pay the service tax. If they do not have any presence in taxable territory then they need to appoint agent and comply with service tax formalities. As service tax is Indirect tax there will be more tax burden on ultimate service receiver. These changes have made possible for Government to earn more revenue from the giant Information Technology industry of our country. It will be interesting to watch how GST will deal with such issues.

Important Definitions: Following definitions are given in respective notifications.

1] “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,-

-advertising on the internet;

-providing cloud services;

-provision of e-books, movie, music, software and other intangibles via telecommunication networks or internet;

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

-online supplies of digital content (movies, television shows, music, etc.);

-digital data storage; and

-online gaming.

2] “non-assesse online recipient” means Government, a local authority, a governmental authority or an individual receiving online information and database access or retrieval services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory; Explanation.- For the purposes of this clause, “governmental authority” means an authority or a board or any other body :

-set up by an Act of Parliament or a State legislature;

or

-established by Government, with 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution.

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