Withdrawal of Service tax exemption on cross border B2C online information and database access or retrieval services w.e.f. December 1, 2016
At present, the services received in taxable territory from outside the taxable territory by Government, a Local Authority, a Governmental Authority or an individual in relation to any purpose other than commerce, industry or any other business or profession are exempted [cross border B2C (business to consumer) services provided in taxable territory] vide Entry No. 34(a) of the Mega Exemption Notification No. 25/2012-ST dated June 20, 2012 (“the Mega Exemption Notification”). On the other hand, services received by other persons in taxable territory from non-taxable territory [cross border B2B (business to business) services] are taxable under reverse charge i.e. service recipient in taxable territory is liable to pay Service tax.
Further, in view of Rule 9(b) of the Place of Provision of Service Rules, 2012 (“the POP Rules”), with respect to online information and database access or retrieval (“OIDAR”) services, the place of supply is location of service provider and thus such cross border B2B/B2C services provided by a person in non-taxable territory and received by a person in taxable territory are outside the levy of Service tax.
Now, with a view to provide a level playing field to Indian service providers providing taxable OIDAR services including electronic services in India, the exemption to such services provided in India by service providers located in foreign territory is being withdrawn w.e.f December 1, 2016. Thus cross border B2C OIDAR services provided by a foreign service provider to a person in India will become taxable from December 1, 2016 onwards. the Central Government has issued 4 new Notifications, namely Notification No. 46/2016-ST, 47/2016-ST, 48/2016-ST and 49/2016-ST all dated November 9, 2016, whereby Service tax would be chargeable on OIDAR services provided by any person located in non-taxable territory and received by Government, Local Authority, Governmental Authority, or an individual in relation to any purpose other than commerce, industry or any other business or profession [cross border B2C OIDAR services provided in taxable territory]. OIDAR services have been re-defined in Service Tax Rules, 1994 (“the Service Tax Rules”) to include electronic services. Corresponding changes has also been made in the POP Rules, the Mega Exemption Notification and Reverse Charge Notification No. 30/2012-ST dated June 20, 2012 (“the Reverse Charge Notification”). Further, the Central Board of Excise and Customs (“the CBEC”) has also issued a Circular in this regard to provide clarification on various aspects of taxability of OIDAR services pursuant to new changes.
These Notifications shall come into force with effect from December 1, 2016.
All these changes are discussed here under for easy digest:
1. Amendment in the POP Rules: Cross border B2B/B2C OIDAR services received by a person located in taxable territory will be leviable to Service tax in the taxable territory
The Central Government vide Notification No. 46/2016-ST dated November 9, 2016 has amended the POP Rules in the following manner:
“Provided that in case of services other than online information and database access or retrieval services, where the location of the service receiver is not available in the ordinary course of business, the place of provision shall be the location of the provider of service.”
(a) Services provided by a banking company, or a financial institution, or a non-banking financial company, to account holders;
(b) OIDAR services;
(c) Intermediary services;
(d) Service consisting of hiring of means of transport, upto a period of one month
Now, clause (b) of Rule 9 of the POP Rules has been omitted i.e. OIDAR services have been removed from the purview of Rule 9 of the POP Rules.
2. Amendment in the Mega Exemption Notification: Withdrawal of exemption from Service tax on cross border B2C OIDAR services provided online/electronically from a non-taxable territory to consumers in taxable territory
The Central Government vide Notification No. 47/2016-ST dated November 9, 2016, has amended the Mega Exemption Notification in the following manner:
3. Amendment in the Service Tax Rules: Person located in non-taxable territory providing OIDAR services to ‘non-assesse online recipient’ is liable to pay Service tax and the procedure for payment of Service tax
The Central Government vide Notification No. 48/2016-Service Tax dated November 9, 2016 had made Service Tax (Fourth Amendment) Rules, 2016 to amend the Service Tax Rules, effective from December 1, 2016, in the following manner:
“(ccba) “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;”
Further, explanation regarding meaning of Governmental Authority for this clause has also been provided, which is same as existing in Clause 2(s) of the Mega Exemption Notification.
“(ccd) “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 via 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, etc.);
(vi) digital data storage; and
(vii) online gaming;”
Now, the stated Rule has been amended to exclude OIDAR services from its ambit. Accordingly, Rule 2(1)(d)(i)(G) of the Service Tax Rules will read as under from December 1, 2016:
“ in relation to any taxable service “other than online information and database access or retrieval services,“ provided or agreed to be provided by any person which is located in a non-taxable territory and received by any person located in the taxable territory, the recipient of such service.”
4. Amendment in Reverse Charge Notification:
The Central Government vide Notification No. 49/2016-ST dated November 9, 2016, has made corresponding amendments in the Reverse Charge Notification so as to incorporate liability of Service tax payment and procedure thereunder on to the service provider located in the non-taxable territory with respect to OIDAR services provided in the taxable territory to ‘non-assesse online recipient’. The amendments would be effective from December 1, 2016.
5. Clarification as to taxability and other aspects issued by the CBEC
In view of the above changes in OIDAR services, there may be many questions in the mind of service providers in the non-taxable territory, recipients in the taxable territory and other stakeholders, in respect of various aspects pertaining to the taxation of such services.
Thus, the CBEC vide Circular No. 202/12/2016 – ST dated November 9, 2016 has issued extensive clarification regarding taxability of cross border B2C OIDAR services with a purpose to provide clarity to all the question in the mind of all the stakeholders. Some of important issues covered are as follows-
Now, cross border B2C OIDAR services provided by a foreign service provider to a person in India will become taxable from December 1, 2016 onwards, which includes webpage hosting, online maintenance of programmes, remote systems administration, data warehousing, cloud storage and downloading of games, music, distance teaching, and supply of images, text and information and making available of databases, etc.
Further, an online mechanism of taking registration has been prescribed and registration will be deemed to be granted online on submission of registration application with a simplified mechanism of online payment of taxes and online filing of returns is being also prescribed.
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Relevant Notification and Circulars
|46 FAQs on service tax on cross border B2C OIDAR online services||Circular No. 202/12/2016-Service Tax||09/11/2016|
|Service Tax Payment & Compliance Liability for online service provided from non-taxable territory||Notification No. 49/2016-Service Tax||09/11/2016|
|Service Tax on Online Services provided by person located in non-taxable territory||Notification No. 48/2016-Service Tax||09/11/2016|
|Withdrawal of ST Exemption on online information & database access or retrieval services||Notification No. 47/2016-Service Tax||09/11/2016|
|Amendment in place of provision of ‘online information & database access or retrieval services’||Notification No. 46/2016-Service Tax||09/11/2016|
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