The Central Board of Excise and Customs ('CBEC') has recently issued series of notifications clarifying the taxability of OIDAR services, effective from 01.12.2016. The gist of the notifications are explained as follows:-
Notification No. 46/2016-ST:
The notification seeks to omit Rule 9(b) of the Place of Provision of Service Rules, 2012 ("POPS Rules") w.r.t. "online information and database access or retrieval services ("OIDAR"). In line with the said amendment, proviso to Rule 3 of the POPS Rules has also been amended by excluding reference to OIDAR therefrom. Prior to amendment, the place of provision of OIDAR services were deemed to be the location of service provider. However, post amendment, the place of provision of OIDAR services shall be governed by Rule 3 of the POPS Rules; meaning thereby that the place of provision of OIDAR service shall be the location of the service recipient. This change effectively means that OIDAR services rendered by foreign service providers that was hitherto non-taxable would now become taxable.
Notification No. 47/2016-ST:
The notification amends entry no. 34(a) of mega exemption notification (25/2012-ST) to enlarge the scope of service tax coverage by withdrawing exemption provided to a local authority, governmental authority and individuals (collectively referred to as "non-assessee online recipient") for non- business use (i.e. B2C transactions) vis-à-vis OIDAR services. The effect of such withdrawal is that the OIDAR services received by the non-assessee online recipient from foreign service providers would now become taxable.
Notification No. 48/2016-ST:
The notification amends the Service Tax Rules,1994, which has inserted two new definitions (i) "non-assessee online recipient" that includes local authority, governmental authority, and individuals using OIDAR services for non-business use and (ii) "Online information and database access or retrieval services", inter-alia to include advertising on internet, providing cloud services, online gaming, etc.
Further, B2C OIDAR services are now being brought within the ambit of forward charge, meaning thereby that the service provider would now be liable to pay service tax. When an intermediary located in the non-taxable territory including an electronic platform, arranges or facilitates provision of cross border B2C OIDAR service, but does not provide the main service on his account, the intermediary shall be deemed to be receiving such services from the service provider in nontaxable territory and providing such services to the non-assessee online recipient, except when such intermediary satisfies all the following conditions, namely:-
- the invoice or customer's bill issued or made available by such intermediary clearly identifies the service in question, its provider in non-taxable territory and the service tax registration number of the provider in taxable territory;
- the intermediary involved in the provision neither collects or processes payment in any manner nor is responsible for the payment between the non-assessee online recipient and the provider of such services;
- the intermediary involved in the provision does not authorize delivery; and
- the general terms and conditions of the provision are not set by the intermediary involved in the provision, but by the service provider:
Thus, in the context of cross border B2C OIDAR services provided to individual consumers, either the underlying supplier of services or the intermediary/digital platform operator, depending on who is seen to be providing the electronic services, would be required to collect service tax from consumers and remit the tax to the exchequer.
If the electronic market place owner enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the market place owner, he is covered under the aggregator model. The aggregator is either required to have a physical presence in India or is required to appoint a person in India to discharge the compliance liability on his behalf.
A service recipient shall be deemed to be a non-assessee online recipient if such person does not have service tax registration.
Notification No. 49/2016-ST:
The notification amends Notification No. 30/2012-ST dated June 20, 2012, thereby excluding payment of service tax against B2C OIDAR services under reverse charge.
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