Online Services From Outside India to Non-Business Entity shall Be Taxable w.e.f. 01-12-2016

Sl. No.

Issue

Clarification

• Taxable territory has been defined in section 65B of the Finance Act, 1994 as the territory to which the Finance Act, 1994 applies i.e. the whole of territory of India other than the State of Jammu and Kashmir.
• “India” includes not only the land mass but its territorial waters, continental shelf, exclusive economic zone or any other maritime zone as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976; the sea-bed and the subsoil underlying the territorial waters; the air space above its territory and territorial waters; and the installations structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof.

• Cross border B2C OIDAR services means online information and database access or retrieval services provided by a person located in non-taxable territory to a ‘non assesse online recipient’ in taxable territory in India.
• ‘Non assesse online recipient’ has been defined in Service Tax Rules, 1994 [rule 2(1)(ccba)] to mean Government, a local authority, a governmental authority or an individual receiving OIDAR services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory [notification No. 48/2016-STrefers].

• Is there any change regarding cross bo rderB2B [business to business] services provided in India?
• Will the cross border B2B OIDAR services provided in taxable territory in India to a business entity be taxed under forward charge or reverse charge?

• No. The current dispensation of taxing cross border B2B services under reverse charge mechanism i.e. the recipient business entity pays service tax, continues.

• Cross border OIDAR services provided in taxable territory in India to a business entity will be taxed under reverse charge i.e. the business entity receiving the services will pay tax under reverse charge.

1. Notification Nos. 46/2016-ST, 47/2016-ST, 48/2016-STand 49/2016-ST have been issued on 9th November, 2016 to effect these changes.
2. These changes will however, come into force with effect from 1st December, 2016.

(i) to assign the OIDAR services the same meaning as assigned to it in the clause (ccd) of sub-rule 1 of rule 2 of the Service Tax Rules, 1994 [inserted vide notification No. 48/2016-ST].

(ii) to amend proviso of rule 3 of PoPSRso as to make the proviso inapplicable to OIDAR services.

(iii) to omit the clause (b) of rule 9 of PoPSR.

2. As a result, default rule 3 of PoPSR will be applicable in such cases from 1st December, 2016, whereby the place of provision of a service is the location of recipient of services i.e. cross border B2B/B2C OIDAR services received by a person located in taxable territory will be leviable to service tax in the taxable territory. In order to avoid any confusion, the existing proviso to rule 3 of PoPSRhas been made inapplicable for OIDAR services

(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.

(i) Supplies of goods, where the order and processing is done electronically

(ii) Supplies of physical books, newsletters, newspapers or journals

(iii) Services of lawyers and financial consultants who advise clients through email

(iv) Booking services or tickets to entertainment events, hotel accommodation or car hire

(v) Educational or professional courses, where the content is delivered by a teacher over the internet or an electronic network (in other words, using a remote link)

(vi) Offline physical repair services of computer equipment

(vii) Advertising services in newspapers, on posters and on television

(i) where the provision of the digital content is entirely automatic eg, a consumer clicks the ‘Buy Now’ button on a website and either:

the content downloads onto the consumer’s device, or

the consumer receives an automated e-mail containing the content

ii. where the provision of the digital content is essentially automatic, and the small amount of manual process involved doesn’t change the nature of the supply from an OIDAR service

All ‘electronic services’ that are provided in the ways outlined above are OIDAR services.

Examples of services whether or not OIDAR services

1. Website supply, web-hosting, distance maintenance of programmes and equipment;

(a) Website hosting and webpage hosting;

(b) automated, online and distance maintenance of programmes;

(c) remote systems administration;

(d) online data warehousing where specific data is stored and retrieved electronically;

(e) online supply of on-demand disc space.

2. Supply of software and updating thereof;

(a) Accessing or downloading software (including procurement/accountancy programmes and anti-virus software) plus updates;

(b) software to block banner adverts showing, otherwise known as Bannerblockers;

(c) download drivers, such as software that interfaces computers with peripheral equipment (such as printers);

(d) online automated installation of filters on websites;

(e) online automated installation of firewalls.

3. supply of images, text and information and making available of databases;

(a) Accessing or downloading desktop themes;

(b) accessing or downloading photographic or pictorial images or screensavers;

(c) the digitised content of books and other electronic publications;

(d) subscription to online newspapers and journals;

(e) weblogs and website statistics;

(f) online news, traffic information and weather reports;

(g) online information generated automatically by software from specific data input by the customer, such as legal and financial data, (in particular such data as continually updated stock market data, in real time);

(h) the provision of advertising space including banner ads on a website/web page;

(i) use of search engines and Internet directories.

4. supply of music, films and games, including games of chance and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and events;

(a) Accessing or downloading of music on to computers and mobile phones;

(b) accessing or downloading of jingles, excerpts, ringtones, or other sounds;

(c) accessing or downloading of films;

(d) downloading of games on to computers and mobile phones;

(e) accessing automated online games which are dependent on the Internet, or other similar electronic networks, where players are geographically remote from one another.

(5) supply of distance teaching.

(a) Automated distance teaching dependent on the Internet or similar electronic network to function and the supply of which requires limited or no human intervention, including virtual classrooms, except where the Internet or similar electronic network is used as a tool simply for communication between the teacher and student;

(b) workbooks completed by pupils online and marked automatically, without human intervention.

• 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 non-taxable territory and providing such services to the non-assesse online recipient except when such intermediary satisfies all the following conditions, namely :-

1. the invoice or customer’s bill or receipt issued or made available by such intermediary taking part in the provision clearly identifies the service in question, its provider in non-taxable territory and the service tax registration number of the provider in taxable territory;
2. the intermediary involved in the provision does not authorise the charge to the customer or take part in its charge i.e. intermediary neither collects or processes payment in any manner nor is responsible for the payment between the non-assesse online recipient and the provider of such services;
3. the intermediary involved in the provision does not authorise delivery;
4. 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 Government.

• When the service provider in non-taxable territory is represented for any purpose in taxable territory by a person, then such person is deemed to be the person liable for paying service tax [notification No. 48/2016-STrefers].

If intermediary does not satisfy the said conditions, the intermediary will be deemed to be receiving and providing cross border OIDAR services in taxable territory and thus liable for collecting service tax from consumers in taxable territory and depositing with the Government of India. However, the intermediary services provided by such intermediary (as defined under Provision of Place of Service Rules) for which it charges fee from the service provider will continue to be non-taxable, provided the intermediary falls in non-taxable territory.

(i) provider of payment services ( e.g. a credit card company) is not deemed as taking part in the provision of the said service to the final customer if that provider only processes the payment.

(ii) The internet provider is not taking part in the provision of the said service when he is only making the internet network available for carrying of the content and/or collection of payment (via wi-fi, cable, satellite, other).

(iii) In cases where a mobile operator only performs the functions of carrying the content and/or processing the payment (in the same way that an internet provider makes the internet network available), that mobile operator should be treated in the same way and not as providing the said service of online information and database access or retrieval services. If, however, a mobile operator is involved in any way other than that described above (carrying of the content or processing of payment) his participation cannot be disregarded. In other words, his involvement in the provision of the service would then become sufficiently predominant and therefore he should be seen as taking part in the supply. One of the tests which should help to identify whether a mobile operator takes part in the cross-border provision of service is to verify whether the network is essential for the provision of the said service. Another possible point is to verify whether the payment collection covers only a simple charge to a bill.

(iv) There is no doubt that where an application store or a portal puts up such electronic service for supply, it must be seen as predominantly involved in the provision of that service and it should therefore be regarded as taking part in the supply. The fact that there is an additional intermediary taking part in that supply who is placed between the app store or portal and the final customer ( e.g. a mobile operator), does not automatically change the situation of the app store or portal.

1. the location of address presented by the service recipient via internet is in taxable territory;
2. the credit card or debit card or store value card or charge card or smart card or any other card by which the service recipient settles payment has been issued in the taxable territory;
3. the service recipient’s billing address is in the taxable territory;
4. the internet protocol address of the device used by the service recipient is in the taxable territory;
5. the service recipient’s bank in which the account used for payment is maintained is in the taxable territory;
6. the country code of the subscriber identity module (SIM) card used by the service recipient is of taxable territory;
7. the location of the service recipient’s fixed land line through which the service is received by the person, is in taxable territory.

Further, the person in the taxable territory receiving such services shall be deemed to be ‘non-assesse online recipient’ if such person does not have a service tax registration in the taxable territory.

[notification No.48/2016-ST refers]

Go to site https://www.aces.gov.in/ It will open home page for ACES. Click ‘Service Tax’. It will open login window. Click on ‘new user to click here’. Fill in the details such as user ID (which you want), name, mobile number, email etc. It will generate user ID and password, which shall be delivered on e-mail provided. Login again with login ID and password. Complete registration formalities in Form ST 1A and submit. It will generate non-PAN based registration number and acknowledgment. Registration in FORM ST 2A shall be deemed to be issued from the date of application. Download and keep it. Physical registration shall be delivered in PDF format by email/post.

PAN (Permanent Account Number) is a ten-digit alphanumeric number allotted by Income Tax Department of Government of India.

[Brand name or trade name has been defined in the said notification to mean a brand name or a trade name, whether registered or not, that is to say, a name or a mark, such as an invented word or writing, or a symbol, monogram, logo, label, signature, which is used for the purpose of indicating, or so as to indicate a connection, in the course of trade, between a service and some person using the name or mark with or without any indication of the identity of that person.]

http://www.cbec.gov.in/.

CBEC is a part of the Department of Revenue under the Ministry of Finance, Government of India. CBEC deals with, inter alia , the tasks of formulation of policy concerning levy and collection of Customs & Central Excise duties and Service Tax, prevention of smuggling and administration of matters relating to Customs, Central Excise and Service Tax.