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March 18, 2021

SC issues notice on PIL seeking system to track GST paid by OIDAR service providers

by CA Jessica Nagaonkar in GST

SC issues notice on PIL seeking system to track GST paid by OIDAR service providers

GST when launched was publicized as ‘one nation, one tax’ by the government, aimed to provide a simplified, single tax regime.  GST is a dual levy where the Central Government levies and collects Central GST (CGST) and the State levies and collects State GST (SGST) on intra-state supply of goods or services. Centre also levies and collects Integrated GST (IGST) on inter-state supply of goods or services.

Online information database access and retrieval services is a category of services provided through the medium of internet and received by the recipient online without having any physical interface with the supplier of such services. The IGST act defines OIDAR to mean 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 minimum 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 through telecommunication networks
  • providing data, retrievable or otherwise, to any person in electronic form through a computer network
  • online supplies of digital content (movies, television shows, music and the like) digital data storage
  • online gaming

The Supreme Court issued a notice on a PIL in the case of Pradeep Goyal vs Union of India (2021) seeking directions to the Centre to have a mechanism to track total GST paid on the OIDAR (Online Information and Database Access or Retrieval Services) services used by Non NTOR (Non-Taxable Online Recipient) Indian recipients under reverse charge basis. Public interest litigation (PIL) refers to litigation undertaken to secure public interest and demonstrates the availability of justice to socially-disadvantaged parties

Petitioner wanted to amend GSTR 5A

  • A notice was issued to the Centre on a plea which also sought to amend GSTR-5A or introduce a new form to reflect in the GST return figures of revenue generated out of services to NTOR.
  • GSTR-5A is a return form to be filed by non-resident Online Information and Database Access or Retrieval (OIDAR) services provider for the services provided from a place outside India to a person in India to unregistered person or non-taxable customers.
  • It has to be filed by 20th of the month succeeding the tax period to which the return relates to or by the date as may be extended by Commissioner.

Petitioner wanted mechanism to track total GST paid on OIDAR services

  • The petitioner, further sought directions to the Centre to have a mechanism to verify the total receipts earned by foreign online service providers from India and check GST compliance.
  • The petitioner had contended that the Government had no mechanism to track total GST paid on the OIDAR services used by Non NTOR Indian recipients under reverse charge basis.
  • The figures of revenue generated out of services provided to Non NTORs were not reported anywhere in GST returns.
  • As most of the overseas service providers maintained their accounts in foreign jurisdiction and were audited as per the local laws of the Country in which they were situated, the Indian Government had no mechanism to verify the total receipts earned by these service providers from India and Check GST compliance’s.
  • Petitioner stated that foreign OIDAR service providers such as Facebook Inc, Twitter Inc, Google etc were earning huge revenues from Indian customers.
  • However, the administration of the provisions of the Act was a cause of concern.

Example provided of Amazon Web Services

  • Amazon Web Services, Inc was established in the United States and has a large consumer base in India.
  • IGST is payable on sales to non-business consumers in India.
  • Accordingly, the company requires users of its services for business purposes and who are GST registered to provide the businesses GSTIN and address to which the GSTIN is registered.
  • This ensures that IGST is not charged from such businesses on their purchase from Amazon web services inc.
  • In all other cases, IGST is charged on making purchase on the Amazon Web Service Marketplace.

Through his petition, petitioner also prayed for direction to overseas service providers to have fixed establishment in India or allow the Indian authorities to have no control or access to their accounting records in order to verify their compliance under GST laws. The plea also sought directions to have strong mechanism for overseas OIDAR like it has for others by which there is strong tax collection, compliance and reporting mechanism through various type of periodical returns, GST audit from independent auditors and also other machinery provisions. Further, it sought direction to the GST authorities to provide data as to how many persons located in a non-taxable territory are providing OIDAR services in India.

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