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GST on OIDAR services with AAR Ruling

OIDAR is an abbreviation for ‘Online Information and Database Access or Retrieval Services’. As the name itself says, under OIDAR the services will be provided through the medium of the internet/ electronic network and the recipient of the service will download the same. Under GST, the tax implications and applicability of GST provisions for OIDAR services are slightly different.

The present article briefly covers the meaning of the term OIDAR; registration procedure of specified OIDAR service provider; place of supply of OIDAR services; payment of tax of OIDAR services and GST return filing requirement of OIDAR services.

Understanding the meaning of the term OIDAR [Section 2(17) of the IGST Act]-

The term OIDAR is defined under section 2(17) of the IGST Act. The main ingredients of the same are narrated hereunder-

• OIDAR services mean the services which are delivered through information technology over the internet or an electronic network;
• The nature of OIDAR service is such that it is essential to render it automated and it involves minimum human intervention;
• OIDAR service includes electronic services like-
  • Providing of cloud services(For eg., Google drive),
  • Online gaming,
  • Provision of e-books; music; movies; software and other intangibles through internet/ telecommunication networks (For eg. Amazon Prime Video, Hotstar, Netflix etc.),
  • Advertising through the internet,
  • Providing data/ information, retrievable or otherwise, in electronic form through a computer network (For eg. Quora),
  • Digital data storage, and
  • Online supplies of digital content (television shows; movies; music etc.).

Registration for specified OIDAR service provider under GST [Section 14(2) of IGST Act]-

The OIDAR service provider will have to obtain single registration under the ‘Simplified Registration Scheme’ by filing an application in Form GST REG-10 if all the below criteria are satisfied-

Criteria 1 – The supplier of service is located outside India;

Criteria 2 – The recipient of service is a non-taxable online recipient (i.e. receiver is not registered under GST); and

Criteria 3 – The services are supplied directly to the recipient without any intermediary.

However, in case an intermediary located outside India arranges/ facilitates the supply of service from an OIDAR service provider located outside India to a non-taxable online recipient. Then, such intermediary will be liable to obtain registration under GST.

Other important points-

• OIDAR service providers located in India can obtain GST registration by following normal registration procedure as applicable to a normal taxable person.
• Service provider located outside India can appoint a person in the taxable territory (i.e., India) for the purpose of complying with the GST provisions like obtaining GST registration; making GST payments and filing the GST returns etc.

Place of supply of OIDAR services [Section 13(12) of IGST Act]-

Provisions of section 13(12) specifically define the place of supply of OIDAR services. As per the said provisions, the place of supply of OIDAR services will be the location of the service receiver.

Further, the explanation to the said section clarifies that the service receiver will be ‘deemed’ to be located in taxable territory (i.e., India) if any of the two conditions are satisfied-

• Location of address presented by the service receiver through the internet is in the taxable territory;
• The billing address of the service receiver is in the taxable territory;
• The credit card/ debit card/ store value card/ charge card/ smart card/ any other card, through which the service receiver settles the payment, is issued in the taxable territory;
• The bank account through which the payment is done is maintained in the taxable territory;
• The internet protocol address of the device used by the service receiver is in the taxable territory;
• The country code of the ‘subscriber identity module card’ used by the service receiver is of the taxable territory; and
• The location of the fixed land line via which the service is received by the service receiver is in the taxable territory.

Please note, out of the total 7 conditions stated above, if any two conditions are satisfied, the service receiver will be deemed to be located in India and accordingly, GST provisions will be made applicable.

Payment of tax for OIDAR services [Section 14 of IGST Act]-

The person responsible for the payment of taxes under GST in the case of OIDAR services are explained hereunder-

Situation	A person responsible for the payment of tax
Both service provider as well as the service recipient is located in India.	Tax would be payable by the service provider.
Service provider is located outside India and service recipient is located in India. Further, the service recipient is a person registered under GST.	Tax would be payable by the recipient of service under Reverse Charge Mechanism.
Service provider is located outside India and the service recipient is located in India but not registered under GST (i.e., the service recipient is a non-taxable online recipient). Here, the service is provided directly by the OIDAR service provider.	Tax would be payable by the service provider located outside India.
Service provider is located outside India and the service recipient is located in India but not registered under GST (i.e., the service recipient is a non-taxable online recipient). Here, the service is provided through an intermediary located outside India.	Tax would be payable by the intermediary.
Both service provider as well as the service recipient is located outside India.	Service not taxable under GST.

GST return filing for OIDAR services [Rule 64 of CGST Rules]-

The GST return filing requirement under OIDAR services is tabulated hereunder-

Particulars	Return filing requirements
A service provider providing OIDAR services from a place outside India to a non-taxable recipient in India	GST return is to be filed in Form GSTR-5A. Return is to be filed within a period of 20 days from the end of the respective month.
Other categories of OIDAR service providers	Return is to be filed in regular form i.e., Form GSTR-1 or Form GSTR-2 or Form GSTR-3 and annual tax returns as applicable to the respective OIDAR service provider.

 

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AAR Ruling: In our opinion, the most appropriate case to understand the concept of OIDAR services is below, which was discussed by AAR in very detail.

Facts:

The applicant having its registered office in Minnesota, USA is engaged in the provision of computer based test (alternatively referred to as ‘exams') administration solutions to its clients (test sponsors) like educational institutes, professional licensing organizations, etc. Applicant offered three types of test-administrative solutions on behalf of its clients to the test-takers in India. Test-takers are typically individual candidates across the world including candidates from India, who are not registered under GST. The three types of test are described below:

Type 1 Test:

Tests that are self-administered by the candidates (test-takers) and are wholly digital in nature. The test contains only multiple choice questions. The test-taker uses an Internet browser for the entire process. The tests are not required to be taken from the test centers and can be taken from any location as desired by the candidate. The scores are provided by the electronic software based on a computer-based algorithm in its entirety and the test-taker gets the result in electronic format immediately on completion of the test. In view of this, the entire test experience is electronic without any human intervention.

Type 2 Test:

These tests are similar to type 1 test however, with the major difference being that on the day of the test, the candidate is required to go to the test center, where an administrator will verify the identity of the candidate, validate test registration and appointment of the candidate. After that the test administrator will assign a computer to the candidate to take a test. During the test-taking process, the candidate is continuously monitored by the invigilator. Once the candidate has completed the test, the scores are provided by a computer-based algorithm on the electronic software and the test-taker gets the result immediately on completion of the test at the test center itself.

Type 3 Test:

These tests are similar to type 2 test containg multiple choice questions with the major difference being that it also contains analytical writing assessment section i.e. essay-based questions. The test is completed in parts viz. at the end of the exam, the test-taker is able to see the final score for multiple choice questions and an indicative score (which is not final) for essay based questions marked by the computer-based algorithm. However, the essay based questions are then sent to a human-evaluator in the USA for assessment and final scoring. In addition to this, in case where the difference in score for a single essay question between the electronic computed based algorithms scoring vis-a-vis human scoring is more than 1 point, then the essay based questions are again sent to an expert evaluator for assessment and scoring.

Issue to be decided:

For Type 1 Test, the applicant is clear that the same falls under OIDAR and it is paying GST on the same. The applicant has approached the Authority for determining taxability for Type 2 and Type 3 tests.

Applicant's Arguments:

The applicant’s view is that Type 2 does not fall under OIDAR. The applicant has argued that OIDAR consists of four essential components:

a. services are to be delivered over the internet or an electronic network and;

b. Rendering of services should be automated and;

c. services should involve minimal human intervention and;

d. The delivery of service should be impossible in the absence of information technology.

According to the applicant, the presence of the test administrator at the testing centers who is responsible for verifying candidate’s identity, monitoring him during the test and providing the test report once the candidate has completed the test requires more than the minimal human intervention. 

Held by AAR:

Authority referred para 2.2 (6) & (9) of Guidelines agreed by the VAT Committee of European Commission dated 28.02.2017 which are reproduced below:

The activity of (a) real person(s) organized by the supplier of services (like for example a person spinning the wheel of the roulette or drawing physical cards to play black jack or baccarat), performed independently from the requests made to provide a particular supply to an individual customer, is to be seen as falling within limits of ‘minimal human intervention’. ……

The general approach proposed is that where the human activity on the side of the supplier focuses on the whole environment of the system and not on individual requests from customers this should not be seen as trespassing the requirement of ‘minimal human intervention’ included in the definition of electronically supplied services.

We note here that human activity on the side of the supplier is focused on the whole environment, i.e. the whole test center and not on specific need of individual test takers. The illustrations provided by the applicant are also distinguished by the fact that human interventions in the illustrations happen for the main service whereas in the present case, administrator is not directly intervening where they can make a difference in the scores achieved by the test takers. 

The applicants argue that it is impossible to complete the provision of service in the absence of administrators since verification and registration of the candidates is undertaken by them. However, we observe that provision of taking tests online at designated test centers are naturally bundled activities and are supplied in conjunction with each other in the ordinary course of business and therefore can be termed as Composite Supply as per Section 2 (30) of CGST Act, 2017. Here, since the main object of the whole activity is to take online tests, so the principal supply would be OIDAR service provided by the applicant to non taxable online recipients.

Held that type 2 test to be classified under OIDAR Services.

However in type 3, authority noted that since tests are scored after human intervention only, it should be outside the purview of OIDAR. Therefore type 3 is not classified under OIDAR Services.

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