Taxability of OIDAR Services (Cloud based services) provided from outside India to non taxable online recipients in India : AAR Karnataka

OIDAR stands for 'Online information and database access or retrieval'. Few common examples of OIDAR services are Amazon Prime, Netflix, Hotstar, Google Drive, Online Gaming, Web hosting services etc.

In this case, authority has well discussed about what could be 'minimal human intervention' or what could be 'more than minimal human intervention' in case of OIDAR services.

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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