AAR declines ruling on OIDAR classification due to pending show cause notice under Section 98(2) CGST Act 2017

The AAR Maharashtra allowed the applicant to voluntarily withdraw the first question regarding export of services. For the second question concerning whether design development services provided to foreign entities constitute OIDAR services, the AAR declined to admit the application. The authority held that since a show cause notice dated 27.08.2018 was already pending before the GST department on the same classification issue - specifically whether the services should be classified as consulting engineering services or online database access services under OIDAR - the AAR lacked jurisdiction under Section 98(2) of CGST Act, 2017 to rule on matters already under departmental consideration.

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Issues Involved:
1. Whether the design & development services provided by Lear India to Lear entities situated abroad would amount to Export of service.
2. Whether the design & development services provided by Lear India to Lear entities situated abroad would fall under the category of OIDAR services.

Issue-Wise Detailed Analysis:

1. Whether the design & development services provided by Lear India to Lear entities situated abroad would amount to Export of service:

The applicant, M/s. Lear India Engineering LLP, initially sought an advance ruling on whether the design and development services provided to Lear entities abroad would qualify as an export of service under the GST laws. The applicant detailed their operations, which included providing research and development services for automotive applications, particularly in the Seating Division and E-Systems Division. These services involved activities like engineering, R&D, technical assistance, product design, and product engineering, with the resulting intangibles owned by the service recipient. The applicant charged based on hours spent and certain reimbursements.

However, the applicant later withdrew this question, acknowledging that determining the place of supply of services is outside the purview of the Advance Ruling Authority. Consequently, the authority allowed the withdrawal of this question without delving into the merits or detailed facts of the case.

2. Whether the design & development services provided by Lear India to Lear entities situated abroad would fall under the category of OIDAR services:

The applicant contended that their services should not be classified as OIDAR (Online Information and Database Access or Retrieval) services but rather as consulting engineering services. They argued that the services involved design, prototype, and testing in a virtual environment, which did not fit the definition of OIDAR services. The GST department had issued a Show Cause Notice (SCN) on 27.08.2018, proposing to classify the services as OIDAR, asserting that the bundled nature of the services (design, prototype, testing through computer networks, and online database access) gave them the essential characteristic of OIDAR services.

The jurisdictional officer supported the applicant's position, stating that the services were performance-based and should be classified under consulting engineering services. They also noted that even if classified as OIDAR, the services would qualify as an export of service under the GST regime, as the location of the service recipient was outside India.

Upon reviewing the facts, documents, and submissions, the Authority for Advance Ruling observed that the question regarding the classification of services was already pending before the department, as evidenced by the SCN dated 27.08.2018. According to Section 98(2) of the CGST Act, 2017, the authority cannot admit an application if the question raised is already pending or decided in any proceedings under the Act.

Order:

Question 1: Whether the design & development services provided by Lear India to Lear entities situated abroad would amount to Export of service.
Answer: This question has been voluntarily withdrawn by the applicant.

Question 2: Whether the design & development services provided by Lear India to Lear entities situated abroad would fall under the category of OIDAR services.
Answer: This question is not admitted in view of the provisions of Section 98(2) of the GST Act.

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