service tax on export of service

[RAMAYYAH DHARMASANKARAN]

A private limited company, providing IT enabled services ( E book conversion job) to overseas customers , has taken registration as Information Technology Services instead as Business support service . The converted e books were delivered through internet to the overseas customers. The Indian company does not have any publishing rights over the material given for conversion. Whether this service can be considered as ' Online Data base access and retrieval services ' ?

[KASTURI SETHI]

SH.RAMAYYAH DHARMASANKARAN Ji,

Are you asking about GST or Service Tax ? The heading of query says that you are asking about Service Tax whereas contents say you are asking about GST. Pl. clarify.

[RAMAYYAH DHARMASANKARAN]

The query relates to service tax only. The Deputy Commissioner of CGST and Excise has recently passed order relating to accounting year 2015-16 , considering the service as OIDARS and raised demand on the services rendered to their clients outside India in terms of clause (c) of Rule 9 of POP Rules, 2012 .In my view , Rule 3 of POP Rules, 2012 shall apply in this case and the service being exported outside India, it will not be liable for service tax .

[KASTURI SETHI]

What is the basis of your contention that your services are covered under Rule 3 of Place of Provision Rules, 2012 and NOT under Rule 9 ?

Have you gone through Circular No. 202/12/2016-S.T., dated 9-11-2016 ? To come out of Rule 9 and to fall under Rule 3 of POP Rules, it is necessary to go through Order-in-Original passed by the Adjudicating Authority. Without perusing the O-i-O, my reply will be half baked.

Also go through para no.5.9.5 of CBEC's Education Guide.

[Rajagopalan Ranganathan]

Sir,

In my opinion Circular No. 202/12/2016-Service Tax dated 9.11.2016 deals with withdrawal of exemption from service tax on cross border B2C OIDAR services provided online/electronically from a non-taxable territory to consumers in taxable territory in India. It is not talking about service received by recipient in non-taxable territory from service provider in taxable territory.

Therefore in my opinion the service is provided from taxable territory to a customer in non taxable territory amounts to export of service. Therefore the order-in-original can be challanged in appeal.

[KASTURI SETHI]

We cannot jump at conclusion. The circular throws light on each and every aspect of the issue. Whether the Adjudicating Authority has committed an error while passing the order or not ? This can be ascertained only by delving into the Order-in-Original.

[KASTURI SETHI]

We have no SCN. We have no submissions made in the reply to SCN. We have no record of personal hearing. We have no 'Discussion & Findings' given in the O-I-O.

In the absence of above material, how can we arrive at any decision regarding filing of appeal ? On what basis we can say that this case is fit for filing appeal ?

These thoughts are brewing in mind.

[YAGAY andSUN]

In our view matter relates to classifcation of Services.

[YAGAY andSUN]

OIO, SCN and reply to SCN are required to check the facts and legality involved in this matter as correctly figured out by Kasturi Sir.

[RAMAYYAH DHARMASANKARAN]

The service rendered need to be considered under rule 3 and not under 9 is on account the following facts and reasons

1, The Indian company is providing only IT Enabled Services of converting hard copies of books supplied by overseas customers into E books and delivering the e books (completed job work) through internet to the overseas customers (Publishers). The Indian company provides its services using its computers and software. Since their services are performed using computer and proprietary software, they took registration under the category of Information Technology services .The overseas company who are the publishers of the books, after receiving e books from India, publish the same through E commerce portals .The OIDAR service is provided through portals / e commerce portals to the users of these services on payment of charges /subscription fee. If these services are rendered through the E Commerce operators, they ,after deducting their commission, remit the balance amount of the fee to the publishers. The Indian company does not have any role in publishing the books in the internet portal. Merely because the e books were delivered through mail by the Indian entity to overseas customer publishing house ) , it does not amount OIDAR services. OIDAR SERVCIE can be provided only by the publishers (owners of the books) though their websites or portals or through e commerce operators) like amazon, flipkart , taxmann, taxsutra, c.a.club etc) to the paid users.

Further the important feature of OIDAR Service is that these services are completely automated and require minimal human intervention (5.9.5 Education guide)

Digitalised content of books and other electronic publications, tax journals-In this service, the user receives service (after payment of fee) at the click of a button. Here there is no human intervention /minimal human intervention and the services are completely automated.

The Indian company’s services are no way connected with the uploading or publishing of e books in the electronic market. In view of the above, the service cannot be classified as OIDAR and rule 9 of POP does not apply. As the services rendered by them does not fall under any of the services given in POP Rules 4 to 12, the default rule 3 shall apply in this case.

However, the Department classified the services as OIDAR on the reasoning that the Indian company has delivered the converted e books through mail using internet. The issue in this case is only classification of services.

2. Circular no 202/12/2016 dated 9.11.2016 deals with withdrawal of exemption for OIDAR services provided by a foreign service provider to a person resident in India. Hence, this circular does not apply to this case.

[KASTURI SETHI]

SH.RAMAYYAH DHARMASANKARAN JI,

In this scenario, the burden of proof is cast upon the Company who claims to be the exporter of service on the basis of place of supply. What is the date of issue of SCN and what is the date of passing the order aw well as the date of communication of the Order-in-original ? Whether the extended period was invoked in the SCN ?

The classification dispute is a very serious matter as such disputes have repercussions on other assessees through India. The department may fight the issue up to the Supreme Court.

AI Summary

IT Company Challenges Service Tax Classification Under Rule 9, Claims Export Status Under Rule 3 to Avoid Tax A private limited company in India, providing IT-enabled services such as e-book conversion to overseas clients, registered under Information Technology Services, is disputing a service tax demand. The tax authority classified their service as Online Database Access and Retrieval Services (OIDARS) under Rule 9 of the Place of Provision (POP) Rules, 2012, leading to a tax demand. The company argues that their service should fall under Rule 3, as it constitutes an export of service, not liable for service tax. The discussion highlights the need for examining the Order-in-Original and relevant circulars to determine the correct classification.