Software export

[Kaustubh Karandikar]

Software is developed and the same is sent to the customer outside India through cloud services. Whether it will be treated as export of services?

[Amit Agrawal]

Can you please explain causes of your doubts & areas of concern? This will help us understand your query better.

[Kaustubh Karandikar]

Amit ji, in my view it will fit in the default section i.e. Section 13(2) and therefore export of service except that because it is supplied through cloud, whether it will have any impact on the place of supply?

[Amit Agrawal]

Sir, mere delivery of information technology services through cloud per se (instead of other available modes) should not be a problem.

For disputes / controversies, there has to be something more. If any doubt persists, you need to please elaborate how Dept. can take contrary view and why.

These are ex facie views of mine, the same should not be construed as professional advice / suggestion.

[Padmanathan KV]

Software - Whether Goods or Service?

Whether software is a goods or service itself is a debatable area. There are various decisions on this issue. Supreme Court in Tata Consultancy Services v. State of Andhra Pradesh, - 2004 (11) TMI 11 - SUPREME COURT held that the pre-packaged/ canned software would be treated as goods. Once the software is put on a medium like a CD and then sold, such software would be treated as goods. This was confirmed in COMMISSIONER OF SERVICE TAX DELHI VERSUS QUICK HEAL TECHNOLOGIES LIMITED [2022 (8) TMI 283 - SUPREME COURT.

However, in your case it seems your client is developing software (as per the requirement of the client) and sending it across the cloud. i.e. this is not a pre-packaged/ canned/ off-the-shelf software. Under such scenario, it would amount to supply of service. However, it would be appropriate to consider the contract between the parties as well.

Whether supplying software over the cloud amounts to OIDAR?

OIDAR is defined under section 2(17) of IGST Act as “online information and database access or retrieval services” means services whose delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply impossible to ensure in the absence of information technology and includes electronic services such as,––

(i) advertising on the internet;

(ii) providing cloud services;

(iii) provision of e-books, movie, music, software and other intangibles through telecommunication networks or internet;

(iv) providing data or information, retrievable or otherwise, to any person in electronic form through a computer network;

(v) online supplies of digital content (movies, television shows, music and the like);

(vi) digital data storage; and

(vii) online gaming;

It appears that supplying software to customer outside India over the internet may be covered under OIDAR service.

According to section 13(1)IGST Act, The provisions of this section shall apply to determine the place of supply of services where the location of the supplier of services or the location of the recipient of services is outside India.

Section 13(12) IGST Act states that the place of supply of online information and database access or retrieval services shall be the location of the recipient of services.

Explanation to Section 13(12) states certain situation when recipient of service shall be treated to be located in taxable territory. Kindly ensure he is not fall within this explanation.

Whether export of service?

Export of service is defined under section 2(6) of IGST Act, as under:

(6) “export of services” means the supply of any service when,––

(i) the supplier of service is located in India;

(ii) the recipient of service is located outside India;

(iii) the place of supply of service is outside India;

(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India; and

(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;

Summarizing:-

1. Supplier is located in India

2. Recipient is located outside India

3. Place of supply is outside India as per Section 13(12)

4. Assuming payment is received in convertible foreign exchange currency

5. refer Circular No. 161/17/2021-GST to ensure they are not merely establishments of a distinct person.

then, it would be an export of service.

[Kaustubh Karandikar]

Padmanathan ji, thanks a lot for your detailed advice which specifically fits in to the transaction under discussion. Sir, can you give your views on my query of amount received from google? in my view, the same also will be treated as export of service.

[Amit Agrawal]

W.r.t. views of Shri Padmanathan ji so the effect that 'It appears that supplying software to customer outside India over the internet may be covered under OIDAR service', I wish to state the followings:

A. If underlying services are indeed OIDAR, then, one needs to take of cognizance of 'explanation' given under Section 13 (12) of the IGST, 2017 before presuming that 'location of the recipient of services' as 'outside taxable territory'.

B. Mere delivery of information technology services through cloud per se (instead of other available modes) do not fall under OIDAR, in my view. There is lot of difference, in my view, between 'provision of software through telecommunication networks or internet' and 'mere delivery of software (i.e. information technology software as a services) through telecommunication networks or internet''

C. As per given facts & presuming nothing more, in my view, subject services are not OIDAR services.

C1. That is why I have stated in my earliest post that 'mere delivery of information technology services through cloud per se (instead of other available modes) should not be a problem (in given context of facts by the querist). For disputes / controversies, there has to be something more. If any doubt persists, you need to please elaborate how Dept. can take contrary view and why.'.

D. If dispute is with regards to supply being goods or services, same will be altogether different & potentially complex issue under GST where we needs to be aware of much more factual aspect about subject software. In addition of taking cognizance of various apex courts dealing with issues of software is a goods or services' under erstwhile regime, one needs to vary & aware of Serial No. 5 (d) of Schedule - II of the CGST Act, 2017 where 'development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software' is as treated as supply of services.

D1. As original query talks about 'export of services', I have presumed that what is supplied is a 'service' and not 'goods' while sharing my views earlier.

These are ex facie views of mine, the same should not be construed as professional advice / suggestion.

[Kaustubh Karandikar]

Thanks amit ji for giving a different angle to the issue. Learning a lot from the experts like you all.

[Padmanathan KV]

Ld Amit Ji., thank you sir for clarifying once again.

I was under the impression that the ambit of "provision of software" is very wide and even delivery via online will also be covered. Also CBIC issued GST Flyer in Chapter 42 Page 396 contains an illustrative list of OIDAR services:-

2. Supply of software and updating thereof;

(a) Accessingor downloading software (including procurement/accountancy programmes and antivirus software) plus updates;

(b) software to block banner adverts showing, otherwise known as Banner blockers;

(c) download drivers, such as software that interfaces computers with peripheral equipment (such as printers);

(d) online automated installation of filters on websites;

(e) online automated installation of firewalls.

As I understand from your above post, mere delivery is not covered and there has to be something more. I stand corrected, thanks.

[KASTURI SETHI]

Dear Sir,

What is the status of SOFTEX Form in this scenario ?

The declaration in SOFTEX Form is required for export of computer software and is applicable only for export of goods and software in physical form.

Dear Experts,

Pl. opine on the above also.

[Kaustubh Karandikar]

Kasturi ji, SOFTEX form is related to the export of software and software-related services. Any entity making an export of software is required to follow this procedure. According to the FEMA act, in the case of the export of software, the first entity has to generate a SOFTEX number from the RBI website and then submit a filled SOFTEX application form to the jurisdiction STPI. STPI will then submit it to RBI. When payment is realized, the exporter will get a BRC number with approved SOFTEX and the bank will send payment confirmation to RBI. This is how an export cycle gets completed. In my view, unless this cycle is not completed by the exporter of service, it cannot be said that payment is received in foreign currency which is one of the conditions under GST. Views of the experts please.

[KASTURI SETHI]

Dear Sir,

Thanks a lot. Well explained.

[Shilpi Jain]

You would also need to understand the actual nature of the transaction. Whether it is sale of software or only a license provided to use the software.

In either case no liability. Though if it is a permanent transfer i.e. sale of software then it is sale of goods. In this scenario, how would one be able to show that the goods have gone from India to a place outside India? It may be in the cloud.

In the other case i.e. license to use, it is a supply of service being an export of service.

[KASTURI SETHI]

The following judgement of Supreme Court may be useful in this context :-

COMMISSIONER OF SERVICE TAX DELHI VERSUS QUICK HEAL TECHNOLOGIES LIMITED [2022 (8) TMI 283 - SUPREME COURT]

AI Summary

Export of services: cloud delivered software counts as export only if place of supply, recipient location, and payment conditions are met.
Export status for software supplied over the internet hinges on classification as service or goods, applicability of OIDAR and place of supply rules, and satisfaction of export conditions: Indian supplier, recipient outside India, place of supply outside India (e.g. under OIDAR rules), receipt of payment in convertible foreign exchange, and not being establishments of a distinct person. Verify explanatory exceptions to place of supply, contractual terms (sale v. license), Schedule II treatment of IT services, and completion of SOFTEX/BRC payment documentation where relevant.