Over the past decade, Internet and Information Technology have emerged as a prominent medium for the supply of goods and services. Concurrently, non-resident and foreign suppliers of such services were brought under the levy of GST (and even under the pre-GST regime) as “online information and database access or retrieval” services (“OIDAR Services”). Further, the compliance and tax liability was exported to non-resident service providers. However, the contours of the levy has seen substantial changes, primarily in the definition and its operation to online recipients of such services.
Before 1 October 2023, OIDAR services were defined as services delivered over the internet which are “essentially automated and involve minimum human intervention”. Further, where the recipients of OIDAR Services deployed these services towards commerce, industry or profession then these could not be taxed. However, the amendments effective from 1 October 2023, have significantly expanded the definition to include any services mediated by information technology over internet, impossible to ensure in the absence of information technology. Further, the end use exception for online recipients of OIDAR Services has also been removed.
On the heels of these amendment, the GST Department has initiated various proceedings against foreign service providers, for their past OIDAR non-compliance since 2017. These foreign service providers include movie/ music subscription providers, advertising or cloud services providers, education providers, agencies supplying courses, e-books, games, cryptocurrency trading exchanges, etc. The GST Department’s attempt has been to bring within its scope all internet based foreign service providers, stating that there is no human intervention.
While the curation of any possible defence for taxpayers merits a nuanced approach towards the peculiar business operation, yet the constant amendments in the law, do raise valid legal defences. Taxpayers’ defence strategy in such cases ought to be to show that their activities require substantial human intervention, prior to October 2023. Given the inherent vagueness of the definition of OIDAR Services where words like ‘automated’ and ‘minimal human intervention’ – taxpayers must be able to substantiate through detailed documentation, as to how their activities fall outside these qualifiers.
The European VAT Committee has come out with certain pointers for determination of ‘minimal human intervention’ like – where human intervention is for secondary activities or where there is no customisation for individual customers, it would constitute minimal intervention. For example: If the main activity undertaken by a company is the electronic money system, any human intervention for ancillary functions (such as Help Desk and accounting) is minimal human intervention. On the contrary, customisation and responding to individual requests would not be ‘minimal human intervention’. Consequently, such services will not qualify as OIDAR services.
A second avenue of defence available to the taxpayers is the end use of the OIDAR Services by the online recipients prior to 1 October 2023. Where it can be established that such services were used by the online recipients for business, profession and commerce the levy of GST on OIDAR Services may not operate. In the past, similar wordings, have been interpreted by Departmental Circulars to mean usage for personal consumption. Ergo, only where the OIDAR Services were used for personal consumption can the levy of GST operate.
After the amendments effective from 1 October 2023, the previous exclusion for ‘substantial human intervention’ as well as the ‘personal consumption’ exclusion have been removed. Effectively all internet-based services appear to now qualify under ‘OIDAR’ services and foreign companies could be obligated to discharge GST when these services are provided to individuals (irrespective of the purpose or end use).
While the amendments were possibly to clarify ambiguities, in the absence of any test or qualifiers, they seem to evoke more questions. For instance, whether live streaming of events (concerts, sporting, etc.) involving significant human intervention continue to be outside OIDAR services; Where online training courses involve support and feedback by the tutor, will it remain outside OIDAR services; Will a foreign entity providing a mere paywall to an unregistered person in India be an OIDAR service; Would Foreign Influencers be treated as rendering a service to online recipients when such recipients subscribe.
In light of the current trend, it is likely that more and more foreign companies could be subject to scrutiny from the GST department. These companies may also be compelled to take registration and undertake the necessary GST compliances (such as establishing a presence in India or hiring a representative, filing timely returns).
Hence it is imperative for the foreign companies that own and operate mobile / web-based application / online platform which is accessible to people in India to evaluate the nature of their services from an OIDAR perspective and take necessary steps either for compliance or to litigate the demands.
