MAH-AAAR-Amogh R Bhatwadekar

GST Liability Under Reverse Charge Mechanism on Supply Of E-Goods by Foreign Suppliers

 

The Appellant is a proprietor supplying digital goods i.e., “Online gaming” and is a recipient of OIDAR services from foreign suppliers like Newgameway from China, Global and MmoBay LLC from the USA. Digital goods/E-goods are sent to the appellant by e-mail or instant message service and a payout is issued. These received digital goods are accessed and stored on cloud servers. Customers of the appellant visit the appellant’s website and make payments to the appellant, after which Digital Goods are delivered from a cloud server to the customers by e-mail.

 

Appellant holds that e-goods are stored on cloud servers located outside India and are purchased from vendors outside India such that they cannot be said to be imported in India, hence out of the purview of reverse charge under GST. Further, such e-goods are sold by the appellant to foreign customers who pay in foreign currency treating it as supply outside India i.e., it is out and out supply not liable to GST. AAR holds that as per the CGST Act supply of e-goods by OIDAR Service providers being covered under the supply of services are taxable under GST. Accordingly, procurement of e-goods by the appellant from foreign suppliers (OIDAR Service suppliers) will attract levy of IGST under RCM in terms of Section 5(3) and 5(4) of IGST Act as a place of supply in respect of OIDAR Services is the location of the recipient of such services in terms of section 13(2) of IGST Act 2017.

 

The IGST Act defines OIDAR (Online Information database access or retrieval services) to mean services whose delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply essentially automated and involves minimal human intervention and 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, movies, music, software, and other intangibles through telecommunication networks or the 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;

(vii)         online gaming;

 

Place of supply:

 

Place of supply in the case of the OIDAR services is the location of the recipient of service.

 

Payment of Tax:

 

a.    In cases where the supplier of such service is located outside India and the recipient is a business entity (registered person) located in India, the reverse charge mechanism would get triggered and the recipient in India who is a registered entity under GST will be liable to pay GST under reverse charge.

 

b.    If the supplier is located outside India and the recipient is a Non-taxable online recipient then also the place of supply would be India and the transaction is leviable to GST. The supplier of services located in a non-taxable territory shall be the person liable for paying integrated tax on such a supply of services.

 

·       “Non-taxable online recipient” means any Government, local authority, governmental authority, an individual, or any other person not registered and receiving online information and database access or retrieval services in relation to any purpose other than commerce, industry, or any other business or profession, located in taxable territory.

 

The expression “governmental authority” means an authority or a board or any other body,-

(i)              set up by an Act of Parliament or a State Legislature or

(ii)            established by any Government

 

With ninety percent or more participation by way of equity or control, to carry out any function entrusted to a   municipality under article 243W of the constitution

 

Conclusion:

A)    If the recipient who is receiving OIDAR services is a registered person in India, then he would be required to pay integrated tax on receipt of such supply of services under the Reverse charge mechanism.

 

B)    If the recipient who is receiving OIDAR services is a Non-taxable online recipient and is receiving such services for any purpose other than commerce, industry, business, or profession, then also a place of supply would be India, and the supplier of such OIDAR services would be required to obtain registration in India and pay integrated tax on supply of such services.

 

C)   But if the recipient who is receiving OIDAR services is a non-registered person in India other than a non-taxable online recipient and is receiving such services for business or professional purposes etc. Then he would be required to obtain compulsory registration in India and pay integrated tax on receipt of such supply of services under the Reverse charge mechanism.

 

Considering the above, the transaction of procuring goods from outside India qualifies for import of services even though e-goods after being purchased by the appellant are stored on Cloud Servers located outside India, and the same is not downloaded by the appellant in India. The decision of the ruling authority was challenged before the appellate authority and the appellate authority affirms the decision.

[In the matter of Amogh R. Bhatwadekar (GST AAAR Maharashtra), order no. MAH/AAAR/RS-SK/34/2020-21, dated 16^th March 2021]