GST: Representation on Online Information and Database Access or Retrieval (OIDAR) services for B2C supplies

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GST: Representation on Online Information and Database Access or Retrieval (OIDAR) services for B2C supplies

Tejasvi

@tejasvi

July 19, 2022

Public Policy

555

Background

S. 5(1) of Integrated Goods and Service Tax Act, 2017 (IGST Act) provides that the supplier is liable to pay tax on all inter-state supplies of goods or services. However, as an exception, it is provided under S.5(3) that in case of certain specified categories of supply of goods or services, tax shall be paid by recipient of goods or services under reverse charge.

Accordingly, the Government notified certain category of services under Notification No. 10/2017- Integrated Tax (Rate) dated 28th June 2017. It is provided that in case of OIDAR service supplied by a person located in a non-taxable territory to any person other than a non-taxable online recipient, such person in taxable territory would be required to pay tax under reverse charge. Thus, where the recipient is other than “non-taxable online recipient” (commonly referred to as business buyer), then the liability to pay tax is on the recipient under reverse charge and not OIDAR service provider.

Where the recipient is a “non-taxable online recipient”, S. 14(1) of IGST Act provides that the liability to pay tax is on OIDAR service provider. Therefore, the liability has been imposed on OIDAR service provider in case where the recipient is "non-taxable online recipient" (commonly referred to as non-business buyer).

Non-taxable online recipient" is defined in S. 2(16) of IGST Act to mean "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."

Accordingly, following conditions must be satisfied to qualify as a “non-taxable online recipient”:

✓ The recipient must be a government, local authority, governmental authority, an individual or any other person;

✓ The recipient is not registered under GST (i.e., unregistered person); and

✓ The OIDAR services must be received for any purpose other than commerce, industry or any other business or profession.

Effectively, even if a person receiving OIDAR services is unregistered, but receives such services for the purpose of commerce, industry, business or profession, the liability is on such person to remit GST under Notification No. 10/2017- Integrated Tax (Rate) dated 28th June 2017. This is also aligned to the provisions of S.24(iii) of Central Goods and Services Tax Act, 2017 (CGST Act) which mandates registration for persons required to pay GST under reverse charge.

Issues

Based on our interaction with the Industry, we understand that the government is considering a retrospective amendment to OIDAR provisions which would result in a non-resident OIDAR service provider being liable to pay GST on ALL supplies made to “GST unregistered customers”, irrespective of the purpose for which the services have been consumed by an unregistered Indian recipient.

As highlighted above in the background, only if the recipient qualifies to be a “non-taxable online recipient”, then the liability to pay tax shall arise on OIDAR service provider. In cases where the recipient is not a “non-taxable online recipient”, i.e., a business buyer, the tax liability arises on the recipient to pay under reverse charge mechanism.

The retrospective amendment requiring a non-resident OIDAR service provider to pay GST on all services supplied to an unregistered buyer, irrespective of the purpose for which the services have been consumed by such unregistered buyer, would lead to undue hardship for the OIDAR service provider. This is because the OIDAR service provider would be:

✓ Liable to pay tax for the period July 2017 till date, which is non-recoverable from the customers and will become cost for the non-resident service providers.

✓ Interest @18% may also be triggered, which will be a cost for the non-resident service providers.

✓ Department may initiate proceedings for past period resulting into protracted litigation.

✓ Additionally, there could be a genuine case of double taxation where the recipient may have already discharged the taxes as a B2B recipient.

Our Ask:

In this regard, we have made a representation to GST officials on July 7, 2022 requesting that the principle of fairness and lex prospicit non respicit, i.e., the law looks forward and not backward, should be considered. Amendment resulting in a liability with an effective date in the past is in violation of the fundamental rights granted under Article 19(1)(f) of the Constitution of India and the same has been judicially settled by the Apex Court itself. This will be against ease of doing business in India for such overseas entities.

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Tejasvi

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