GST Update - Clarification on place of supply of data hosting services and procedure for resolving conflict under Rule 96(10) pursuant to 54th GST council meeting | nasscom | The Official Community of Indian IT Industry

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GST Update - Clarification on place of supply of data hosting services and procedure for resolving conflict under Rule 96(10) pursuant to 54th GST council meeting

Tejasvi

@tejasvi

September 30, 2024

Public Policy

The recent announcements by the GST Council mark a significant step forward in enhancing EoDB for the IT-BPM and e-commerce sectors in India. The announcement to issue a circular to clarify place of supply for data hosting services provided by service providers located in India to cloud computing service providers located outside India and rolling out of B2C e-invoicing on voluntary basis are welcome move. Nasscom had been advocating on these issues for more than a year, highlighting the challenges faced by companies. We are encouraged to see our efforts culminate into positive clarifications for the industry.

Key wins:

Clarification on place of supply for data hosting services provided to foreign cloud computing service providers (Circular No. 232/24/2024-GST dated 10 September 2024): Ground-level authorities were incorrectly classifying these services as intermediary services, subjecting them to 18% GST. This was resulting in unnecessary blockage of working capital. The Council has issued a Circular to clarify that data hosting services provided to foreign cloud computing service providers are not intermediary and will qualify as export of services. The circular is thorough and addresses all interpretational issues faced by exporters in this domain. Notably, the text of the Circular is taken verbatim from the representation submitted by Nasscom to the Ministry of Finance.

The circular clarifies the following aspects:

Data hosting service providers are not considered as Intermediary services under S. 2(13) of IGST Act, since they do not facilitate supply of services between cloud computing service provider and its end users. They provide services on a principal-to-principal basis and are not brokers or agents.
Data hosting services are not considered to be in relation of goods made available by the cloud computing service provider, as the service provider manages its own infrastructure. Therefore, S. 13(3)(a) of IGST Act, which deals with place of supply for services related to goods made available, does not apply. Importantly, it clarifies that this is the case even if some of the hardware is made available by the overseas cloud computing service recipient.
Data hosting services are not provided directly in relation to immovable property. The services involve the provision of a comprehensive solution for data hosting, including infrastructure management, rather than being directly related to immovable property. Thus, Section 13(4) of the IGST Act is not applicable.
Since the specific provisions in Sections 13(3) to 13(13) of IGST Act do not apply, the place of supply for data hosting services should be determined under the default provision of Section 13(2) of the IGST Act.

This clarification is in line with Meity’s focus on the need to create data centre infrastructure within India to support data localisation and protection of digital sovereignty with a vision to make India a Global Data Centre hub.

Introduction of B2C e-invoicing-

E-invoice is currently applicable to supplies made to B2B and exports transactions. This expansion to B2C transactions, albeit voluntary, is a progressive step. Nasscom had been advocating on this issue for more than a year. This is specifically relevant for ecommerce sector where most of the supplies are to B2C customers the volume and frequency of deliveries are quite large. The concept of paperless invoicing has already been adopted in various countries (including EU, Brazil, Canada, Singapore) which do not require printing of invoices. This will help in reducing cost of paper, reduced damage to environment and plugging revenue leakages.

Clarification regarding regularisation of refund of IGST availed in contravention of rule 96(10) of CGST Rules, 2017, in cases where the exporters had imported certain inputs without payment of integrated taxes and compensation cess - regarding (Circular No. 233/27/2024-GST dated 10 September 2024)

To recap, Rule 96(1) bars the refund of IGST on exported goods if certain concessional/exemption notifications were availed on inputs imported or procured domestically.
In 2020, a retrospective explanation was added stating that if a registered person has paid IGST and compensation cess on inputs and availed only Basic Customs Duty (BCD) exemption, the benefits of notifications should not be considered as availed for the purpose of sub-rule (10).
However, there was ambiguity in respect of past cases, where IGST benefit had already been availed.
The Circular now provides that exporters who have paid IGST and compensation cess should get their Bill of Entry reassessed through Customs authorities.
Refund of IGST on exports will be considered valid if the above conditions are met.

Copy of the Circulars are attached for your reference.

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Tejasvi