Custom, Excise & Service Tax Tribunal
Ce & Cgst Noida vs Dataflow Services India P Ltd on 7 June, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.I
Service Tax Appeal No.70696 of 2019
(Arising out of Order-in-Appeal No.NOI-001-APP-488-19-20 dated
28/06/2019 passed by Commissioner (Appeals) Central Goods & Services
Tax, Noida)
Commissioner of Central Goods &
Service Tax, Noida .....Appellant
(C-56/42, Renu Tower, Sector-62, Noida-201309)
VERSUS
M/s Dataflow Services India (P) Ltd., ....Respondent
(GVS Height, Plot No.10-11, 8th Floor, Sector 125, Noida) APPEARANCE:
Shri A.K. Choudhary, Authorised Representative for the Appellant Shri Kishore Kunal, Advocate for the Respondent CORAM: HON'BLE MR. P.K. CHOUDHARY, MEMBER (JUDICIAL) HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) FINAL ORDER NO.70323/2024 DATE OF HEARING : 22 February, 2024 DATE OF PRONOUNCEMENT : 07 June, 2024 SANJIV SRIVASTAVA:
This appeal filed by revenue is directed against Order-in- Appeal No.NOI-001-APP-488-19-20 dated 28/06/2019 passed by Commissioner (Appeals) Central Goods & Services Tax, Noida. By the impugned order Commissioner (Appeals) has dismissed the appeal filed by the revenue against Order-in-Original No.14/Addl.Comm./Appeal/Noida/2018-19 dated 27.04.2018 by which the proceedings initiated against the respondent demanding service tax to the tune of Rs.69,02,161/- and show cause notice dated 30.11.2016 was dropped.
2.1 Respondent is engaged in providing data verification services through various group entities and was having the view 2 Service Tax Appeal No.70696 of 2019 that the services provided by him are export of service and he was not paying service tax.
2.2 During the course of audit conducted it was observed that respondent was providing services under the category of „Online information and database access or retrieval service (OIDAR)‟ in respect of which the place of provider of the service is location of the service provider. Hence, these services were not export of services and hence were required to pay service tax. 2.3 A show cause notice dated 30.11.2016 was issued to the appellant asking them to show cause, as to why:-
"(i) Service tax amounting to Rs.69,02,161/- (Rupees Sixty Nine Lacs Two Thousand One Hundred Sixty one) as mentioned above should not be demanded and recovered from them under Section 73(1) of Finance Act, 1994, invoking the proviso thereto.
(ii) Interest on the above amount should not be demanded & recovered from them under Section 75 of the Finance Act, 1994.
(iii) Penalty should not be imposed upon them under Section 78 of the Finance Act, 1994."
2.4 This show cause notice was adjudicated by the Original Authority by the order referred in para-1 above, by dropping the demand.
2.5 Aggrieved Revenue has filed the appeal before Commissioner (Appeals), which has been dismissed as per the impugned order referred in para-1 above. 2.6 Aggrieved Revenue has filed this appeal before the Tribunal.
3.1 We have heard Shri A.K. Choudhary learned Authorised Representative appearing for the appellant-revenue and Shri Kishore Kunal learned Counsel appearing for the respondent- assessee.
4.1 We have considered the impugned orders along with the submissions made in appeal and during the course of argument.
4.2 To drop the demand Original Authority has in the Order-in- Original observed as follows:-
3 Service Tax Appeal No.70696 of 2019 "The party in this regards has submitted that their services are not covered within the definition of online information and database access or retrieval services' and describes the nature of service being provided by them which appears to be covered under Business Support service and insisted that the classification of the service can be changed at later stage. They also referred certain judgments and para 5.9.5 of the Education Guide issued by the Central Board of Excise and Customs ('CBEC) on 20th June 2012, specifically clarifies the scope of 'online information and database access or retrieval services' as under:
I find that 5.9.5 of the Education guide of Service tax issued by CBEC on 20.06.2012 clarified that "Online information and database access or retrieval services" are services in relation to online information and database access or retrieval or both, in electronic form through computer network, in any manner. Thus, these services are essentially delivered over the internet or an electronic network which relies on the internet or similar network for their provision. The other important feature of these services is that they are completely automated, anil require minimal human intervention. From the definition and the related clarification stated above, it is abundantly clear that for a service to qualify as Online Database Services, the service recipients should be granted access rights or right to retrieve some information or data by the service provider through a computer network. In terms of the above clarification provided by the CBEC, Online Database Services Include services that are completely automated, require minimum human intervention and essentially delivered over the internet.
As regards contention that the party is the owner of the website and providing verification report in electronic 4 Service Tax Appeal No.70696 of 2019 form through a computer network and therefore covered under the category of 'Online Database Services' the party's submission is that "dataflowgroup.com" is a corporate site domain name and registered with Net4India domain registrar. In fact all the data on the website is hosted on third party servers paid for by Dataflow Dubai.
It is merely a medium via which the outcome of the Business Support Services provided by the party (i.e. reports) are shared and does not alter the nature of services provided by them. Further, irrespective, of the nature of services provided by them, the ownership of the group website "dataflowgroup.com" is not a relevant factor to determine the classification of services provided by them.
I find that the party has filed a copy of Agreement dated 1 April 2012 ('Agreement) entered by them with Dataflow Dubai pursuant to which the parties may mutually agree in writing the scope of services to be rendered by them to Dataflow Dubai. In terms of the same, Dataflow Dubai has outsourced following support services to the Noticee during the period April 2012 to March 2015 ('Relevant Period'):
a) Verification services i.e. education verification services, health license verification services and employment verification and background check of individuals
b) Operational support for verification services
c) Managerial and supervisory support services.
d) Upon completion of the service, the Noticee is responsible for summarizing its findings in a clear, comprehensive, and easy to read tracker/ report for submission to Dataflow Dubai.
e) The consideration charged by the Noticee on the impugned invoices raised on Dataflow Dubai comprises of the following:
5 Service Tax Appeal No.70696 of 2019
d) Management fee, Education Verification Fees USD 20, Health Verification Fees USD 20, Employment Verification Fees USD 10
e) Out of pocket expenses incurred in relation to fulfilling the scope of services including costs of travelling, airfares, accommodation, transport, gifts and entertainment expenses
f) Other expenses as may be approved by Dataflow Dubai I observe that plain reading of agreement and sample report, it is evident that the party performs activities outsourced to it by Dataflow Dlibai and renders operational, managerial and verification support to Dataflow Dubai in relation to investigation, detection or verification of specified persons. Subsequently, the party summarizes its findings and prepares reports, including data entry in software for communicating the same to the Dataflow Dubai. I also find that the party have step wise process of business is as follows:-
Step 1: Input of request verification, to be verified, into the system Step 2: Verification is done through various modes that include contacting issuing authorities (e.g. universities, medical colleges, employers, et al) through telephone, email, internet, and/or site visit Step 3: Quality check of the verification done in terms of review of documents collected from university Step 4: Report writing based on the finding of the above steps and as per requirements of the customers.
Step 5: Customer interactions and clarifications in relation to the verification and related area I observe that the party had already submitted the very facts before the Audit but neither any cognigence has been
6 Service Tax Appeal No.70696 of 2019 taken nor any counter has been put up in the SCN. The SCN is silent on it. Therefore, based on the above description, the services undertaken by the party is covered in 'Business Support Services' because it is more appropriate and specific. Even though the term 'Support Services of Business or Commerce' was not defined in the Act during the Relevant Period, for the purposes of classification, the definition prevailing prior to introduction of the negative list regime (i.e. 1 July 2012) shall be relevant. The same is reproduced below:
"Support Services of Business or Commerce" means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational assistance for marketing, formulation of customer service and pricing policies, infrastructural support services and other transaction processing."
I find the party's plea tenable that the definition of the service is divided into two parts, the means part and the inclusive part. The means part covers all services provided in relation to business or commerce within its sweep. The language employed in means clause of the definition gives it wide coverage. The inclusive clause further gives a list of number of services that are specifically included within the coverage of 'support services of business or commerce'.
The services mentioned in the inclusive clause of the definition of support services of business or commerce are as follows:
Evaluation of prospective customers, telemarketing,
7 Service Tax Appeal No.70696 of 2019 processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting, and processing of transactions, operational assistance for marketing, formulation of customer service and pricing policies, infrastructural support services and other transaction processing.
Thus, on a plain reading of this service, it can be observed that the phrase 'means services provided in relation to business or commerce' as used in the definition, is very wide in its coverage. In fact, if full and proper meaning of the words as used in the means clause of the definition is given then the meaning will become too general and there will be no requirement of separately classifying any other taxable service.
I further find that Ministry of Finance vide D.O.F.No.334/4/2006-TRU dated 28 February 2006 has clarified that "Service tax liability in respect of export and import of services which clarifies that BSS seeks to tax all 'outsourced services' of a business. Thus, where any activity which the business is otherwise required to perform as a part of its normal business activity and when it is outsourced to another person, then such outsourced service will attract service tax under BSS."
Therefore, the means part of the definition of 'support services of business or commerce should be read harmoniously with the inclusive part of the definition read along with the Ministry letter (supra) and the legislative 8 Service Tax Appeal No.70696 of 2019 intent behind the taxable service should be interpreted so that outsourced services are taxed under 'Business Support Services'. A co-joint reading of the definition of 'Support Services of Business or Commerce' and the activities undertaken by the party, it can be construed, that the services rendered by them are squarely covered under the definition of 'Business Support Services', as the same were outsourced by Dataflow Dubai to them. The services provided by them to Dataflow Dubai were required to be undertaken by Dataflow Dubai, in terms of contracts executed with its clients. Dataflow Dubai outsourced provision of the said services to them. Clearly, the service provided by them qualify as Business Support Services.
I also observe that Section 66F of the Act deals with classification of services. The relevant extract of the said section is set out hereunder for ready reference:
66F. Principles of interpretation of
specified descriptions of services or
bundled services.
(1) Unless otherwise specified, reference to a service (herein referred to as main service) shall not include reference to a service which is used for providing main service.
(2) Where a service is capable of differential treatment for any purpose based on its description, the most specific description shall be preferred over a more general description"
I keeping in mind, the entirety of their activities and what has been confirmed in the Circular dated 28 February 2006 (supra), the services provided by the party qualify as 'Business Support Services', as it is the most specific description to the services outsourced Dataflow Dubai to them.
9 Service Tax Appeal No.70696 of 2019 In view of the above, I hold that the SCN could not be able to farmed the charges properly as to why the services performed by the party is covered under the category of Online Information and Database Access or Retrieval Services' and mere wrong classification chosen by the party does not alter the nature of service provided by them. I further find the allegation in the SCN, that the party have not given any distinction with reference to the nature and manner of services rendered by it to Dataflow Dubai where the nationality of the applicant appearing in the Annexure to the invoices are Indian or Foreign, is completely baseless, It is on records that the party time and again clarified during the course of Audit and between issuance of SCN, that the manner and nature of services rendered by them does not depend upon the nationality of the applicant as mentioned in the annexure to the invoices raised by them. Further, the nature of services provided by them can also be confirmed from samples reports prepared and shared by them with Dataflow Dubai (on the consideration of which no service tax was paid by them) and the Contract between Dataflow Dubai and its client (for understanding the work/ services which have been outsourced by Dataflow Dubai to them).
I find force in party's plea that there is no 'res judicata' or 'estoppel' in taxation matters. The assessee as well as the Department is free to change its stand about taxability, and demand can be raised or the refund/ exemption can be claimed within the time limited prescribed by the law. It is a settled legal view that merely following a wrong policy during a particular period does not stop an assessee from adopting the correct policy.
It is a matter of facts that their initial service tax registration under the taxable category of Online Information Database Access and Retrieval services 10 Service Tax Appeal No.70696 of 2019 (OIDAR Service) instead of Business Support Services (BSS). The party had filed a request with the department for amendment in their Service Tax registration in March 2015, whereas there was no change in the activities being performed by them. it is a well settled principle of law that 'estoppel' does not apply to taxation matters. Thus, the classification of the services provided by the party can be corrected subsequently. In this regard, the party have placed reliance on various case laws in which it has been held that principle of estoppel does not apply in taxation matters. Basis the above submissions, it is submitted that change in classification of services was undertaken by them to correct an inadvertent error, it is clear that they cannot be precluded from carrying out correction in the classification of service to accurately reflect its business operations.
I also find reliance on various legal judicial precedents has been placed by the party which state that in order to render OIDAR services, the provider of the services should own the data and information. In other words, unless the data or information is owned by the service provider, in no situation can it provide OIDAR services. In the case of United Telecom Ltd. vs. CCE (2009 (14) S.T.R. 212), it was held that ownership of underlying data or information is very Important factor to determine whether the services are classifiable under OIDAR services or not. The relevant abstract of the said judgment is reproduced below for your reference:
b. "Whenever, there is information and data retrieval, the ownership definitely becomes very relevant. Just because, the appellant provided a part of the network equipment, we cannot say that the appellant was responsible for the entire services. Again the entire wide area network has been
11 Service Tax Appeal No.70696 of 2019 established for better communication between the districts and the State headquarters. The information will be flowing from different centers to the headquarters and vice versa. This cannot be equated with online information and data retrieval. In any case, the appellant is not responsible for the entire network because we find that the communication lines have been leased out from the BSNL by the Andhra Pradesh Government. When they are not functioning, the appellants are not responsible and they do not lose their service charges. They are responsible only for the proper functioning of the equipment supplied by them. Moreover, the data is generated only by the Andhra Pradesh Government and the same is being used by the different wings of the Government, therefore, the appellant has also not provided any data. The responsibility of the appellant is to see that the network (WAN) functions. This cannot be equated with "Online database access/retrieval services"
The same principle has also been upheld by the Delhi Tribunal in the stay proceedings for Nestle India Ltd. vs. CCE, New Delhi (2011 (22) S.T.R. 165). Further, in the case of State Bank of India vs. Commissioner of Service Tax, Mumbaj -II [2015 (37) STR 340 (Tri-Mumbai)], the Tribunal said that the ownership of data is vital in determining whether the service will qualify as OIDAR or not. Copies of the abovementioned judgements are collectively enclosed as Annexure B. Basis the principle laid down in the abovernentioned judgments, in order to render 'OIDAR services', the provider of service should own the data and information in
12 Service Tax Appeal No.70696 of 2019 addition to all necessary infrastructure. In the present case, work performed by the Company is merely verification of information/ documents provided by Dataflow Dubai and the activities performed by them are not OIDAR services, as one cannot provide access to a data which is not actually owned by them.
The Government vide Notification No. 48/2016- Service Tax dated 09 November 2016 specifically amended the definition of OIDAR services under Service tax and the definition has been reproduced below :-
"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 essentially automated and involving 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, movie, music,
software and other intangibles via
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, inusic, etc.), vi. digital data storage, and vii. online gaming:"
13 Service Tax Appeal No.70696 of 2019 Thus, the definition of OIDAR service was amended vide Notification No. 48/2016- Service Tax dated 09 November 2016 to include the following:
o That the service should essentially be automated, involving minimal human intervention;
o It should be impossible to ensure provision of service in the absence of information technology; and o Examples to explain the nature of services it intends to cover under the scope of OIDAR services such as advertising on the internet providing cloud services, provision of e-books, movie, music, software and other intangibles via telecommunication networks or internet, online supplies of digital content (movies, television shows, music, etc.), online gaming etc. It is important to mention that all the above conditions inserted vide Notification No. 48/2016- Service Tax dated 09 November 2016 were also present before the introduction of the said amendment in the form of various circulars issued by CBEC from time to time. Thus, the intention of the government has always been to include only those services under the category of 'OIDAR services, the essential characteristic of which is that the service rendered is mediated automatically by information technology over the internet. The same was made a part of the definition to remove ambiguities in law which were leading to litigation.
Moreover, post the amendment in the definition of OIDAR service, Circular No. 202/12/2016- Service Tax dated 09 November 2016 was issued by the government explaining the category of services that are required to be classified as OIDAR services. On perusal of the clarifications issued vide the circular dated 9 November 2016 and basis the facts of the instant case, the services provided by the party appears fallen under Point 7 (serial no. 15) of the 14 Service Tax Appeal No.70696 of 2019 table which clearly indicates that services mediated by information technology over internet or an electronic network and which is not automated would not be classified as OIDAR services. I find that the case laws referred by the party in this regards are applicable on the facts of this case.
Therefore, I am of the opinion that the party's service are covered under Business support service, now, the matters remains to decide is that whether the services provided to Dataflow Dubai can be considered as Export of service and attracts liability of Service tax or not?
I find that With effect from 1 July 2012, in terms of Rule 6A of the ST Rules, following conditions are required to be fulfilled for a service to qualify as export:
a) The provider of service should be located in the taxable territory;
b) The recipient of service should be located outside India;
c) The service should not be specified in section 66D of the Act;
d) The place of provision of service should be outside India;
e) The payment for such services should be received by the provider of service in convertible foreign exchange;
and
f) The provider of service and recipient of service should not be merely establishments of distinct person in accordance with item (b) of Explanation 3 of clause (44) of section 65B of the Act.
Business Support Services provided by the party to Dataflow Dubai is tested on said parameters as follows:-
a) the party is an Indian Company having offices in Noida, Uttar Pradesh. Thus Condition (a) stands fulfilled.
15 Service Tax Appeal No.70696 of 2019
b) they have entered into the Service Agreement with Dataflow Dubai for provision of outsourced services. In terms of the Service Agreement, Dataflow Dubai is required to pay consideration for services provided by them. Hence, Dataflow Dubai being the contractual service recipient, qualify as the service recipient. This view is also fortified by the clarification provided in Education Guide dated 20 June 2012 issued by the Tax Research Unit of Central Board of Excise & Customs. The relevant extract of the Education Guide is reproduced below:
"5.3.3 Who is the service receiver?
Normally, the person who is legally entitled to receive a service and, therefore, obliged to make payment, is the receiver of a service, whether or not he actually makes the payment or someone else makes the payment on his behalf."
In the instant case, Dataflow Dubai is a company incorporated and located outside India viz. Dubai. Thus, condition (b) stands fulfilled as the service recipient is located outside India. The Business Support Services provided by them are not covered under section 66D of the Act. Thus, condition (c) stands fulfilled. Business Support Services provided by them fall under Rule 3 of the POPS Rules. In terms of the said Rule, services shall be deemed to be provided where the recipient of service is located. In other words, place of provision of services shall be the location of the service receiver. As discussed above, in the instant case, the service recipient is Dataflow Dubai. Accordingly, place of provision of Business Support Services provided by the party shall be the location of Dataflow Dubai, which is Dubai. Thus, condition (d) stands fulfilled.
c) Payment for the Business Support Services provided by them is received in convertible foreign exchange and is verifiable from the foreign inward remittance certificates 16 Service Tax Appeal No.70696 of 2019 and bank realization certificates issued by the Banker of the Company. Thus, condition (e) stands fulfilled.
d) They and Dataflow Dubai are separate legal entities and not the establishments of distinct person in accordance with item (b) of Explanation 3 of clause (44) of Section 65B of the Act. Thus, condition (f) stands fulfilled.
e) As all the conditions specified under Rule 6A of the ST Rules, for a service to qualify as export are fulfilled, services provided by the party to Dataflow Dubai qualify as export.
Therefore, I am inclined to accept that the party's plea has a lot of force and is tenable, their services are rightly classifiable in BSS and therefore are not hit by Rule 6(A)(d) of the Service Tax Rules, 1994 applicable w.e.f. 01.07.2012 in as much as and qualify as export of service in terms of Place of provisions Rules, 2012." 4.3 While dismissing the revenue appeal, Commissioner (Appeals) has observed as follows:-
"5. I have carefully gone through the records of the caso, appeal memos including grounds of appeal, cross objection of the respondent and submissions made during the personal hearing. The question to be decided was whether the services provided by the respondent to his overseas client were classifiable as 'Online information and database access or retrieval service' (OIDAR) or 'Business Support Service' (BSS).
6. I have perused the flow chart submitted by the respondent giving step by step process undertaken by him which consists of receipt of verification requests forwarded by the client, data entry of requests, research & verification (through various modes), quality check of the outcome of verification, manual report compilation, manual quality check of final report, language translation as per requirement, customer support and delivery of final verification reports to the overseas clients through 17 Service Tax Appeal No.70696 of 2019 website/server/ Internet. In Service Tax Educational Guide released by the Board on 19-06-2012 (Official Guidelines for new System of Levy of Service Tax on the basis of Negative List w.e.f. 01-07-2012), vide para 5.9.1, it was clarified that important features of OIDAR services were that they were completely automated, and required minimal human intervention. In OIDAR services, ownership of data/contents was always with the service provider and such data/content could be given/provided to any customer against a consideration. However, in the instant case, the whole process of verification services undertaken by the respondent required extensive human intervention at his end which could in no way be categorized as a completely automated process. As per Section 65(75) of the Finance Act "on-line information and database access or retrieval" - means providing data or information, retrievable or otherwise, to any person, in electronic form through a computer network. In the instant case, for the agreed nature of activities undertaken by the respondent, he was not providing any new data/information owned by him but only delivering the outcome of the verification service undertaken by him in form of verification reports to his client. CBEC vide circular no 202/12/2016-ST dated 09- 11-2016 (para 2, sl. no. 12), with regard to query "Do OIDAR services include all services mediated by information technology over internet or electronic network?" has clarified that -"Using the internet, or some electronic means of communication, just to communicate or facilitate outcome of service does not always mean that a business is providing OIDAR services." In the instant case, the respondent was using electronic communication system (dedicated website/server/internet) only to receive the verification requests from his clients and to deliver the final verification reports to them. From facts and circumstances of the case as discussed above, I find that nature of service provided by respondent to his overseas 18 Service Tax Appeal No.70696 of 2019 clients was different from nature of services defined as OIDAR Services.
7. The appellant department, on the other hand, has submitted that during the material period, the respondent classified the services provided by him under the category of OIDAR in his registration certificate, service tax returns and invoices and change of classification of service from OIDAR to BSS was only an afterthought. The Hon'ble CESTAT, South Zonal Bench, in case of SPL Developers Pvt. Ltd. vs. CST, Bangalore, reported in [2015 (39) S.T.R. 455 (Tri. Bang.)] has held that "Classification of service Classification on assumption that registration conclusive of class of service provided - HELD: Failure to discharge obligation to correctly classify contested class of service Where alleged classification contested, the obligation to properly classify service by reference to appropriate taxable service, a non-derogable obligation - Adjudicating authority or assessee not to decide classification as matter of subjective choice - Classification to be on analysis of characteristic of service, analyzed in terms of provisions of Finance Act considered in light of guidance in Section 65A of Finance Act, 1994". On application of the ratio of Hon'ble CESTAT's above verdict, I find that registration or submission of return or issuance of invoices under a category of service was not conclusive to correctly determine the nature of service and its classification.
8. I further find that the Board vide F. No. 334/3/2011- TRU, dated 28-2-2011 relating to budgetary changes in service tax has clarified the following: -
"5. Business Support Service [section 65(105)(zzzq)]:
5.1 The scope of the service is being expanded to include operational or administrative assistance of any kind. The scope will cover all support activities for others on a contract or fee, that are ongoing 19 Service Tax Appeal No.70696 of 2019 business that businesses support functions that and organizations commonly do for themselves but sometimes find it economical or otherwise worthwhile to outsource."
On examination of the 'service level agreement for outsourcing of services' between the respondent and the client as effective during the material period, I find that the respondent had agreed to provide the following services to his overseas clients:- (1) Verification Services, (2) Operational support for verification service and (3) Managerial and supervisory support services, which were noticeably similar to the nature of the services defined under the expanded scope of BSS. As per above finding read with Board's clarification supra, I find that the adjudicating authority has correctly classified the impugned services provided by the respondent to his overseas clients under 'Business Support Services' for which the place of provision would be governed by provisions of general Rule 3 of PoPS Rules 2012, i.e., location of the recipient of service which, in the instant case, was outside the taxable territory and correctly allowed the benefits of export of services to the respondent by dropping the demand."
4.4 It is observed that both the authorities has concluded that the services provided by the appellant are more appropriately fall under the category of „Business Support Service‟ and not under OIDAR, as alleged in the show cause notice. In case of „Business Support Service as per Rule 3 of Place of Provision of Services Rules, it is the location of the service recipient which is abroad. Accordingly, both the authorities have concluded that the services provided by the appellant are export of services and hence no service tax was due from him. Therefore, by dropping the demand, revenue has without showing any perversity in the order has filed this appeal challenging the above findings and facts. The challenge made by the revenue is on two grounds namely:-
20 Service Tax Appeal No.70696 of 2019 I. The Respondent is providing data in electronic format through computer network and is thus covered under OIDAR Services. Further, these activities are essentially automated and the only human intervention is of online supply of digital content which is very minimal.
II. The respondent had taken earlier registration for OIDAR Services and had also issued some invoices paying service tax on these services.
4.5 Rule 2 (1) (ccd) of Service Tax Rules, 1994 ("the ST Rules") defines OIDAR services as follows:
(ccd) "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 essentially automated and involving 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, movie, music,
software and other intangibles via
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, etc.);
(vi) digital data storage; and
(vii) online gaming;
21 Service Tax Appeal No.70696 of 2019 4.6 The education guide issued by the CBEC on 20.06.2012 clearly explains OIDAR Services as follows:
5.9.5 What are "Online information and database access or retrieval services"?
"Online information and database access or retrieval services" are services in relation to on-line information and database access or retrieval or both, in electronic form through computernetwork, in any manner. Thus, these services are essentially delivered over the internet or anelectronic network which relies on the internet or similar network for their provision. The otherimportant feature of these services is that they are completely automated, and require minimalhuman intervention. Examples of such services are:-
i) online information generated automatically by software from specific data input bythe customer, such as web-based services providing trade statistics, legal andfinancial data, matrimonial services, social networking sites;
ii) digitized content of books and other electronic publications, subscription of onlinenewspapers and journals, online news, flight information and weather reports;
iii) Web-based services providing access or download of digital content.
The following services will not be treated as "online information and database access orretrieval services":-
i) Sale or purchase of goods, articles etc over the internet;
ii) Telecommunication services provided over the internet, including fax, telephony, audio conferencing, and videoconferencing;
22 Service Tax Appeal No.70696 of 2019
iii) A service which is rendered over the internet, such as an architectural drawing, ormanagement consultancy through e-mail;
iv) Repair of software, or of hardware, through the internet, from a remote location;
v) Internet backbone services and internet access services.
By Circular No. 202/12/2016 dated 09.11.2016 following was clarified:
12. Do OIDAR services Using the internet, or some include all services electronic means of mediated by communication, just to information technology communicate or facilitate outcome over internet or of service does not always mean electronic network? that a business is providing OIDAR services
13. What services would Indicative list of non-OIDAR NOT be considered as services OIDAR services? i. Supplies of goods, where the order and processing are done electronically ii. Supplies of physical books, newsletters, newspapers or journals iii. Services of lawyers and financial consultants who advise clients through email iv. Booking services or tickets to entertainment events, hotel accommodation or car hire v. Educational or professional courses, where the content is delivered by a teacher over the internet or an electronic network (in other words, using a remote link) vi. Offline physical repair services of computer equipment vii. Advertising services in newspapers, on posters and on television
14. What type of services OIDAR services covers services which will be covered under are automatically delivered over the OIDAR services? internet, or an electronic network, where there is minimal or no human intervention. In practice, this can be either:
i. where the provision of the digital content is entirely automatic eg, a consumer clicks the „Buy Now‟ button on a website and either:
the content downloads onto the
23 Service Tax Appeal No.70696 of 2019 consumer‟s device, or the consumer receives an automated e-mail containing the content ii. where the provision of the digital content is essentially automatic, and the small amount of manual process involved doesn‟t change the nature of the supply from an OIDAR service All „electronic services‟ that are provided in the ways outlined above are OIDAR services.
4.7 Thus it is evident that the conditions required to be fulfilled for holding the services classifiable under the category of OIDAR can be enumerated as follows:
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;
involving minimal human intervention and;
impossible to ensure in the absence of information technology.
The services are completely automated and require minimal human intervention The ownership of data/content is necessarily always with the service provider who provides access or retrieval of data owned by it to the customer against a consideration.
4.8 It is observed that respondent is engaged only in assimilating the verification documents and information available in public domain into a final verification report to its client-
entities Dataflow Dubai. Respondent do not have any ownership or contract out the data and is not disseminating the same through the network appearing for public for uses against the cost, these the verification report created or transmitted through 24 Service Tax Appeal No.70696 of 2019 by the appellant to its clients/entities namely Dataflow Dubai by using network of computers.
4.9 In case of Philips Electronics India Ltd. [2019 (21) GSTL 450 (Tri.-Mad)] following has been held:
"5.2The department has sought to bring these IT infrastructure services within the fold of OIDAR. We find that the term "Online Information and Database Access or Retrieval" has been defined under Section 65(75) of the Act to mean providing Data or Information Retrieval or otherwise to any person in electronic form through a computer network. Further under Section 65(105)(zh) of the Act, taxable service means any service provided or to be provided to a client by any person in relation to Online Information and Database Access or Retrieval or both, in electronic form through computer network in any manner.
5.3The main take away from the definitions is that services provided should facilitate not only online information but also Database Access or Retrieval. From the facts on record, it appears to reason that the infrastructure services are nothing but a spider web group which connects Philips Netherlands to all its locations worldwide through the Wide Area Network (WAN) of internet protocol. For such Philips Global Network Services, payment is made on the basis of invoices raised by Philips Netherlands towards maintenance of server/portal, license fees, server software maintenance cost, infrastructure for global platform, hiring of web space for storing data, management and maintenance of web portal, licence cost for access for wireless WAN environment, Directory services for listing etc. Some of these services which can be availed by Philips locations and employees are of the nature of "Calendaring and Scheduling Directory, Philips e-mail, file back up etc. In any case, all these infrastructure services are only in the nature of providing intra connectivity between Philips locations worldwide and the payments made are obviously then for sharing of the maintenance cost between the 25 Service Tax Appeal No.70696 of 2019 Philips‟ units and not as fees for supply of online information or retrieval of data from the portal."
4.10 Section 2 (17) of the IGST Act, 2017 defines Online Information And Database Access Or Retrieval Services as follows:
"(17) "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 essentially automated and involving 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, 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 networks;
(v) online supplies of digital content (movies, television shows, music and the like);
(vi) digital data storage; and (vii) online gaming;"
The definition of as reproduced above is pari material with the definition of OIDAR as per 2 (1) (ccd) of the Service Tax Rules, 1994 which we are concerned. Interpreting Section 2 (17) of IGST Act, 2017. Hon‟ble Bombay High Court has in case of Globolive 3D Pvt. Ltd. [2023 (76) G.S.T.L. 433 (Bom.)] observed as follows:
"23.The next question would be as to whether the impugned order is correct when it categories the service offered by the petitioner to be online information and database access or retrieval services (OIDAR) within the meaning of Section 2(17) of the IGST Act. On a perusal of 26 Service Tax Appeal No.70696 of 2019 said definition, such services have been defined 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 involving minimal human intervention and impossible to ensure in the absence of information technology and includes electronic services such as advertising on the internet; providing cloud services; provision of e-books, movie, music, software and other intangibles through telecommunication networks or internet; providing data or information, retrievable or otherwise, to any person in electronic form through computer network; online supplies of digital content (movies, television shows, music and the like); digital data storage and online gaming. We would wonder as to how such specialized service as being provided by the petitioner under the Agreement as entered between the petitioner and Emirates Defence Industries Co., could at all be said to be of the nature falling under the OIDAR provided under Section 2(6) of the IGST Act. No doubt that in providing such services, the petitioner was required to transfer the files through electronic medium, but that would not mean that such services being rendered by the petitioner qua its nature, would fall under the definition of OIDAR as defined under Section 2(17) of the IGST Act. This more particularly for the reason that such service is not merely a delivery of the nature mediated by information technology over the internet or is a delivery available on an electronic network and the nature of which would render its supply essentially automated without and/or with minimal human intervention. It is far different from what is included in any of the electronic services as set out in clauses (i) to (vii) in the definition of OIDAR.
24.Thus, in our opinion, if the interpretation to the Agreement in question as rendered by the respondents is to be accepted, it would lead to an absurdity inasmuch as 27 Service Tax Appeal No.70696 of 2019 any communication of information or providing of service through the medium of emails or any electronic transfer of data would be required to be held as OIDAR service, which is certainly not the purport and meaning an OIDAR service as defined under Section 2(17) of the Act.
25.In the present case, there is clearly an agreement of the petitioner with a party, which is a foreign party, whose location is outside the Indian territory. The agreement is clearly for a specialised work of providing 3D city models of Abu Dhabi, AL Ain, AL Dhafra. These are not works which would be freely available on the internet and/or are materials of the nature Section 2(17) would contemplate. Also undoubtedly the consideration as received by the petitioner for providing of such service is received in convertible foreign exchange, although through the foreign recipients/representative M/s. Bayanat LLP, as it is not the case of the department that such amounts as received by the petitioner are not under the Agreement in question. In fact the invoices clearly refer to the payment in US dollars to be when the contract of the petitioner with Emirates. There is no material to disbelieve the case of the petitioner for any reason whatsoever that the recipient of the service is not a foreign recipient.
26.For such reasons, in our opinion, considering the material on record, the petitioner is correct in its contention that merely because the petitioner has secured data from different source so as to create the services to be supplied to Emirates, it would not amount to the petitioner falling within the definition of Section 2(17).
4.11 It is well established fact that there is no res-judicata in the taxassion matter even if in some cases party have discharged service tax liability by treating these services under the category of OIDAR that cannot be a para for not claim otherwise in subsequent transactions, reliance is placed on the following decisions:-
28 Service Tax Appeal No.70696 of 2019 Intelligroup Asia Pvt. Ltd. Versus Commissioner OF C. EX., Hyderabad, 2016 (46) S.T.R. 679 (Tri. - Bang.);
Dunlop India Ltd. & Madras Rubber Factory Ltd. vs. Union of India and Others, 1983 (13) E.L.T. 1566 (S.C.);
Collector of Central Excise & Customs, Pune vs. Vulcan Level Ltd., 1985 (22) E.L.T. 123 (Tribunal); Crompton Greaves Ltd vs Collector, 2002 (142) ELT A182 (SC).
4.12 Thus, the claim of revenue that these services should be classified under the category of OIDAR cannot be accepted and the appeal on this ground lacks merit.
4.13 As we hold that the services provided by the appellant are not classifiable under the category of OIDAR but the same are classifiable under the category of „Business Support Service‟ as per Rule 3 of Place of Provision of Services Rules, 2012, benefit of export of services is admissible to the appellant and no service tax could have been demanded from him as per the show cause notice.
5.1 Appeal filed by the revenue is rejected.
(Pronounced in open court on- 07 June, 2024) (P.K. CHOUDHARY) MEMBER (JUDICIAL) (SANJIV SRIVASTAVA) MEMBER (TECHNICAL) akp