2016 (3) TMI 355 - AAR - Service Tax

Taxability of services - Classification - naturally bundled services or not - place of provision of services (POP Rules) - intermediary service or not - GoDaddy India Web Services Private Limited to provide support services in an integrated manner to assist GoDaddy US develop its brand in India, carry on its operations efficiently and serve customers in India - Held that - the various support services proposed to be provided by the Applicant to GoDaddy US are a bundle of Services being naturally bundled in the ordinary course of business and accordingly is a single service, being business support service, in terms of Section 66F of the Finance Act. Applicability of POP Rules - proposed service to be provided by the applicant to GoDaddy US is business support service and not intermediary service in terms of Rule 2 (f) of POPS. - It is observed that said proposed service does not fall under any of the Rules of POPS but for Rule 3. Rule 3 of POPS inter-alia envisages that the place of provision of a service shall be the location of the recipient of service. The place of provision of business support service provided by the applicant, is outside India in terms of Rule 3 of the Place of Provision of Service Rules, 2012. - the services to be provided by the applicant to GoDaddy US would fall to be classified under Rule 3 of the Place of Provision of Services Rules, 2012 qualify as export of taxable services in terms of Rule 6A of the Service Tax Rules, 1994 (inserted vide Notification No. 36/2012-S.T. dated 20.6.2012) and therefore remain non-taxable for purpose of payment of service tax under the Finance Act. Further, applicant is not concerned in respect of services provided by GoDaddy US to Indian Customers, which relates to domain name registration, transfer services, web hosting services, designing services etc., In case, applicant was providing service to Indian Customers, he would have received consideration from Indian Customers. Fact is that no remuneration/consideration is received by the applicant from Indian Customers. Applicant is to only receive from GoDaddy US, a fee equal to the operating cost incurred by the applicant plus mark up of 13% on such costs. It is noticed that applicant is to receive said fees from GoDaddy US, even in respect of Indian Customers, who directly remit service charges to GoDaddy US through International Credit Card, wherein applicant is not in the picture. This fact further shows that the applicant is not providing any service to Indian Customs. GoDaddy US have used said services provided by the applicant as per the draft Service Agreement. Further, applicant would charge a fee equal to the operating costs incurred by the applicant plus a mark-up of 13% on such costs, which would be received by the applicant from GoDaddy US in US Dollars. The benefit of services provided by applicant accrues to GoDaddy US outside India. Activity is not liable to service tax - Decided in favor of applicant.

Issues Involved:

1. Classification of the services provided by the applicant to GoDaddy US as a "bundle of services" under Section 66F of the Finance Act.
2. Determination of the place of provision of the business support service under Rule 3 of the Place of Provision of Service Rules, 2012 (POPS).
3. Qualification of the services as export of taxable services under Rule 6A of the Service Tax Rules, 1994.
4. Whether the applicant provides any service to the customers of GoDaddy US in India.
5. Whether the service of collection of payments from customers of GoDaddy US in India is a transaction in money and hence not subject to service tax.

Detailed Analysis:

1. Classification of Services as a "Bundle of Services":

The applicant proposed to provide various support services to GoDaddy US, including marketing, branding, offline marketing, quality oversight of third-party customer care centers, and payment processing. The applicant argued that these services are integrated and naturally bundled in the ordinary course of business, forming a single service classified as 'business support service' under Section 66F of the Finance Act. The applicant referenced the Service Tax: An Education Guide, which outlines criteria for determining whether services are naturally bundled. The Revenue, however, contended that the services appeared to be intermediary services under Rule 9 of POPS. The judgment concluded that the applicant provides the main service on its own account and not as an intermediary, thus classifying the services as a naturally bundled single service of business support.

2. Place of Provision of Business Support Service:

The judgment ruled that the place of provision of the business support service provided by the applicant to GoDaddy US is outside India, in terms of Rule 3 of POPS. The Revenue's argument that the services are consumed by Indian customers was rejected. It was determined that the services provided by the applicant are consumed by GoDaddy US, which is located outside India, and thus, Rule 3 applies.

3. Qualification as Export of Taxable Services:

The judgment confirmed that the services qualify as export of taxable services under Rule 6A of the Service Tax Rules, 1994. The criteria for export of services include the provider being located in the taxable territory (India), the recipient being located outside India (GoDaddy US), the service not being specified in Section 66D (Negative List), the place of provision being outside India, payment being received in convertible foreign exchange, and the provider and recipient not being merely establishments of a distinct person. All these conditions were met, making the services non-taxable for the purpose of service tax.

4. Provision of Services to Customers of GoDaddy US in India:

The applicant asserted that it provides business support services solely to GoDaddy US and not to its customers in India. The judgment agreed, noting that the applicant would not receive any remuneration from Indian customers and that the services provided by the applicant are on a principal-to-principal basis with GoDaddy US. The applicant's remuneration comes from GoDaddy US and not from the customers in India, further supporting the conclusion that the applicant does not provide services to GoDaddy US's customers in India.

5. Collection of Payments from Customers in India:

This issue was not pressed by the applicant and therefore was not considered in the judgment.

Conclusion:

The judgment concluded that the various support services provided by the applicant to GoDaddy US are a naturally bundled single service classified as business support service. The place of provision of these services is outside India, qualifying them as export of taxable services under Rule 6A of the Service Tax Rules, 1994, and thus non-taxable for service tax purposes. The applicant does not provide any services to the customers of GoDaddy US in India.

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