RECENT GST CLARIFICATIONS – PART 9

[Dr. Sanjiv Agarwal]

Post 54^th GST Council meeting held on 09.09.2024, CBIC has issued 4 Circulars bearing Nos. 230 to 233, all dated between 10.09.2024 clarifying taxability, place of supply, time of supply and input tax credit on various issues relating to goods and services.

This Part-9 of the Article offers the gist of Circular Nos. 232 and 233 which are on the following topics:

Circular No. / date	In relation to
Circular No. 232/26/2024-GST dated 10.09.2024	Place of Supply of Data Hosting Services
Circular No. 233/27/2024-GST dated 10.09.2024	Regularization of IGST Refunds on Exports

Place of Supply of Data Hosting Services - Circular No. 232/26/2024-GST dated 10.09.2024

• 54^th GST Council meeting held on 09.09.2024 recommended a clarification to be issued on place of supply of data hosting services provided by service providers located in India to cloud computing service providers located outside India.
• Accordingly, CBIC has clarified as follows:

• Whether data hosting service provider qualifies as ‘Intermediary’ between the cloud computing service provider and their end customers/users/subscribers as per Section 2(13) of the IGST Act and whether the services provided by data hosting service provider to cloud computing service providers are covered as intermediary services and whether the place of supply of the same is to be determined as per section 13(8)(b) of IGST Act ?

• A broker, agent or any other person who arranges or facilitates the main supply of goods or services or both or securities and has not involved himself in the main supply on his own account is considered as ‘intermediary’.
• Persons who supply goods or services, or both on their own account are not covered in the definition of “intermediary”.
• The cloud computing service providers generally enter into contract with data hosting service providers to use their data centres for hosting cloud computing services.
• Data hosting service provider provides data hosting services to the cloud computing service provider on a web platform through computing and networking equipment for the purpose of collecting, storing, processing, distributing, or allowing access to large amounts of data.
• The data hosting service provider provides data hosting services to the cloud computing service provider on principal-to-principal basis on his own account and is not acting as a broker or agent for facilitating supply of service between cloud computing service providers and their end users/consumers.
• The services provided by data hosting service provider to its overseas cloud computing service providers cannot be considered as intermediary services and hence, the place of supply of the same cannot be determined as per section 13(8)(b) of IGST Act.

• Whether the data hosting services are provided in relation to goods “made available” by recipient of services to service provider for supply of such services and whether the place of supply of the same is to be determined as per section 13(3)(a) of the IGST Act, 2017 ?

• Section 13(3)(a) of the IGST Act, 2017 provides that in cases where the services are supplied in respect of goods which are made physically available by the recipient of services to service provider, the place of supply will be location of service provider.
• Throughout the provision of the said services, the data hosting service provider owns premises for data center or operates data center on leased premises, independently handles, monitors and maintains the premises, hardware and software infrastructure, personnel and in such scenario, the overseas cloud computing service providers cannot be considered to own the said infrastructure and make the same physically available to the data hosting service provider for supply of the said services.
• Data hosting services provided by data hosting service provider to the said cloud computing service providers cannot be considered in relation to the goods “made available” by the said cloud computing service providers to the data hosting service provider in India and hence, the place of supply of the same cannot be determined under section 13(3)(a) of the IGST Act, 2017.
• Where the data hosting services is being provided by the data hosting service provider inter-alia using the hardware made available by the cloud computing service provider, it cannot be said that data hosting service are being provided in relation to the said goods made available by the cloud computing service provider to them. Even in these cases, place of supply cannot be determined under section 13(3)(a) of the IGST Act.

• Whether the data hosting services are provided directly in relation to “immovable property” and whether the place of supply of the same is to be determined as per section 13(4) of the IGST Act ?

• Section 13(4) of the IGST Act provides for the place of supply where services supplied are directly in relation to immovable property.
• In this case, data hosting service providers either use owned or leased premises for keeping IT infrastructure and other hardware required for providing data hosting services.
• Data hosting services are not passive supply of a service directly in respect of immovable property but are regarding supply of a comprehensive service related to data hosting which involves the supply of various services by the data hosting service provider like operating data centre, ensuring uninterrupted power supplies, backup generators, network connectivity, backup facility, firewall services, and monitoring and surveillance service for ensuring continuous operations of the servers and related hardware, etc. which are essential for cloud computing service provider to provide cloud computing services to the end users/customer/subscribers.
• Thus, in such a scenario, the data hosting services cannot be considered as the services provided directly in relation to immovable property or physical premises and hence, the place of supply of such services cannot be determined under section 13(4) of IGST Act.
• Therefore, the place of supply in such cases needs to be determined according to the default provision under section 13(2) of the IGST Act, i.e. the location of the recipient of the services. Where the cloud computing service provider receiving the data hosting services are located outside India, the place of supply will be considered to be outside India according to section 13(2) of the IGST Act.
• Accordingly, supply of data hosting services being provided by a data hosting service provider located in India to an overseas cloud computing entity can be considered as export of services, subject to the fulfilment of the other conditions mentioned in section 2(6) of IGST Act.

Regularization of IGST Refunds on Exports - Circular No. 233/27/2024-GST dated 10.09.2024

• GST Council in its 54^th meeting held on 09.09.2024 recommended to prospectively omit rule 96(10), rule 89(4A) & rule 89(4B) in CGST Rules, 2017 to simplify and expedite the procedure for refunds in respect of such exports.
• GST Council recommended   to clarify that where the inputs were initially imported without payment of integrated tax and compensation cess by availing benefits under Notification No. 78/2017- Customs dated 13.10.2017 or Notification No. 79/2017-Customs dated 13.10.2017, but IGST and compensation cess on such imported inputs are subsequently paid, along with applicable interest, and the Bill of Entry in respect of the import of the said inputs is got reassessed through the jurisdictional Customs authorities to this effect, then the IGST paid on exports, refunded to the said exporter shall not be considered to be in contravention of provisions of sub-rule (10) of rule 96 of CGST Rules.
• It also recommended to prospectively omit rule 96(10), rule 89(4A) & rule 89(4B) from CGST Rules, 2017 to simplify and expedite the procedure for refunds in respect of such exports.

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