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TMI Blog2020 (11) TMI 956X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Central Tax, Bangalore West Commissionerate, (herein after referred to as Appellant/Appellant Department) against the advance Ruling No. KAR/ADRG 37/2020 dated 22nd May 2020 = 2020 (6) TMI 182 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA. Brief Facts of the case: 3. M/s. NCS Pearson Inc, a Minnesota Corporation, having its registered office at 5601 Green Valley Drive, Bloomington, Minnesota - 55437, USA, (hereinafter referred to as 'Respondent Company') has a business division 'Pearson VUE' engaged in the provision of computer-based test (alternatively referred to as 'exams') administration solutions to its clients (test sponsors) like educational institutes, professional licensing organizations, etc. M/S NCS Person Inc is registered with Bangalore West Commissionerate as a supplier of OIDAR services and has been granted registration number 9918USA29031OSC. 4. The Respondent Company offers three types of test-administrative solutions on behalf of its clients to the test-takers in India. Test-takers are typically individual candidates across the world including candidates from India, who are not registered under GST. The three types of test are described below: Type ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -based questions are then sent to a human-evaluator in the USA for assessment and final scoring. In addition to this, the essay is scored by an automated essay scorer. In case the difference in score for a single essay question between the electronic computed based algorithms scoring vis-a-vis human scoring is more than I point, then the essay-based questions are again sent to an expert evaluator for assessment and scoring. Once the entire aforesaid scoring activity is completed, the test-taker is then e-mailed a URL to access their official score. 5. In India, the Respondent Company has entered into contractual arrangements with independent third-party service providers including a subsidiary company of the Respondent to act as Pearson VUE Authorized Test Centres (hereinafter referred to as Testing centres) to provide secure test centre services to the Respondent Company for delivery of the tests including verification of candidates identity, invigilation etc. 6. In view of the above, the respondent company filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 in respect of the following questions: a) Whether the service provided for type 2 test (the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n other than non-taxable online recipient. Further, in terms of serial no. 10(a) of Notification No. 9/2017-lntegrated Tax (Rate) dated 28 June 2017, an exemption is provided on services (other than OIDAR service) supplied by a provider of service located in a non-taxable territory to an individual in relation to any purpose other than commerce, industry or any other business or profession. Accordingly, for the type 2 and the type 3 test, IGST would either be exempt in case of supply by the Respondent Company to non-taxable online recipient or taxable under reverse charge mechanism in case of supply to other than non-taxable online recipients. 8. The Authority for Advance ruling examined the case of the Respondent and vide ruling No. KAR/ADRG 37/2019 dated 22nd May 2020 = 2020 (6) TMI 182 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA, arrived at the conclusion that the Type 2 test classifies as OIDAR service whereas the Type 3 test does not qualify as OIDAR services. As regards the tax to be paid on the activity under Type 3 test which is not an OIDAR service, the Authority held that what needs to be seen first is whether there is any liability and if there is a liability to pay tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Guidelines): Passive human intervention: It is a situation where direct human interaction of individualistic nature between the service provider and the service recipient cannot be established. In such cases it may be considered as minimum human intervention irrespective of the service involved. Active human intervention: It is a situation where direct human interaction of individualistic nature between the service provider and the service recipient can be established. In such cases it may be considered as minimum human intervention on case to case basis so as to ensure the mitigation of the misuse of the term "minimum human intervention". 9.3. The Appellant has further contended that the human intervention in the Respondent's case can be considered analogous to real time testing of a software, where the human intervention is required for optimum functioning of a software, supporting any search engine or any online database etc. Based on the above, the Appellant has argued that the human intervention is mostly for quality check of the algorithm and improving the accuracy of algorithm towards evaluation of papers and hence, the basic service in Type 3 test i.e. partly MCQ a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersonal hearing on 6th October 2020 but the Respondent sought an adjournment. Accordingly, the virtual hearing was fixed on 20th October 2020. 10.1. The hearing on 20th October 2020 was conducted on the Webex platform following the guidelines issued by the CBIC vide Instruction F.No 390/Misc/3/2019-JC dated 21st August 2020. The Appellant-Department was represented by the Additional Commissioner Ms Priya Goel and the Respondent Company was represented by their Advocate Shri. Harish Bindumadhavan. The Additional Commissioner representing the Appellant narrated the facts of the case and stated that the Department is aggrieved by the ruling given by the lower Authority with regard to the Type-3 test; that the Department is of the view that even the Type3 test comes under OIDAR services. The Appellant explained that the Type-3 test is a mix of Multiple-Choice questions (MCQ) and Analytical writing assessment (essay-based question); that the essay-based questions are also evaluated by an algorithm and it is only for the quality testing of the outcome that the human evaluation is brought into the picture. The Appellant submitted that the Type-3 test fulfils all the 4 essential qualities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luation process directly intervening where they can make a difference in the scores achieved by the test takers and hence, should be classified as more minimal human intervention; that since there is substantial human intervention in the Type-3 test, the same does not get covered under the purview of OIDAR services as rightly held by the lower Authority. In view of the above submissions, the Respondent pleaded that the appeal filed by the Department may not be allowed. DISCUSSION & FINDINGS: 11. We have gone through the records of the case. This is an appeal filed by the Department against the ruling given by the Authority for Advance Ruling in the case of M/s NCS Pearson Inc. We have considered the submissions made by the Appellant in their grounds of appeal and at the time of personal hearing. We have also heard the Respondent Company and gone through the written submissions filed by them. 12. The appeal is on the limited aspect of the classification of the Type-3 test administrative solution offered by the Respondent Company to its clients in India. The lower Authority had held that the Type-3 test does not qualify for classification as OIDAR service. The Department is aggrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e test, the Quantitative and Verbal elements of the test (multiple-choice questions) are scored based on a computer algorithm and the candidate is immediately given an indicative score report which provides the score only for the multiple-choice questions of the test. The score of the essay-based questions involving Integrated Reasoning and Analytical Writing elements, do not form part of the indicative score. The essay responses are sent by the Respondent to their scoring entity in the United States of America where the evaluation of the essays is done independently by a professional human scorer as well as a computer program known as an Automated Essay Scoring system (AES). 16. The essay scoring process by the scoring entity in the United States of America starts by evaluating if the information provided by the Respondent is complete or needs additional information before moving on to the next step. If the information provided is not sufficient, or an error occurs, a notification is sent back to the Respondent. Teams within the scoring entity and the Respondent work together to resolve any errors. If the essay information has all of the required information the next step is to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d essay-based questions. It is the responsibility of the Respondent to provide the software to enable the candidates to take the online Type-3 test; appoint or establish test centres from where the candidates will take the online Type-3 test; provide for the candidate's test registration validation at the test centre; provide for online and offline proctoring during the test-taking process, provide software for scoring the tests and deliver the test results electronically to the candidate. From the above it is abundantly clear that the Type-3 test is conducted over the internet using a computer system. The process of the test registration, conduct of the test and communication of the result are automated and such a test will not be possible in the absence of information technology. Thus, three out of the four requirements of an OIDAR service are fulfilled. The bone of contention is with regard to the fourth ingredient which is that the service should have minimum human intervention. We find that the lower Authority has taken the view that the scoring by the human scorer for the essay-based responses in the Type-3 test renders the element of human intervention more than minimal ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . An essay is given to a human scorer as well as to the AES program. If the AES score agrees with the score given by the human scorer, the AES program is considered reliable. A machine-human score correlation serves as a good indicator whether the AES is returning a stable consensus score of the essay. Therefore, the role of the human scorer is in effect a means to ensure the reliability of the AES program. We do not discredit the importance of a human scorer in the process of assessment of essay responses. However, the focus here is on a computer-based test where the intent is to also assess the performance of the candidate using an automated system. The reliability of the AES is validated by the near agreement to the score given by the human scorer. For this reason, we hold that the involvement of the human element in the assessment of essay responses is well within the realm of 'minimum human intervention'. Further, even from the perspective of the candidate, the human involvement is minimum in the entire process of the Type-3 computer-based test starting from the manner of registering for the test, the actual test-process and the outcome of the test, as all stages are automated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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