The Ministry of Finance has issued this circular to clarify the place of supply of data hosting services provided by Indian service providers to cloud computing service providers located outside India. This clarification addresses issues raised by the trade and industry regarding whether such services qualify as exports under the Integrated Goods and Services Tax (IGST) Act, 2017.
Data Hosting Service Providers as 'intermediaries'
Query: Are Indian data hosting service providers considered intermediaries between cloud computing service providers and their end-users?
Clarification: No, data hosting service providers are not intermediaries under Section 2(13) of the IGST Act. They provide services on a principal-to-principal basis to cloud computing companies and are not involved in arranging or facilitating services for end-users. Therefore, the place of supply cannot be determined under Section 13(8)(b) of the IGST Act.
Supply of Services Related to 'goods Made Available'
Query: Are data hosting services considered as being provided in relation to goods 'made available' by the recipient of the services (the cloud computing service provider)?
Clarification: No, the infrastructure (such as hardware, software, and other resources) used by Indian data hosting service providers is typically owned or operated by them, not by the cloud computing service provider. Even if some hardware is provided by the cloud computing company, the data hosting service cannot be said to be provided in relation to those goods. Therefore, the place of supply cannot be determined under Section 13(3)(a) of the IGST Act.
Services Related to Immovable Property
Query: Are data hosting services provided directly in relation to immovable property?
Clarification: Data hosting services involve a range of activities (such as server monitoring, infrastructure management, security, and power supply), which are not directly tied to immovable property. These services are essential for the cloud computing provider’s operations but are not considered as services provided directly in relation to physical premises. Hence, the place of supply cannot be determined under Section 13(4) of the IGST Act.
Place of Supply Under Section 13(2)
Since the data hosting services do not fall under any specific provisions in Sections 13(3) to 13(13) of the IGST Act, the place of supply will be determined by the default provision under Section 13(2). This means the place of supply is the location of the recipient of the services. For overseas cloud computing service providers, the place of supply will be outside India.
Export of Services
Data hosting services provided by Indian service providers to overseas cloud computing companies qualify as an export of services, provided all conditions of Section 2(6) of the IGST Act are met. As such, these services are eligible for the benefits of export, such as zero-rated tax treatment.
10x Comments
This circular provides a comprehensive clarification on the place of supply for data hosting services provided by Indian companies to overseas cloud service providers. It confirms that such services can qualify as exports, ensuring that businesses in India can continue providing seamless cloud solutions to global clients without unnecessary tax liabilities.
For further details, businesses are encouraged to consult the full circular or reach out to 10X Consulting for expert guidance on navigating GST compliance for international services.
