The Allahabad bench of the Customs Excise & Service Tax Appellate Tribunal ( CESTAT ) held that service tax is not leviable on the services under the category of Online Database Access and Retrievable ( OIDAR ) services.
Shri Abhinav Kalra, Chartered Accountant appeared for the Appellant and Shri Sandeep Pandey, Authorized Representative appeared for the Respondent.
The issue was whether the Appellant, M/s Innodata India Pvt. Ltd is liable to pay service tax under the head ‘Online Database Access and Retrievable ( OIDAR ) Services’ during the period from July 2012 to November 2016. The service tax demand of Rs. 50,87,71,481/- has been confirmed under section 73(1) of the Finance Act, 1994 (the Act) along with interest under Section 75 of the Act and penalty of Rs. 50,87,71,481/- under Section 78 of the Act vide Adjudication Order passed by the Commissioner, Central Goods & Service Tax, Greater Noida. A penalty of Rs. 1,00,000/- under Section 78(A) of the Act has also been imposed on Shri Rajiv Nandvani, Director and VP (Facilities) of the Appellant company.
The Appellant, M/s Innodata India Private Limited ( formerly M/s Innodata Isogen Private Limited ) ( ‘IIPL’ ), are providing Content Support Services to its ultimate holding Company, Innodata Inc., USA, which mainly include data conversion, knowledge process outsourcing ( KPO ) and IT enabled services.
It was noticed by the Revenue that the Appellant had taken centralized registration from the Service Tax Commissionerate, Noida and had subsequently changed their address for providing various taxable services. On perusal of the ST-3 returns filed by the Appellant, it was noticed that the taxable services being provided/exported by them had been described as ‘OIDAR services’ in their ST-3 returns filed up to June 2012, and from July 2012 to March 2013, the services exported were described as ‘Development and supply of contents for use in Telecom services’, ‘Advertising agency’ etc., and from April 2013 onwards the services exported were described as ‘Business support services’.
It appeared to the Revenue that the Appellant was exporting OIDAR services which were taxable in the hands of the service provider (the Appellant) in the taxable territory of India in terms of Rule 9(b) of the Place of Provision of Services Rules, 2012, and not covered within the definition of ‘Export of Services’ provided under Rule 6A of Service Tax Rules, 1994 for being eligible for refund/rebate of service tax paid on input services under Notification No. 39/2012-ST dated 20.06.2012, and therefore, it was alleged that the Appellant had deliberately, to evade payment of service tax, changed the classification of ‘OIDAR service’ to ‘Business Support Service ( BSS )’ for the period July 2012 onwards.
The Appellant claimed that the raw data/content received and data processed which was made available to the third parties through Innodata USA did not belong to the Appellant and were always the intellectual property of the content providers and that the Appellant only provided support services to the content providers who had all the IPR/copyrights over the data for using the same as OIDAR services through internet or for personal use by the content providers.
It was noted that using the internet, or some other electronic means of communication just to communicate processed data to the supplier and the owner of raw data/content does not mean that a business is providing OIDAR services. The suppliers/owners of raw data/content have all the rights to the title, intellectual property rights and copyrights over the data before and after processing/digitization of data.
The Appellant has no title or ownership over the processed data for being used over the Internet for their business. OIDAR services as clarified by the CBEC in the Education Guide for Taxation of services in Guidance Note 5.9.5 cover services that are automatically delivered over the Internet or an electronic network where there is minimal, or no human intervention.
A two-member bench comprising Mr P K Choudhary, Member ( Judicial ) And Mr Sanjiv Srivastava, Member ( Technical ) found that the Appellant has not maintained any website or electronic network to provide services that are essentially automated or involving minimal human intervention for the public in exchange for any consideration. The Appellant is providing digitized, abstracted and indexed data out of raw data received from third parties using the internet or electronic means of communication just to communicate resultant digitized or converted data, which are input services for their customers who may utilize the data for providing services under the category of OIDAR service ( main service ) by putting them on the internet for public/clients or their personal use.
The services rendered by the appellant are therefore broadly covered under the category of Business support services or telecommunication services using tools of information technology, and shall not be covered under the category of OIDAR services. The CESTAT held that the Appellant is not liable to service tax on the services under the category of OIDAR services.
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