‘Amazon Internet Services Not An ‘Intermediary’: CESTAT Quashes Service Tax Demand on Data Hosting Services [Read Order]

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) held that Amazon Web Services’ India arm is not an “intermediary” and set aside service tax demands raised on data hosting services provided to its overseas group entity.

Amazon Internet Services Private Limited, now known as Amazon Web Services India Private Limited, provides data hosting and marketing services to Amazon Web Services Inc., USA, under agreements dated 1 July 2013. The data hosting services involve operation and maintenance of data centres in India, which are used by the overseas entity as an input for providing cloud computing services to customers worldwide.

The Department alleged that the appellant acted as an intermediary by facilitating cloud services to Indian customers through data servers in India and by providing marketing support. Two show cause notices were issued for the periods October 2013 to March 2016 and April 2016 to June 2017, proposing service tax demands under the Place of Provision of Services Rules, 2012.

The demands were confirmed by the adjudicating authority, leading the appellant to approach the Tribunal.

The appellant’s counsel argued that the appellant provided services on its own account and did not arrange or facilitate services between the overseas entity and its customers. They argued that the overseas entity independently contracted with customers and handled pricing and billing.

The counsel also argued that the definition of “intermediary” under service tax and GST law is identical and that circulars clarify that a service provider acting on its own account is not an intermediary. It was further argued that the services qualified as export of services.

The revenue counsel argued that the appellant facilitated cloud computing services in India and acted on behalf of the overseas entity, thereby falling within the definition of an intermediary. The revenue supported levy of tax, interest, and penalty.

The two-member Bench comprising Ms. Binu Tamta (Judicial Member) and Ms. Hemambika R. Priya (Technical Member) observed that the appellant rendered only data hosting services to the overseas entity and did not arrange or facilitate cloud computing services between the overseas entity and its customers. The tribunal observed that a service provider acting on its own account cannot be treated as an intermediary.

The tribunal also observed that there was no principal-agent relationship between the appellant and the overseas entity. Since the appellant was not an intermediary, Rule 9 of the Place of Provision of Services Rules did not apply, and the place of provision was governed by Rule 3.

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