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Serv tax on payment to web hosting co having servers abroad

Sanjeev (Head) (27 Points)

27 September 2012

Gentlemen Kindly Advise,

We are an online arm of an Indian media company having our servers abroad for serving web pages. The hosting company is a non resident entity in India, without a pan no. We gross up payment to deduct 20% TDS. Are we also liable to gross up for service tax? The point here is our servers are abroad, though we pay from India, and hence the services are delivered not in India?

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10 Replies

Dharam Singh (Manager - Commercial & MPL) (32 Points)
Replied 27 September 2012

Service tax is liable for the services rendered in India(irrespective to the base of your server)

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Madhukar N Hiregange (Chartered Accountant) (39034 Points)
Replied 27 September 2012

You may like to examine the negativelist entry on sale of space or time for advertisement [ assumed that web site is for advertising] wherein only TV and radio are liable. All others are not. If you fit in fully then not liable whether the service is provided in India or elsewhere.

Vikas (CA) (1135 Points)
Replied 27 September 2012

Difficult to examine the taxability due to incomplete information:

Please state :

Whom are you providing services;

Who is liable to pay you consideration;

What services are you providing;

Only after the above, the taxability can be decided;

For your kind information, if you are providing online services IT services then it covered by Rule 9 of the Place of Provision of Services Rules, 2012, wherein the location of service provider is tested. Hence, if you are covered by this rule, then you would be liable to pay service tax...

Sanjeev (Head) (27 Points)
Replied 27 September 2012

Clarification and more info

1 we are receiving the service in this case and not providing. Service is provided by a US co who hosts our site and raises bill (in usd) on us for payment.

2 As the service provider wants complete payment we have to gross up for tds and service tax

3 website hosts news

many thanks

Vikas (CA) (1135 Points)
Replied 27 September 2012

Still the nature of service is not described in detail:

I would provide you the following explanation and example for Rule 9 of POPSR,

“Online information and database access or retrieval services” are services in relation to online

information and database access or retrieval or both, in electronic form through computer

network, in any manner. Thus, these services are essentially delivered over the internet or an

electronic network which relies on the internet or similar network for their provision. The other

important feature of these services is that they are completely automated, and require minimal

human intervention.

Examples of such services are:-

i) online information generated automatically by software from specific data input by

the customer, such as web-based services providing trade statistics, legal and

financial data, matrimonial services, social networking sites;

ii) digitized content of books and other electronic publications, subscriptttion of online

newspapers and journals, online news, flight information and weather reports;

iii) Web-based services providing access or download of digital content."

Meaning if they are providing you the similar services as mentioned above, the location of service provider shall be taken as the place of provision, hence in this case no service tax is chargeable as per Sec.66B read with Rule 9 of the POPSR, as the service provider is located outside India.

Further, if not covered by Rule 9, as explained above, then it will be governed by General or Residuary Rule 3, where the location of service recipient is taken into consideration. Hence, in this case, service tax liability would arise to be discharged by your company under reverse charge mechanism, as you being the service recipient are located in India.

For further details you may refer to Place of Provision Rules, 2012 for which notification no.28/2012-ST can be taked into consideration and "Education Guide" from the under mentioned link under service tax column.

www.cbec.gov.in

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Sanjeev (Head) (27 Points)
Replied 27 September 2012

Nature of Service is Renting of servers from a foriegn technology company. Those servers are used by us to put up our digitized content. The technology co bills us monthly for using those servers.

many thanks

Vikas (CA) (1135 Points)
Replied 27 September 2012

As I have already detailed you regarding the provisions, according to me mere renting of servers, is not providing any online information nor it is like providing any database, hence you may not able to fit inot Rule 9 of the said Rules.

Hence, general rule 3 will be applied, where location of service recipient is important to be noted, and hence you being in India are required to discharge service tax liability under reverse charge mechanism as per Notification No.30/2012-ST dated 20.06.2012;

Further, you may also claim Cenvat of such service tax liability paid under reverse charge mechanism if it is used to provide the output service.

I am pretty sure on this, but you may refer to a consultant for your satisfaction.

Sanjay Sharma (none) (33 Points)
Replied 18 October 2012

Originally posted by : Sanjeev
	Nature of Service is Renting of servers from a foriegn technology company. Those servers are used by us to put up our digitized content. The technology co bills us monthly for using those servers. many thanks

Service Tax is not applicable for payments made to foreign company for renting servers because it falls under payment for royality and not the technical services. Also, since your datacenter is not located in India he is not rendering any services in India and there fore question of service tax do not arises in India.

Also, as per article 12 of Indian DTAA's with many countries clearly states there is no requirements for tax to be with held if business has no establishement in India. However, India government has not defined web hosting services under any section and as per recent trubunel rulling TDS is not required to be withheld for web hosting and domain registration services payment (please search People Interactive (I) P Ltd rulling).

Vikas (CA) (1135 Points)
Replied 07 November 2012

Originally posted by : Shawn Sharma
	Originally posted by : Sanjeev Nature of Service is Renting of servers from a foriegn technology company. Those servers are used by us to put up our digitized content. The technology co bills us monthly for using those servers. many thanks Service Tax is not applicable for payments made to foreign company for renting servers because it falls under payment for royality and not the technical services. Also, since your datacenter is not located in India he is not rendering any services in India and there fore question of service tax do not arises in India. Also, as per article 12 of Indian DTAA's with many countries clearly states there is no requirements for tax to be with held if business has no establishement in India. However, India government has not defined web hosting services under any section and as per recent trubunel rulling TDS is not required to be withheld for web hosting and domain registration services payment (please search People Interactive (I) P Ltd rulling).