Supreme Court of India
Present writ petition was filed before Honourable Supreme Court of India under article 32 of Constitution seeking mechanism from government of India to track GST paid by Facebook, Amazon, Google, Twitter, others providing Online Information Database Access and Retrieval services (hereinafter referred to as OIDAR) in India from foreign jurisdiction.
Writ Petition(s)(Civil) No(s). 258/2021, diary no. 1313/2021
This petition was listed for admission on 17th March 2021 wherein bench of Hon'ble The Chief Justice, Hon'ble Mr. Justice A.S. Bopanna & Hon'ble Mr. Justice V. Ramasubramanian admitted the plea and issued notices to Union of India, GST Council and CBIC. Next date of hearing is 03.05.2021.
Case Details: Writ Petition(s)(Civil) No(s). 258/2021, diary no. 1313/2021
Writ Petition was filed on the following grounds without prejudice to one another:
- Because there is an asymmetry in information collection from overseas online service providers. That there is a clear and detailed procedure for information to be submitted for B2C transaction, but no such mechanism is for B2B transaction. This has resulted in huge revenue loss for the nation.
- Because the response to the RTI filed by the Petitioner shows that the Respondents do admit that there are glaring gaps in the information collected and consequently revenue collected. It is submitted that the larger interest demands that there be information symmetry and foreign overseas suppliers should not cause loss to the nation.
- Because the Government has no mechanism to track total GST paid on the OIDAR services used by Non NTORs (Non-Taxable Online Recipient) Indian recipients under reverse charge basis,
- Because figures of revenue generated out of services provided to Non NTOR is not reported anywhere in GST returns.
- Because as most of the overseas service providers maintain their accounts in foreign jurisdiction and are audited as per the local laws of the country in which they are situated, the Indian Govt has no mechanism to verify the total receipts earned by these service providers from India and check GST compliances.
- Because as most of the overseas service providers do not have any fixed establishment in India and maintain their accounts in foreign jurisdiction through overseas offices/data centres, Government of India have no control or access to their accounting records to verify their compliances under GST laws.
- Because while GST laws have strong tax collection, compliance, and reporting mechanism through various type of periodical returns, GST audit from independent auditors and other machinery provisions, no such mechanisms or provisions exist for overseas OIDAR service providers.
- Because the GST authorities do not have any data as to how many persons located in a non-taxable territory are providing OIDAR services in India.
- Because OIDAR are services provided through internet and received online without any physical interface between the recipient and the supplier such as the download of an online paid e-book. That there is great information collection asymmetry as far as such B2B and B2C transactions are concerned, and this information collection asymmetry is leading to national revenue loss. A one look at Form GSTR-1 and GSTR-5A will expose glaring information collection asymmetry.
- Because a detailed invoice level data is collected from an individual consumer, but no invoice level data is collected or collated from registered entities. There is no mechanism to check the authenticity of any tax, if any, deposited by these foreign giants. This glaring gap is a trap for leaking of precious foreign exchange which should come to India as a tax receipt.
- Because under the IGST Act, OIDAR service suppliers are required to get compulsory registration irrespective of their turnover. Sub-section (2) of section 14 of the IGST Act provides that the supplier of OIDAR services must take a single registration under the Simplified Registration Scheme for payment of integrated tax.
- Because the nature of OIDAR services is such that it can be provided online from a remote location outside the taxable territory. The place of supply for online information and database access or retrieval services is the location of recipient of services. The place of supply is the location of the recipient of service i.e., it is governed by the default place of supply rules. A similar service provided by an Indian Service Provider, from within the taxable territory, to recipients in India would be taxable. It is submitted that this patentently discriminatory to Indian Service provider.
- Because the overseas suppliers of such services have an unfair tax advantage should the services provided by them be left out of the tax net. Thus, GST regulations require non-resident OIDAR suppliers to register for GST and to charge IGST on sales to non-business customers. The Act specifically provides that in cases where the supplier of service is located outside India and the recipient is in India the place of supply would be India and the transaction would be amenable to tax. Such Payment of Tax by an OIDAR Supplier is governed by Section 14 of the Integrated Goods and Services Tax Act, 2017
- Because in cases where the supplier of such service is located outside India and the recipient is a business entity (registered person) located in India, the Reverse Charge Mechanism would get triggered and the recipient in India will be liable to pay GST under reverse charge. But when the recipient in India is an individual consumer the supplier of services located in a non-taxable territory shall be the person liable for paying integrated tax on such supply of services. In case there is a person in the taxable territory (India) representing such overseas supplier in the taxable territory for any purpose, such person (representative in India) shall get registered and pay integrated tax on behalf of the supplier.
In case the overseas supplier does not have a physical presence or does not have a representative for any purpose in the taxable territory, he may appoint a person in the taxable territory for the purpose of paying integrated tax and such person shall be liable for payment of such tax. To qualify as NTOR (non-taxable online recipient) even a single transaction would trigger liability to pay IGST. Therefore, OIDAR companies registered outside India have a legal obligation under GST law to compulsorily register under GST and comply with the GST laws including payment of IGST and filing of relevant returns.
- Because the supplier of OIDAR services must charge IGST on the supplies made in India to unregistered persons when such supply is for a purpose other than commerce, industry, business or profession. The supplier is not required to charge IGST on the OIDAR supplies made to a customer who receives the same for the purpose of commerce, industry or any other business or profession. The supplier is not required to charge IGST on any supply of services to Government, Local Authority, Governmental Authority or an individual, if they are registered persons under GST laws.
- Compliance under Section 14 of IGST Act is fastened on the OIDAR supplier only in case of supply to NTOR. The OIDAR supplier is not required to charge GST on the supply of OIDAR services even to an unregistered customer, if such customer intends to use the same for the purpose of business, profession, commerce, or industry. This implies that tax will be charged by the OIDAR supplier only on personal consumption by an unregistered customer. In other words, the determination of liability to charge GST is based upon the end-use of the service by the customer.
- Because at present, foreign OIDAR service providers such as Facebook Inc, Twitter Inc, Google etc. are earning huge revenues from Indian customers. However, the administration of the provisions of the Act is a cause of concern. For example, Amazon Web Services, Inc is established in the United States and has a large consumer base in India. IGST is payable on sales to non-business consumers in India. Accordingly, the company requires users of its services for business purposes and who are GST registered to provide the businesses GSTIN and the address to which the GSTIN is registered.
This ensures that IGST is not charged from such businesses on their purchase from Amazon Web services, Inc. In all other cases, IGST is charged on making purchase on the Amazon Web Service Marketplace.
- Because the OIDAR supplier is required to furnish return in Form GSTR 5A wherein only the following limited information is sought. The only information sought is the consolidated amount of supply made and tax payable by the OIDAR service provider for supply made to NTOR.
- Because there is no provision for submission of the amount of supply made to persons other that NTOR i.e. those who are liable to pay GST under reverse charge mechanism. No details are to be made available as to the GSTIN number of any such person or the supply made to such person or the tax payable by such person. In case of any supply by a person other than an OIDAR service provider Form GSTR 1 (Details of outward supplies of goods or services) is to be filed which seeks detailed invoice level information in case of taxable outward supplies to registered persons and outward interstate supply to unregistered persons. A detailed list of documents including Invoices, Debit and Credit Notes and Delivery Challan is to be provided. The detailed information to be provided serves as a control mechanism and enables GST authorities to track taxes paid under forward charge by suppliers and under reverse charge by recipients. That this control mechanism is not available in the case of OIDAR suppliers as form GSTR 5A contains details only related to outward supplies to NTORs on which OIDAR service providers are paying tax under section 14 of IGST Act under Forward Charge. In the absence of such information the authorities are unable to ascertain whether the correct amount of tax has been paid by registered persons or those who use the services for the purpose of business, profession, commerce, or industry. Even in case of tax paid by outward supplies to NTORs by OIDAR service providers the information available with the authorities is not sufficient. As per practice the recipient of service is taken as non NTOR if the GST Registration Number is provided, and invoice is issued by stating that liability to pay tax is on recipient under reverse charge. If GST No. is not provided, service provider will take it as NTOR recipient and charge GST.
- Because there is no mechanism or system in place by which the GST authorities can check whether the service providers have correctly established the Indian recipients as NTOR or Non NTOR as defined under section 2(16) of IGST Act. It is submitted that the definition of NTOR is very wide and covers cases of unregistered business users also. This is a huge grey area to avoid GST liability by service providers as well as service recipients resulting in tax evasion.
- Because overseas OIDAR suppliers are also exempted from filing annual returns in GSTR 9 (Notification No.30 /2019 – Central Tax dated 28th June 2019). GSTR 9 requires details of Outward supplies made during the financial year on which tax is not payable which includes Supplies on which tax is to be paid by the recipient on reverse charge basis.
- Because the registered persons are also required to file copy of the audited annual accounts and a reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year with the audited annual financial statement in Form GSTR 9C if turnover exceeds prescribed limit. Here also overseas OIDAR service providers are exempted to file these statements in FORM GSTR-9C (Notification No.30 /2019 – Central Tax dated 28th June 2019).
- Because the Petitioner re-iterated that this is not an adversarial litigation but a genuine nationalist cause to plug-in glaring holes in the indirect taxation system of Online Services provided by Foreign Service providers and hence the Petitioner seeks indulgence of this Hon’ble Court.
2. PRAYERS THROUGH THE PETITION
Prayed that Hon’ble Court be please to issue:
- A writ of mandamus/direction/order to the respondents to have a mechanism to track total GST paid on the OIDAR services used by Non NTORs (Non-Taxable Online Recipient) Indian recipients under reverse charge basis.
- To amend GSTR-5A or introduce new form to reflect in the GST return figures of revenue generated out of services provided to Non NTOR.
- To direct the Respondents to have a mechanism to verify the total receipts earned by foreign online service providers from India and check GST compliances.
- To direct overseas service providers to have fixed establishment in India or allow the Indian authorities to have no control or access to their accounting records to verify their compliances under GST laws.
- To direct respondents to have strong mechanism for overseas OIDAR like it has for others by which there is strong tax collection, compliance, and reporting mechanism through various type of periodical returns, GST audit from independent auditors and other machinery provisions and
- To direct the GST authorities to provide data as to how many persons located in a non-taxable territory are providing OIDAR services in India.
First order copy of SC can be downloaded from here