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Shreya Bhukhmaria By: Shreya Bhukhmaria
November 20, 2023
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In the contemporary technology sophisticated landscape, Online Information Database Access and Retrieval (OIDAR) services have grown significantly, drastically restructuring access to information globally. Our extensive use of streaming platforms, Unified Payments Interfaces, and online marketplaces on a regular basis can exemplify our reliance on these services. With the corroboration of increasing internet affordability and rapid technological advancements, these services are thought to achieve substantial growth. In order to channel considerable revenue potential, the Indian government has undertaken momentous strides to broaden the scope of OIDAR to render it exigible under GST. This article attempts to emphasize the significance of recent regulatory shifts within the Indian GST regime.      

Expanding GST Reach: Widening realm of OIDAR services

OIDAR consists of digitally delivered services through the Internet and is majorly devoid of any physical interaction between suppliers and recipients. These services, originating from across the world but serving Indian consumers, comprise activities like e-book purchases and cloud storage via online platforms, all subject to India's GST regulations.

The Indian government, through the Finance Act 2023, has proposed a significant amendment to the existing OIDAR definition outlined in Section 2(17) of the IGST Act. This amendment seeks to eliminate the phrase "essentially automated and involving minimal human interaction" from the section. It is worth noting that this phrase has not been clearly defined or provided with specific guidance in the GST regulations, nor have any official explanations been issued by the revenue authorities.

The ambiguity surrounding the threshold for what constitutes "minimal" human intervention or which activities qualify as substantially automated has consistently been a subject of legal disputes. Although there have been no prior judicial precedents or GST Council notifications offering clarity on this condition, it remains undeniable that it was a pivotal requirement for service classification as OIDAR.

Uncharted Territory of OIDAR Services

With the removal of this condition, the regulatory landscape is now considerably more open-ended, where virtually any internet-based service has the potential to be classified as an OIDAR service. Consequently, instead of resolving the controversy, the amendment has, in effect, multiplied it manifold by essentially providing a blank canvas for interpretation.  

With the passage of this amendment, any services offered via the Internet or other online platforms, including those requiring human interactions, are now considered OIDAR services. As a result of this fundamental modification, practically every service transmitted over the Internet or other electronic networks is now considered an OIDAR service. This transition has significant implications, subjecting various new services to the GST.

Institutional online educational programmes are a prominent example of such a service. These programmes were formerly considered to be outside the purview of OIDAR due to their substantial human intervention component. The passage of this amendment, however, means that these services now constitute OIDAR and are chargeable with GST.

Moreover, overseas service providers are required to re-evaluate the nature of their services, particularly those wherein there is a direct or indirect role of information technology. The critical concern herein is whether these services can be provided without the aid of information technology. If not, they may be categorized as OIDAR service, subsequently chargeable with GST.  

Requirement of Impossibility: Dilemma of IT Dependency

The key challenge arises while determining the viability of rendering a particular service without the assistance of information technology. Following the amendment, the moot question becomes whether it is impossible for the service provider to supply services in the absence of information technology. In addition to greater emphasis on the nature of the service, there emerges a conflict between the choice and capacity of the supplier.

Consider the case of an Indian student who enrolls in a course being offered by a foreign university located in Australia. Through the Internet, the university offers a number of services, including course registration, study materials, instructor-led live classrooms, and tests. Before the amendment, one might contend that as live classes entail video streaming, there is significant human engagement. The underlying premise exists that education cannot be imparted devoid of teachers' physical presence in front of the camera. 

However, with the advent of the amendment, this argument does not hold water. Live classes are now made synonymous with recorded lectures. The university may argue that all of the aforementioned services could be offered physically without the use of technology. Still, tax authorities may argue that there are significant differences between in-person and online classes and that the latter require internet usage by their very nature, making them OIDAR services.   

Importing Clarity: Aligning Indian OIDAR Regulations with EU VAT Standards

While OIDAR is specific to India, the European Union (EU) refers to these services as "Electronically Supplied Services" (ESS), and the United Nations (UN) refers as  "Automated Digital Services" (ADS). Nations, including India and the EU, recognize the impact of these digital services, leading to varied categorization and taxation approaches. However, the core goal persists: equitable taxation of digital services and assurance of tax compliance.

The jurisprudential origin of the definition and categorization of OIDAR services in India can be traced to the EU VAT regulations. The condition of "minimal human intervention" constitutes part of the definition of ESS provided for under Article 7(1) of the VAT Implementing Regulation. Several additional indicators aiming to identify the notion of "minimum human intervention" in a more precise manner have been deliberated in VAT committee (ARTICLE 398 OF DIRECTIVE 2006/112/EC) Working Paper No. 856. Some of these guiding parameters for the assessment of the notion are:  

  1. Human involvement on the supplier's side holds relevance, not on the recipient's side.
  2. Any such interaction should not be beyond mere "minimum human interaction," meaning a situation wherein direct human contact cannot be established between the supplier and the recipient. Any kind of active human interaction will make the service de hors the scope of being ESS.   
  3. Any service supplied by the supplier independently from specific requests made by an individual recipient must be considered within the ambit of "minimum human interaction."
  4. Employees of an online service provider who are responsible for continuously improving the system to satisfy customer needs could be considered as operating within the parameters of "minimal human intervention." This category is applicable as long as adjustments are not tailored to meet specific requirements of individual customers. 
  5. Each package should undergo a separate assessment in cases where the supplier offers multiple packages.
  6. Where the supplier is obligated to provide individual feedback, it would be considered beyond "minimal human intervention." Whether the customer exercises such an option is immaterial.
  7. When most individual transactions for digitally provided services are fully automated, but exceptional circumstances necessitate human intervention to solve a problem, such interventions should be seen as activities essential to the system's smooth operation and do not surpass the bounds of "minimal human intervention."

Another working paper includes comprehensive examples to clarify the definition of an Electronic Scheduling Service. One such illustrative scenario is as follows:

Example of ESS:

An online horoscope/astrology platform that produces insights, predictions, or advice based on a pre-populated database in response to customer-inputted details (e.g., date of birth). The involvement of individuals in maintaining or updating the database is considered preparatory and does not alter the service's nature.

Example not considered as ESS:

Conversely, an online horoscope/astrology platform that generates insights, predictions, or advice, but involves the analysis and processing of customer information/requests by individuals rather than automated systems. In this case, the service would not qualify as an ESS.

To have clarity on the notion and address the controversies arising from its vagueness, it is imperative for Indian authorities to adopt these standards and incorporate them alongside the conceptual transplant. Incorporating these factors into OIDAR would enhance its scope without necessitating contradictions with other GST provisions. Rather than outright elimination, a more effective approach could have involved expanding the existing phrase or introducing additional layers to ensure a more comprehensive coverage.

Striking a Balance: Simplifying Tax Compliance in a Complex Digital World

In the era of shrinking trade barriers, rapid technological developments, and significant progress of cross-border businesses, such uncertainties and perplexities can prove to be detrimental. While revenue authorities may advocate their viewpoint and bring in legislation and amendments to boost tax collections, businesses essentially desire simplicity and ease of compliance. The exceptions knotted with tax evasion should not be reasoned for introducing unclear and complex legislative amendments that penalize a substantial portion of tax-compliant enterprises.            


By: Shreya Bhukhmaria - November 20, 2023



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