(2020) GTI 267 (AAR-Kar)
[IN THE AUTHORITY FOR ADVANCE RULINGS, KARNATAKA]
CLASSIFICATION OF SERVICES—ONLINE INFORMATION AND DATABASE RETRIEVAL SERVICES OR NOT—SELF-ADMINISTERED TEST TAKEN BY THE CANDIDATES—TAXABILITY—LEVY OF IGST—CBEC CIRCULAR NO. 202/ 12/2016— SERVICE TAX DATED 9.11.2016
(2020) GTI 267 (AAR-Kar)
[IN THE AUTHORITY FOR ADVANCE RULINGS, KARNATAKA]
CLASSIFICATION OF SERVICES—ONLINE INFORMATION AND DATABASE RETRIEVAL SERVICES OR NOT—SELF-ADMINISTERED TEST TAKEN BY THE CANDIDATES—TAXABILITY—LEVY OF IGST—CBEC CIRCULAR NO. 202/ 12/2016— SERVICE TAX DATED 9.11.2016
NCS Pearson Inc., (hereinafter referred to as the applicant), a Minnesota Corporation, having its registered office at 5601 Green Valley Drive, Bloomington, Minnesota – 55437, USA, , has a business division Pearson VUE engaged in the provision of computer based test (alternatively referred to as exams) administration solutions to its clients (test sponsors) like educational institutes, professional licensing organizations, etc.
4. The activities undertaken by the applicant in performing the services and delivery to its clients broadly include the following:
5. Applicant offered three types of test-administrative solutions on behalf of its clients to the test-takers in Test-takers are typically individual candidates across the world including candidates from India, who are not registered under the Central Goods and Services Tax Act, 2017. The three types of test are described below:
Type 1 Test:
Type 2 Test:
Type 3 Test:
The questions and exam formats are embedded in the electronic software of the applicant for delivery to the candidates. The servers for this electronic software can be accessed electronically by the candidates via the internet at the test centers or any other location. Applicant further submitted that to facilitate the delivery of tests, the applicant will also appoint or establish test centers worldwide in locations where candidates take specified online exams which requires supervision.
`OIDAR service)‘ as defined under section 2(17) of the IGST Act. Further, the individual test takers (service recipients) who register for the test qualify as `non- taxable online recipient‘ sin terms of section 2(16) of the IGST Act. Accordingly, in terms of section 14(1) of the IGST Act, the applicant, being a service provider located in non-taxable territory, has obtained GST registration and is discharging IGST on the supply of OIDAR service to a non-taxable online recipient in India in respect of test type 1.
If the type 3 test provided by the applicant does not qualify as Online Information and Database Retrieval Services, whether the applicant is liable to pay integrated tax on the supply of said services to non- taxable online recipients in India?
2(17) “online information and database access or retrieval services” means services whose delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention and impossible to ensure in the absence of information technology and includes electronic services such as:
The applicant submitted that while assessing the classification of OIDAR services all the above four conditions have to be taken into account on equal basis and does not place more value to some of these elements and less to others. In the instant case, the delivery of the all the three types of test is mediated by information technology over an electronic network and the set-up of the online test is such that it is impossible to ensure supply in the absence of information technology.
tests, the criteria set out in OIDAR service regarding the delivering services over the Internet or an electronic network and the delivery of said service should be impossible in the absence of information technology are fulfilled. However, in the type 2 test, the candidate is required to appear for the test at the test centres appointed by the applicant, under the physical administration and supervision of an invigilator. Although the test is to be taken electronically, it cannot take place without the physical presence of invigilator, who is required to verify candidates identity, monitoring the candidate while he or she is sitting the test and to provide the score report once the candidate has completed the test.
Hence the applicant submitted that type 2 test involves human involvement in the form of test administration and invigilation on the side of the supplier i.e. the applicant and the above criteria applies in the applicants case to treat the type 2 test as involving more than minimal human intervention.
12 11. The applicant further submitted regarding the taxability of the type 2
and type 3 tests. The applicant is an entity registered under Central Goods and Services Tax, 2017 with a place of business in USA and does not have its own place of business or fixed establishment in India. Therefore, the location of the supplier in terms of section 2(15) of the IGST Act, 2017 is outside of India. Further the recipients of the service are located in India and in terms of section 13(2) of the IGST Act, the place of supply for type 2 and type 3 test would be the location of service recipient i.e. location of candidates which is in India. Accord- ingly, supply of type 2 and type 3 test from outside India to candidates in India would be treated as an import of services and inter-state supplies in terms of section 2(11) and 7 (4) of IGST Act, respectively. In this regard, applicant submitted that as per serial no. 1 of Notification 10/2017-lntergrated Tax (Rate) dated 28.6.2017, any service supplied by any person who is located in a non- taxable territory to any person other than non-taxable online recipient is taxable under reverse charge mechanism in the hands of the service recipient who is a person other than non-taxable online recipient.
12.12. Further, the applicant submitted that in terms of serial no. 10(a) of Notification No. 9/2017-Integrated Tax (Rate) dated 28.6.2017, an exemption is provided on services (other than OIDAR service) supplied by a provider of service located in non-taxable territory to an individual in relation to any purpose other than commerce, industry or any other business or profession. Accordingly, for the type 2 and the type 3 test, IGST would either be exempt in case of supply by the applicant to non-taxable online recipient or taxable under reverse charge mechanism in case of supply to other than non-taxable online recipients. Based on the above provisions of the IGST Act and the notifications issued thereunder, the applicant submitted that the applicant is not responsible to collect and pay IGST on the supply of service in type 2 and type 3 test to the recipient in India.
12. Sri Harish Bindhumadavan, Advocate and DAR of the above concern appeared for personal hearing proceedings on 9.1.2020 before this authority.
13. We have considered the submissions made by the Applicant in their application for advance ruling as well as the submissions made by them during the personal hearing. We have also considered the issues involved, on which advance ruling is sought by the applicant, and relevant facts.
14.1. At the outset, we would like to state that the provisions of both the CGST Act and the KGST Act are the same except for certain Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the KGST Act.
14.2. The applicant is an intermediary located in non taxable territory and provides services of online exams/ tests via electronic software to the non taxable online recipients in India which he has classified into three For activities mentioned under Type 1, the applicant is clear regarding the taxability and has approached the Authority only for Type 2 and Type 3 activities performed by them. In the following paras, we will discuss Type 2 and Type 3 activities as mentioned by the applicant.
14.3. The test taker in TYPE 2 needs to create a profile, schedule an appointment for the test and remit payment on the applicants website or using a registration center (call center) available at some of the testing centers within the geographic location of the On the day of the test the candidate is required to go to the test center, where an administrator will verify the identity of the candidate, validate test registration and appointment of the candidate. Once this initial check is completed, the test administrator will assign a computer to the candidate to take a test. During the test, the candidate is continuously monitored by the invigilator. While the test is in progress, the candidate is allowed to take a break with the approval of the invigilator. Once the break time is over, the invigilator again do a physical check of the candidate and escort them back to the computer desk to allow the candidate to complete the test. Once the candidate has completed the test, the scores are provided by a computer based algorithm on the electronic software and the test taker gets the result immediately on completion of the test at the test center itself. The test administrator is responsible for sharing the candidates printed unofficial score report. In addition to this, the entire process is recorded by cameras and such video recordings of the test takers testing sessions is reviewed by a test security official to validate any testing issues (or to confirm any testing suspicions) that may have arisen during the test administration.
14.4 The applicants view is that the above activities mentioned under Type 2 does not fall under The applicant has argued that OIDAR consists of four essential components:
According to the applicant, the presence of the test administrator at the testing centers who is responsible for verifying candidates identity, monitoring him during the test and providing the test report once the candidate has completed the test requires more than the minimal human intervention. For this, he relies upon Guidelines agreed by the VAT Committee of European Commission dated 28.2.2017 where the notion of minimal human intervention is discussed in detail and explained with illustrations. The applicant have specifically relied upon the following guideline:
Where such individual supply made to the customer requires human intervention on the side of the supplier it should be seen as involving more than just minimal human intervention.
Here, the applicant has interpreted the guideline quite literally by stating that the administrator is verifying the identity of each individual test taker. However, we understand that the Commission is more focused on catering to every individual and thereby a distinct need of the service recipient in a specific manner by the supplier will make the activity something more than minimal human intervention. This is evident from para 2.2 (6) & (9) of Guidelines agreed by the VAT Committee of European Commission dated 28.2.2017 which are reproduced below:
The activity of (a) real person(s) organized by the supplier of services (like for example a person spinning the wheel of the roulette or drawing physical cards to play black jack or baccarat), performed independently from the requests made to provide a particular supply to an individual customer, is to be seen as falling within limits of minimal human intervention.
The general approach proposed is that where the human activity on the side of the supplier focuses on the whole environment of the system and not on individual requests from customers this should not be seen as trespassing the requirement of minimal human intervention included in the definition of electronically supplied services.
We note here that human activity on the side of the supplier is focused on the whole environment, i.e. the whole test center and not on specific need of individual test takers. The illustrations provided by the applicant are also distinguished by the fact that human interventions in the illustrations happen for the main service whereas in the present case, administrator is not directly intervening where they can make a differ-ence in the scores achieved by the test takers.
14.5 The applicants argue that it is impossible to complete the provision of service in the absence of administrators since verification and registration of the candidates is undertaken by However, we observe that provision of taking tests online at designated test centers are naturally bundled activities and are supplied in conjunction with each other in the ordinary course of business and therefore can be termed as Composite Supply as per Section 2 (30) of CGST Act, 2017. Here, since the main object of the whole activity is to take online tests, so the principal supply would be OIDAR service provided by the applicant to non taxable online recipients.
14.6 Type 3 tests are similar to Type 2 tests with the only difference being these tests contain a mixture of multiple choice questions and analytical writing assessment sections, e. essay based questions. The test taker is able to see the final score for multiple choice questions and indicative score for essay based questions marked by computer based algorithm. However, the essay based questions are then sent to a human evaluator in the USA for assessment and final scoring. In addition to this, in case the difference in score for a single essay question between the electronic computed based algorithms scoring vis-a-vis human scoring is more than one point, then the essay based questions are again sent to an expert evaluator for assessment and scoring.
14.7 The applicant has argued that since the final score of the candidate is provided only after human intervention, Type 3 tests requires more than minimal human intervention in order to complete the provision of the They have also relied upon CBEC Circular No. 202/ 12/2016-Service Tax dated 9.11.2016 and flyer prepared by NACEN for reference on OIDAR under GST.
14.8 We observe that Board has provided an indicative list of OIDAR Services and among others, we quote the following relevant service:
Workbooks completed by pupils online and marked automatically, without human intervention.
We note that since tests are scored after human intervention in type 3, it should be outside the purview of OIDAR. In fact, the second example provided by the applicant in the grounds of applications while discussing Type 2 case, helps and fits in type 3 scenario.
14.9 The applicant have asked that if their activity under type 2 or type 3 tests are not falling under OIDAR Services, then is tax to be paid on RCM as per No. 1 of Notification No. 10/2017-IGST (R) dated 28.6.2017 or will the activity be considered exempted in terms of Sl No. 10 of Notification No. 09/2017-IGST (R) dated 28.6.2017.
14.10 Sl 10 of Notification No. 09/2017-IGST (R) dated 28.6.2017 exempts Services ( not including OIDAR services) received from a provider of service located in a non- taxable territory by the Central Government, State Government, Union territory, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession. Sl. No. 1 of Notification No. 10/2017-IGST (R) dated 28.6.2017 provides for payment of tax on any recipient when service is being supplied by any person who is located in a non taxable territory and is engaged in providing any service to any person other than non taxable online recipient.
14.11 Serial 1 of Notification No. 10/2017 – IGST (Rate) dated 28.6.2017 is only shifting the liability to pay tax from the hands of the supplier to the recipient. It does not create any liability. We have to first see whether there is any liability and if there is a liability to pay tax on a particular transaction then the liability to pay tax on that transaction would shift from the usual supplier to the exceptional recipient as per Notification No. 10/2017-IGST (Rate) dated 28.6.2017. If the transaction itself is exempt, there is no liability on the recipient of service. Since Type 3 is not an OIDAR service, there wont be any special liability on the supplier located outside India and hence the entire transaction is ex-empted both in the hands of the supplier and also the recipient by virtue of Sl No. 10 of Notification No. 09/2017-IGST (R) dated 28.6.2017.
14. In view of the foregoing, we rule as follows:
Citations:
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