GST on supply data hosting services on the cloud-GST Circular dated 10.09.2024!

In today's digital age, data hosting services on the cloud have become an essential part of business operations, providing scalable and efficient solutions for data storage and management. However, the applicability of GST (Goods and Services Tax) on such cloud-based services has often raised questions, leading to uncertainty among service providers and recipients. To bring clarity to this issue, the GST Council issued a circular on 10th September 2024, detailing the GST implications for the supply of data hosting services on the cloud. In this blog, we will delve into the key highlights of this circular, helping you understand the GST treatment for cloud hosting services and how it affects your business from a tax compliance perspective.

Key Highlights- Circular No. 232/26/2024-GST dated 10.09.2024

1. This circular provides clarification on the place of supply in the case of data hosting services provided by service providers located in India to cloud computing service providers located outside India.

2. The following issues are covered in this circular:

• Whether data hosting service provider qualifies as an 'Intermediary' between the cloud computing service provider and their end customers/users/subscribers
• Whether the data hosting services are provided about goods "made available" by the recipient of services to the service provider for the supply of such services and whether the place of supply of the same is to be determined as per section 13(3)(a) of the IGST Act.
• Whether the data hosting services are provided directly concerning "immovable property" and whether the place of supply of the same is to be determined as per section 13(4) of the IGST Act.

3. Clarification on whether the data hosting service provider qualifies as an 'Intermediary' between the cloud computing service provider and their end customers/users/subscribers.

• As per section 2(13) of the IGST Act, read with Circular no. 159/15/2021-GST dated 20.09.2021, a broker, agent, or any other person who arranges or facilitates the main supply of goods or services or both or securities and has not involved himself in the main supply on his own account is considered as 'intermediary'. Persons who supply goods or services or both on their account are not covered in the definition of "intermediary".
• A data hosting service provider provides data hosting services to the cloud computing service provider on a web platform through computing and networking equipment to collect, store, processing, distribute, or allow access to large amounts of data.
• Thus, it is observed that the data hosting service provider provides data hosting services to the cloud computing service provider on a principal-to-principal basis on his account and is not acting as a broker or agent for facilitating the supply of service between cloud computing service providers and their end users/consumers.
• Accordingly, it is clarified that in such a scenario, the services provided by the data hosting service provider to its overseas cloud computing service providers cannot be considered intermediary services and hence, the place of supply of the same cannot be determined as per section 13(8)(b) of IGST Act.

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4. Clarification on whether the data hosting services are provided about goods "made available" by the recipient of services to the service provider for the supply of such services and whether the place of supply of the same is to be determined as per section 13(3)(a) of the IGST Act, 2017

• Section 13(3)(a) of the IGST Act, 2017 states that the place of supply of service shall be the location where the services are performed for the services supplied in respect of goods that are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services to provide the services. However, its first proviso states that when such services are provided from a remote location by way of electronic means, the place of supply shall be the location where goods are situated at the time of supply of services.
• The data hosting service provider, as an independent entity, is providing seamless data hosting services to the overseas cloud computing service providers, through the premises, hardware, and personnel at the data center which not only comprises hardware but also other essential infrastructure (without which the hardware infrastructure cannot be utilized) like ventilation and cooling system, uninterrupted power supply, software, network connectivity, security protocols, etc. which are owned by the data hosting service providers and are independently handled, operated, monitored and maintained by them.
• Throughout the provision of the said services, the data hosting service provider owns premises for the data center or operates the data center on leased premises, independently handles, monitors, and maintains the premises, hardware, and software infrastructure, personnel, and in such scenario, the overseas cloud computing service providers cannot be considered to own the said infrastructure and make the same physically available to the data hosting service provider for the supply of the said services.
• Therefore, it is clarified that data hosting services provided by the data hosting service provider to the said cloud computing service providers cannot be considered in relation to the goods "made available" by the said cloud computing service providers to the data hosting service provider in India and hence, the place of supply of the same cannot be determined under section 13(3)(a) of the IGST Act.
• Even in the cases where some of the hardware required for data hosting service is provided by the recipient of the service, place of supply cannot be determined under section 13(3)(a) of the IGST Act.

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5. Clarification on whether the data hosting services are provided directly to "immovable property" and whether the place of supply of the same is to be determined as per section 13(4) of the IGST Act

• As per section 13(4) of the IGST Act, 2017, the place of supply of services supplied directly about immovable property, including services supplied in this regard by experts and estate agents, supply of accommodation by a hotel, inn, guest house, club or campsite, by whatever name called, grant of rights to use immovable property, services for carrying out or co-ordination of construction work, including that of architects or interior decorators, shall be the place where the immovable property is located or intended to be located.
• The data hosting service providers either use owned or leased premises for keeping IT infrastructure and other hardware required for providing data hosting services.
• Thus, it is observed that data hosting services are not passive supply of a service directly in respect of immovable property but are regarding supply of a comprehensive service related to data hosting.
• Accordingly, it is clarified that in such a scenario, the data hosting services cannot be considered as the services provided directly to immovable property or physical premises and hence, the place of supply of such services cannot be determined under section 13(4) of IGST Act.

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6. In further clarification, the place of supply for the data hosting services provided by data hosting service providers located in India to overseas cloud computing service providers does not appear to fit into any of the specific provisions outlined in sections 13(3) to 13(13) of the IGST Act. Therefore, the place of supply in such cases needs to be determined according to the default provision under section 13(2) of the IGST Act, i.e. the location of the recipient of the services. Where the cloud computing service provider receiving the data hosting services is located outside India, the place of supply will be considered to be outside India according to section 13(2) of the IGST Act.

7. Accordingly, a supply of data hosting services provided by a data hosting service provider located in India to an overseas cloud computing entity can be considered as an export of services, subject to the fulfillment of the other conditions mentioned in section 2(6) of the IGST Act.

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Read the entire circular here.

Conclusion

The GST Circular No. 232/26/2024-GST dated 10th September 2024 provides much-needed clarity on the place of supply and tax treatment for data hosting services on the cloud, especially for Indian service providers dealing with overseas cloud computing entities. By addressing key questions such as whether data hosting providers qualify as intermediaries, and whether services are linked to goods made available or immovable property, the circular ensures that businesses can determine their GST liabilities with greater accuracy. This guidance confirms that such data hosting services can be treated as an export of services, provided they meet the criteria outlined in the GST framework.

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