The government recently took a significant step to eliminate confusion surrounding the ‘place of supply’ regulations for various services, including co-location services, data centers, the advertising industry, and goods movement, such as mail and courier services, when the sender or receiver is situated outside of India.
Clear and unambiguous ‘place of supply’ rules are essential for the effective taxation of services under the ambit of the Goods and Services Tax (GST) regime.
In a detailed notification, the Central Board of Indirect Taxes and Customs (CBIC) outlined that for services delivered from India to overseas locations or vice versa, the place of supply will be determined based on the location of the recipient, if known.
However, if the recipient’s location is not readily available in the regular course of business, the place of supply will be considered the location of the service provider. Similar principles will be applied to services provided by courier or mail.
The latest clarifications from the CBIC stem from decisions made during the GST Council’s meeting on October 7. Notably, the CBIC specified that in the case of co-location services, the place of supply should be regarded as the recipient’s location.
The term ‘co-location’ typically refers to the practice of businesses renting space to house their servers and other computing hardware in close proximity to bundled services related to hosting and information technology infrastructure. This arrangement is commonly seen in critical sectors such as stock exchanges to ensure high-speed execution of operations.
Furthermore, the notification outlined specific scenarios for co-location services, distinguishing instances where the agreement between the supplier and the recipient solely entails the renting of physical space along with basic infrastructure. In such cases, where the recipient is solely responsible for the maintenance, operation, monitoring, and surveillance of servers and related hardware, the services will be categorized as the rental of immovable property.
Regarding the supply of services related to the sale of advertising space on billboards or structures, the place of supply will be determined based on the location of the specific hoarding or structure.
Saurabh Agarwal, tax partner at EY, lauded the recent clarifications issued by the CBIC, noting their significance in resolving long-standing ambiguities. He emphasized the importance of the decision regarding co-location services, highlighting that exports would remain zero-rated even when data center facilities are situated in India.
This development is expected to bring much-needed clarity and coherence to the complex regulatory landscape governing ‘place of supply’ rules for various critical sectors, facilitating smoother operations and taxation procedures within the purview of the GST framework.
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