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Let GST Council Look Into Tracking Of GST Paid On Foreign OIDAR Services : Supreme Court

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The Supreme Court recently disposed of a public interest litigation seeking directions for setting up a mechanism to track services provided by foreign entities in India under the Goods and Services Tax (GST) regime. 

A bench of Justice BV Nagarathna and Justice KV Viswanathan passed the order after briefly hearing Advocate Charu Mathur, who appeared for the petitioner.

During the hearing, Advocate Mathur submitted, “If Facebook provides some services or OpenAI provides some services, there is no way to track those by the Indian Government and we are losing out on a lot of revenue.”

Justice Nagarathna said that the Court would dispose of the petition by treating the entire writ petition as a representation to the GST Council and direct the Council to decide on the representation.

In its order, the Court stated: “we find that the Writ Petition could be disposed of by reserving liberty and permitting the petitioner to submit a copy of this Writ Petition including the prayers thereto by way of representation to the third respondent GST Council so as to bring to the notice of the said respondent the grievances ventilated by the petitioner herein in this Writ Petition. If such a representation is made by the petitioner herein, the said respondent shall consider the same as expeditiously as possible and in accordance with law.”.

The writ petition sought directions to address alleged gaps in tax collection from foreign companies providing Online Information and Database Access or Retrieval (OIDAR) services to Indian recipients under the Integrated Goods and Services Tax (IGST) framework.

The petition raised concerns including the lack of a mechanism to track the total GST paid on OIDAR services used by non-taxable online recipients (Non-NTORs) in India under the reverse charge mechanism. It also stated that revenue figures from such services were not reported in GST returns and that the Indian Government had no means to verify the total receipts earned by overseas service providers from Indian consumers.

It further stated that as many of these companies maintained their accounts abroad and did not have any fixed establishment in India, there was no way to ensure GST compliance through existing Indian audit or reporting frameworks. The petition highlighted the absence of data on how many overseas entities were providing such services in India.

The petitioner contended that even though GST laws mandated registration of foreign OIDAR service providers and defined tax liability through provisions such as Section 14 of the IGST Act, there was no operational mechanism to ensure compliance or collect invoice-level data from registered entities. The petition argued that this regulatory gap could result in significant loss of foreign exchange to the Indian exchequer.

The petition contended that foreign suppliers had a legal obligation to register and pay IGST on services supplied to individual consumers or NTORs. It cited the definition of NTOR under Section 2(16) of the Act and explained that even a single transaction would trigger GST liability.

The petition cited on criteria such as billing address, IP address, and payment instruments issued in India to determine whether the place of supply was in India, and therefore taxable.

According to the petition, the lack of an enforcement mechanism resulted in foreign service providers enjoying an unfair tax advantage over Indian counterparts and deprived the Government of substantial tax revenue.

The prayers in the petition sought the following:

  1. A mechanism to track GST paid on OIDAR services used by Indian recipients under the reverse charge mechanism.
  2. Changes in GST return forms (such as GSTR-5A) or introduction of a new form to reflect revenue from services provided to Non-NTORs.
  3. A system to verify total receipts earned by foreign OIDAR service providers from India and check their GST compliance.
  4. A direction to ensure foreign service providers either have a fixed establishment in India or allow Indian authorities access to their accounting records.
  5. Implementation of a strong compliance and reporting mechanism for overseas OIDAR providers, similar to what applies to others under GST laws.
  6. Disclosure of data on the number of persons in non-taxable territories providing OIDAR services in India.

Case no. – Writ Petition No. 258 of 2021

Case Title – Pradeep Goyal v. Union of India & Ors.