Place of Supply of Data Hosting Services

CBIC vide Circular No. 232/26/2024GST dated 10th September 2024, addresses the issue in relation to the place of supply for data hosting services provided by service providers in India to cloud computing companies abroad. The trade industry have requested guidance on this matter to determine the correct place of supply under GST law. The following are the various issues and clarifications given by the CBIC

Issue 1: Does a data hosting service provider qualify as an ‘Intermediary’ under Section 2(13) of the IGST Act? Moreover, are the services considered intermediary services with the place of supply determined under Section 13(8)(b) of the IGST Act?

Clarification:

• A data hosting service provider generally does not qualify as an ‘Intermediary’ under Section 2(13) of the IGST Act.
• The service provider operates on a principal-to-principal basis, providing data hosting services directly to the cloud
  computing service facilitating provider, not or arranging services between the cloud computing service provider and its end customers. Hence, these services will not fall under the category of intermediary.
• Thus, the place of supply for data hosting services provided by an Indian service provider to an overseas cloud computing service provider cannot be determined under Section 13(8)(b) of the IGST Act.

Issue 2: Whether data hosting services are in relation to goods “made available” by the recipient to the service provider, with the place of supply determined under Section 13(3)(a) of the IGST Act?

Clarification:

• Data hosting services cannot be considered to be in relation to goods “made available“ by the cloud computing service providers to the data hosting service providers.
• The data hosting service providers own or operate their infrastructure, including premises, hardware, software, power
  supply, and security, and independently handle operations and maintenance.
• Thus, the place of supply for data hosting services does not fall under Section 13(3)(a) of the IGST Act.

Issue 3: Whether the data hosting services are provided in relation to immovable property, and if so, whether the place of
supply is governed by Section 13(4) of the IGST Act?

Clarification:

• The services provided by data hosting service providers are not directly related to immovable property.
• They involve a comprehensive supply of services related to data hosting, including managing data centres, ensuring
  uninterrupted power supply, providing network connectivity, and other essential services for cloud computing.
• Therefore, the place of supply for such services cannot be determined under Section 13(4) of the IGST Act.

Conclusion:

• The place of supply for data hosting services does not fit into any specific provisions under Sections 13(3) to 13(13) of the IGST Act.
• Therefore, the place of supply is determined as per the default provision under Section 13(2) of the IGST Act, which is the location of the recipient of services.
• If the recipient (cloud computing service provider) is located outside India, the place of supply will be considered
  outside India.
• The supply of data hosting services by a provider in India to an overseas cloud computing entity can be considered as an export of services, subject to fulfillment of the other conditions mentioned in Section 2(6) of the IGST Act.

SBC Comments: It is a great relief for the people who are in data hosting services sector in India. If there are any open pending cases, it is advisable to proceed further based on the circular issued regarding the data hosting services. The circular contains important clarifications and guidelines that should address many of the issues you may be facing.