Amazon Data Hosting On Principal-to-Principal Basis Not Liable To Service Tax: CESAT Delhi

The Delhi Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) on 19 January held that data hosting services provided by an Indian entity to an overseas cloud computing service provider on a principal-to-principal basis do not qualify as “intermediary services.” They constitute an export of service, and are therefore not liable to service tax in India.

A Bench comprising Judicial Member Binu Tamta and Technical Member Hemambika R. Priya set aside service tax demands aggregating to about Rs. 80 crores raised against Amazon Internet Services Private Limited (the appellant) for services rendered to Amazon Web Services, Inc., USA.

On a perusal of the Data Services Agreement, the Tribunal found that the appellant rendered input services to Amazon Web Services on a principal-to-principal basis and did not act as an agent. In this context, the Tribunal observed:

“26. From the terms of the agreement, it is evident that the appellant is a provider of input services on principal-to-principal basis. The principle that intermediary should not be a sub–contractor for the main supply excludes the appellant from providing intermediary services.”

The case arose from a Data Services Agreement under which the appellant provided data hosting and certain marketing support services to Amazon Web Services, Inc., USA. The data hosting services involved management, operation and maintenance of data centres in India.

Following an investigation, the Service Tax Department alleged that the appellant acted as an intermediary between Amazon Web Services and customers in India by temporarily holding and routing data through edge servers installed in India. It was also alleged that the appellant facilitated the supply and marketing of cloud computing services in India.

On this basis, two show cause notices were issued demanding service tax of Rs. 34,31,38,111 for the period October 2013 to March 2016 towards data hosting services, and Rs. 47,08,04,315 for the period April 2016 to June 2017 towards marketing support services.

Before the Tribunal, the appellant contested its classification as an “intermediary” and challenged the levy of penalties.

The CESTAT examined the definition of “intermediary” under Rule 2(f) of the Place of Provision of Services Rules, 2012, which is identical to Section 2(13) of the IGST Act. Relying on precedents under the service tax and GST regimes, including Genpact India, Ernst and Young Limited, K.C. Overseas Education, Verizon Communication, T.C. Global and Global Opportunities, the Tribunal reiterated that merely arranging or facilitating the supply of goods or services between two or more persons would not, by itself, amount to an intermediary service.

The Bench also took note of the CBIC Circular dated 20 September 2021 and Circular dated 10 September 2024, which clarified the tax treatment of data hosting services provided by Indian entities to overseas cloud computing service providers.

The Tribunal further held that invocation of the extended period of limitation was unwarranted, as the service tax demand itself was unsustainable.

However, on the issue of interest, the appellant submitted that certain amounts had been paid prior to issuance of the show cause notices. The CESTAT Delhi therefore remanded the matter for the limited purpose of verifying payment of interest, directing that if interest had already been paid, no penalty would be leviable.

Accordingly, the appeal was partly allowed, with a limited remand on the issue of interest.

For Petitioner: Advocates B.L. Narasimhan, Ashutosh Choudhary

For Respondent: Mr. Mihir Ranjan (Special Counsel)