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Place of Supply of Telecommunication services under GST

March 17, 2017[2017] 77 303 (Article)

Nirali Akhani

Associate, Lakshmikumaran & Sridharan

Krithika Jaganathan

Associate, Lakshmi Kumaran and Sridharan


1. The Indian telecommunication industry is one of the largest and fastest growing industry in the world today, catering to a mammoth volume of subscribers and second only to China in terms of the number of connections and subscribers1 . Given the present era where the Internet of Things (IoT) seems all too real, telecommunication is a highly important hack in our day to day lives, justifying its label as a service of 'necessity'. At present, service tax is levied on telecommunication services provided by a telecommunication operator in the territory of India, and selling agents or distributors of SIM cards are exempt from service tax. The advent of the proposed Goods and Services Tax (GST) from 2017 has harboured changes to the taxation of telecommunication services. This article seeks to cover some aspects of Place of Supply (POS) for the purposes of taxation of the Telecommunication sector in India.

Model GST Law

2. In preparation for the roll-out of GST in 2017, the Government of India released a revised Model GST Law (MGL) in the public domain on November25th, 2016. "Telecommunication services" are defined in the MGL thus:

"telecommunication service" means service of any description (including electronic mail, voice mail, data services, audio text services, video text services, radio paging and cellular mobile telephone services) which is made available to users by means of any transmission or reception of signs, signals, writing, images and sounds or intelligence of any nature, by wire, radio, visual or other electro-magnetic means

The Model law for levy of Integrated Goods and Services Tax (Model IGST Law) as released on June 14th, 2016 provides for means to determine the POS of telecommunication services. The POS for telecommunication services, considering the many types of telecommunication networks, has been stipulated under section 6(12) of the draft IGST Act as under:

(a)   For services rendered through fixed telecommunication line, leased circuits, internet leased circuit, cable or dish antenna- the place of supply is where the above is installed for receipt of services;
(b)   Where services of mobile connection for telecommunication or internet is provided on post-paid basis, the place of supply is the billing address of the recipient;
(c)   Where services of mobile connection for telecommunication and internet is provided on prepaid basis, the place of supply is the location where the pre-payment is received, or the voucher sold. However, if the recharge is made through internet banking/ electronic mode of payment, the place of supply is the location of the service recipient on the record of the supplier.

Thus, the provisions as they stood under MGL required the suppliers of telecommunication services to maintain an updated database of the billing address(es) and location(s) of the service recipients in order to have effective GST implementation. Admittedly, this would have been a superhuman exercise.

The Indian telecommunication sector at present is spread over 22 Service Areas/ Circles, with some circles catering to more than one State. Presently, the services provided by telecom service providers to their customer(s) in different circles (during roaming) will not be a taxable service as no consideration is paid by and between the circles. Therefore, telecom service providers face no service tax liability for such roaming services provided in the existing regime. However, under GST, telecom service provider in each circle might be required to be registered separately as a distinct person. MGL treats service provided by one taxable person to another taxable person as a supply of service and GST is payable even on the supply without consideration (Schedule I of Draft CGST Law released in June 16). Thus, the question arises as to whether the services provided by telecom service providers to their customers in different circles (during roaming) will be considered a as taxable supply exigible to levy of GST?

Upon consideration of the innumerable representations made by various industries after the release of MGL, the Revised Draft Model GST Law was placed in the public domain. Simultaneously, the Revised Draft IGST Law, Draft GST Compensation Law was made available on November 25th, 2016. The Revised IGST Law has undergone changes in Section 9(12), which enumerates provisions for POS of telecommunication sector. The changes effected by the Revised IGST Law, with a comparative analysis of the provisions under draft IGST Act are as follows:

  Section 6(12) under the draft IGST Act is replaced by Section 9(12) under the Revised Draft IGST Law. Sub clauses (a) and sub clause (b) to Section 9(12) have not undergone any changes.
  Sub clause (c) to Section 9(12) has undergone change. In respect of pre-paid connections, through voucher or any other means, the sub-section provides that:
i.   Where pre-paid Mobile connections for telecommunication and internet services, and pre-paid direct to home (DTH) television services(whether by way of a voucher or any other means) are supplied by a selling agent, re-seller, SIM distributor or re-charge voucher; the POS shall be the address of the selling agent, re-seller or SIM distributor at the time of supply.
  The above clause rakes up queries regarding the phrase 'address on record' - is it from where a selling agent, re-seller or distributor is registered, or is the 'address on record' understood as being all premises from where they conduct business operations? To illustrate, let us take an instance where a selling agent is registered in Gurugran (in Haryana) but has stores all over NCR. When a customer residing in Noida (in Uttar Pradesh) purchases a pre-paid recharge voucher from the selling agent's store in Noida, determining the POS will be an issue. Though the selling agent sells pre-paid recharge voucher in Noida (Uttar Pradesh), the POS as per the Revised Draft IGST law shall be Haryana and not UP2. In this example, the supplier of telecommunication services is required to maintain updated records of the address(es) of all selling agents, which is neither practicable, nor feasible.
ii.   Where the above services are supplied by any person (other the ones described above) directly to the final subscriber, POS is the location where pre-payment is received or vouchers are sold.
  Whom does Section 9(12)(c)(ii) seek to cast as the supplier while using the phrase 'by any person'? From our understanding, a telecommunication service is provided by a telecommunication operator to a subscriber either directly or through a selling agent /re-seller/ a SIM distributor. Seeing as Section 9(12)(c)(i) already encompasses all foreseeable kinds of suppliers (i.e. services provided through selling agent, re-seller, SIM distributor), is one to assume that 'any person' in Section 9(12)(c)(ii) refers only to a telecommunication operator?
  Secondly, Clause (d) has been added to Section 9(12) for other cases not covered in Section 9(12)(b) and (c) above. It provides that the address of the recipient shall be the POS, and where unavailable on record, the address of the supplier shall be the POS.
  What then, is the scope of 'other cases' in clause (d), and indeed, what is its necessity? Is one to assume that it pertains to supplies where mobile connection or DTH connections are received for free? Such an assumption would seem vacuous as supply without any consideration, unless specified in Schedule I to the Revised GST Law is not supply exigible to GST.
  Is wearable technology included in the fray, as all wearable technology is internet-enabled and some kinds of wearable gadgets enable communication via subscriptions paid for via an application store? The question remains that, even paid subscriptions are covered within the ambit of supply with 'consideration', whether on a pre-paid or post-paid basis. Have radio-paging, or satellite processing been adequately provided for? How does the Revised GST Law measure up to the challenges of enabling provisions for place of supply of services in respect of wireless telecommunication facilities?
  Next, an Explanation has been added to Section 9(12), stipulating that where a leased circuit is installed in more than one state and a consolidated amount is charged for supply of services relating to the circuit, the POS for such services apportionable to each state shall be comprehended on a proportionate basis as ascertainable from contractual terms, and in the absence of a contract, by any reasonable means.


3. In conclusion, the phrase 'address of record' has been bandied about with no exposition non the need for such an insertion. Arguably, the nature of business in India is such that many re-sellers and small-time suppliers of recharge vouchers are neither registered, nor capable of being brought within the tax net. The phrase 'any other person' also deserves amplification. Does it refer to a telecom operator as it seems to be the most direct inference, or is the clause intentionally vague to embrace un-registered or small-time suppliers or part-time vendors?

It goes without saying that Laws are not only to be relevant for the era that they seek to govern, but also have to be futuristic. Seemingly, the provisions for Place of Supply fall short of covering the entire gamut of emerging technology and interconnectivity in that respect.



2. Assuming that the telecommunication operator is registered in New Delhi, and the whole of NCR is covered under one service circle of New Delhi.

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