CESTAT Rules AWS India Not An ‘Intermediary’, Quashes Over ₹81 Crore Service Tax Demand On Data Hosting Services
Pranav B Prem
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside service tax demands exceeding ₹81 crore raised against Amazon’s Indian arm in relation to data hosting services, holding that the company was not acting as an “intermediary” under the Place of Provision of Services Rules, 2012. The Tribunal held that the services provided qualified as export of services and were therefore not liable to service tax in India.
The Bench comprising Judicial Member Binu Tamta and Technical Member Hemambika R. Priya held that the place of provision of services was the location of the service recipient, namely Amazon Web Services Inc., United States, and not India. Consequently, the data hosting services rendered by the Indian entity were outside the service tax net.
The dispute arose in relation to services provided by Amazon Internet Services Pvt. Ltd., now known as Amazon Web Services India Pvt. Ltd., to its US affiliate, Amazon Web Services Inc. Under a Data Services Agreement and a Marketing Services Agreement, the Indian entity was responsible for operating and maintaining data centres in India, ensuring network connectivity, physical security, maintenance of equipment, and temporary storage of data to support the global cloud computing operations of its US parent.
The tax department alleged that by hosting data in India and facilitating faster access for Indian customers of Amazon Web Services Inc., the Indian entity was acting as an intermediary between the US entity and its customers in India. On this basis, it was contended that the services were covered under Rule 9 of the Place of Provision of Services Rules, which would make the place of provision India. Similar allegations were raised with respect to the marketing support services provided by the Indian entity.
Based on this interpretation, two show cause notices were issued demanding service tax of ₹34.31 crore for the period from October 2013 to March 2016 and ₹47.08 crore for the period from April 2016 to June 2017, along with applicable interest and penalties. These demands were subsequently confirmed by the adjudicating authority.
The core issue before the Tribunal was whether the Indian entity could be classified as an “intermediary” within the meaning of Rule 2(f) of the Place of Provision of Services Rules, 2012. If so classified, the place of supply would be India. Conversely, if the services were provided on a principal-to-principal basis to the US entity, the services would qualify as exports and would not attract service tax in India.
The Tribunal undertook a detailed examination of the statutory definition of “intermediary” under the service tax regime and noted that it is pari materia with the definition under the Integrated Goods and Services Tax Act. In this context, the Bench placed significant reliance on CBIC Circular No. 159/15/2021-GST and Circular No. 232/26/2024-GST, which clarify that data hosting services provided to overseas cloud computing companies do not amount to intermediary services.
CESTAT held that the Indian entity did not act as a broker or agent of Amazon Web Services Inc. The Data Services Agreement clearly established a principal-to-principal relationship, and there was no element of agency involved. The Tribunal noted that the Indian entity provided only one service, namely data hosting, directly to the US entity, and was not involved in arranging or facilitating cloud computing services between the US entity and its customers.
It was further observed that the cloud computing services were independently provided by Amazon Web Services Inc. to its customers under separate customer agreements, to which the Indian entity was not a party. The consideration paid to the Indian entity was on a cost-plus basis and not in the nature of commission, which is a key characteristic of intermediary services. The Tribunal clarified that the mere fact that customers of the US entity benefited indirectly from the infrastructure located in India did not make them recipients of the services provided by the Indian entity. Relying on consistent judicial precedents of various High Courts, including those of Delhi, Bombay, Punjab and Haryana, and Karnataka, as well as earlier decisions of the Tribunal, the Bench reiterated the settled legal principle that “your customer’s customer is not your customer.” On this reasoning, the Tribunal set aside the entire service tax demand, along with interest and penalties, insofar as it related to data hosting services.
The Tribunal also rejected the department’s invocation of the extended period of limitation. It held that the Indian entity had acted under a bona fide belief supported by prevailing legal interpretations and had made necessary disclosures in its statutory returns. Therefore, the extended limitation could not be sustained.
With regard to the marketing support services, the Tribunal noted that the appellant had already paid service tax and claimed to have discharged interest prior to issuance of the show cause notice. Invoking Section 73(3) of the Finance Act, 1994, the appellant contended that no further proceedings could be initiated. Since there was a factual dispute as to whether the entire interest liability had been paid, the Tribunal remanded the matter to the adjudicating authority, limited to verification of interest payment. It was clarified that if the requirements of Section 73(3) were satisfied, no penalty would survive. In the result, the appeal was substantially allowed, with the service tax demands on data hosting services being completely quashed, and the issue relating to marketing services remanded solely for the limited purpose of verification of interest payment.
Cause Title: M/s. Amazon Internet Services Pvt.Ltd. Versus Commissioner of CGST (East)
Case No: Service Tax Appeal No. 55106 of 2023
Coram: Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member)
