The Customs, Excise & Service Tax Appellate Tribunal has clarified that services such as domain name registration and web hosting fall squarely within the taxable category of 'Information Technology Software Service' under the Finance Act, 1994. This ruling resolves long-standing ambiguity regarding whether such activities constitute mere infrastructure provision or actual taxable service delivery, with significant implications for IT service providers and digital platform operators.
Background & Facts
The Dispute
Vcan Technologies Pvt. Limited, a Vadodara-based IT firm, provided services including corporate website design, application development, search engine marketing, and web hosting. The department alleged that the company failed to pay service tax on domain registration, renewal, and web hosting services rendered between 2008 and 2013. The core contention was whether these services qualified as 'Online Information and Database Access or Retrieval Service' (OIADR) or 'Information Technology Software Service' under the Finance Act, 1994.
Procedural History
- 2013: Department issued Show Cause Notice proposing service tax demand of ₹34.93 lakh under Section 73(1) read with Sections 75, 76, 77, and 78 of the Finance Act, 1994.
- 2016: Adjudicating Authority confirmed demand of ₹15.81 lakh on website design and development services but dropped demand on domain and hosting services, holding they did not constitute taxable services.
- 2016: Commissioner (Appeals) reversed the Adjudicating Authority’s decision, holding domain and hosting services were taxable under 'Information Technology Software Service'.
- 2017: Appellant filed appeal before the Customs, Excise & Service Tax Appellate Tribunal.
Relief Sought
The appellant sought to set aside the Commissioner’s order, arguing that domain and hosting services are not taxable as they merely provide space or infrastructure without delivering information or data. It also challenged the invocation of the extended period of limitation and sought reliance on precedents like Directi Internet Solutions Pvt. Ltd. v. Commissioner of Service Tax.
The Legal Issue
The central question was whether domain name registration and web hosting services constitute taxable 'Information Technology Software Service' under Section 65(105)(zzd) of the Finance Act, 1994, or whether they are merely facilitative infrastructure akin to retail sales, exempt from service tax.
Arguments Presented
For the Appellant
The appellant contended that domain registration and web hosting do not involve the provision of information or data to customers, but merely provide server space or domain names - akin to renting physical space. It relied on Directi Internet Solutions Pvt. Ltd., where CESTAT held that domain reselling is not a franchise service, and argued that since customers may use the space for non-informational purposes (e.g., FTP, anonymous sites), the service cannot be classified as OIADR. It further cited Bhayana Builders, Karamjeet Singh, and Intercontinental Consultants to argue that costs incurred in acquiring domain/hosting should be excluded from taxable value under Section 67.
For the Respondent
The Revenue argued that web hosting and domain registration are integral components of IT software services, which have been taxable since 16.05.2008. It relied on Dimakh Consultants Pvt. Ltd., where CESTAT Mumbai held that such services fall under 'Information Technology Software Service' because they enable the delivery of software-based solutions. The department emphasized that the appellant’s business model was structured around enabling digital presence, which inherently involves information delivery, regardless of the end-use by the customer.
The Court's Analysis
The Tribunal rejected the appellant’s analogy of web hosting to a retail shop, noting that the service is not a passive provision of space but an active enabler of digital infrastructure essential for IT operations. It distinguished Directi Internet Solutions on the ground that it dealt with franchise services under Section 65(105)(zze), whereas the present case concerned 'Information Technology Software Service' under Section 65(105)(zzd). The Court emphasized that Section 65(45) defining OIADR was not the only applicable provision; the broader category of 'Information Technology Software Service' encompassed services that facilitate software-based delivery, including hosting and domain registration.
"The services rendered by the appellant all in the taxable category of information technology software service brought into statute with effect from 16.5.2008..."
The Tribunal affirmed the reasoning in Dimakh Consultants, holding that even if the end-user does not actively retrieve data, the service provider’s role in maintaining the technical infrastructure necessary for online information access qualifies as a taxable service. It further held that the appellant’s failure to register for service tax prior to December 2011, coupled with non-filing of returns, constituted suppression under Section 73 of the Finance Act, 1994, thereby justifying the extended period of limitation. The Court noted that the appellant had already accepted the extended period for part of the demand, rendering its challenge to the remainder untenable.
The Verdict
The appellant’s appeal was dismissed. The Tribunal held that domain registration and web hosting services constitute taxable 'Information Technology Software Service' under the Finance Act, 1994. The matter was remanded to the Adjudicating Authority for quantification of tax, interest, and penalty with a reasoned order.
What This Means For Similar Cases
Taxable Scope Includes Infrastructure Enablers
- Practitioners must now treat domain registration, web hosting, and server co-location as taxable services under Information Technology Software Service, not as exempt infrastructure.
- Clients who purchase these services from Indian providers are subject to service tax liability, even if the service is used for non-content delivery (e.g., FTP, email hosting).
Precedents Must Be Context-Specific
- Directi Internet Solutions remains good law but applies only to franchise services under Section 65(105)(zze); it does not shield providers under Section 65(105)(zzd).
- Relying on unrelated precedents (e.g., Jet Airways on foreign service providers) will not succeed in defending domestic IT service tax liability.
Non-Registration Triggers Extended Limitation
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Failure to register for service tax, even without intent to evade, constitutes suppression under Section 73.
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Practitioners must advise clients to register immediately upon commencing taxable services to avoid exposure to extended limitation periods and penalties.
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Key takeaway: If your business enables digital presence through hosting or domain services, you are liable for service tax under the Finance Act, 1994, regardless of whether your client uses the space for content or not.
