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Place of Supply Rules for Cloud Services: How Section 12 and 13 of the IGST Act Fail to Address Edge Computing and CDN Networks
Introduction
The Integrated Goods and Services Tax Act, 2017 (IGST Act) was drafted before the rise of modern cloud services, edge computing, and Content Delivery Networks (CDNs) in India. By the mid-2020s, a single cloud service can span multiple states, involve distributed computing nodes, and use third-party CDNs with servers in colocation facilities, making it difficult to identify a fixed place of supply. As a result, Sections 12 and 13 of the IGST Act, which govern the place of supply of services, struggle to determine where these services are actually supplied.
This article highlights why the IGST place of supply rules are ill-equipped for cloud infrastructure taxation, examines relevant regulatory and judicial developments, and identifies the remaining gaps in applying Sections 12 and 13 to distributed digital services as of 2025.
The Statutory Framework: What Sections 12 and 13 Actually Say
Section 12 of the IGST Act governs the place of supply of services where both the supplier and the recipient are located within India. The default rule under Section 12(2)(a) provides that where a service is supplied to a registered person, the place of supply shall be the location of such registered person. Where the recipient is unregistered, Section 12(2)(b) provides that the place of supply shall be the recipient’s address on record, or, where no such address exists, the location of the supplier. Specific categories — immovable property, events, transportation, telecommunication, banking, and insurance — are addressed with tailored rules under Sections 12(3) through 12(13). [2]
Section 13 applies where either the supplier or the recipient is located outside India. The default rule under Section 13(2) provides that the place of supply shall be the location of the recipient of services. Specific exceptions arise under Sections 13(3) to 13(13), covering services in respect of goods made physically available by the recipient [Section 13(3)(a)], services in relation to immovable property [Section 13(4)], event-based services [Section 13(5)], and online information and database access or retrieval (OIDAR) services [Section 13(12)]. Under Section 13(12), the place of supply for OIDAR services is the location of the recipient. [2]
The architecture is coherent for its intended purpose — taxing conventional services with identifiable parties at fixed locations. It fractures when applied to distributed, automated, infrastructure-level services that have no single point of performance and no defined “recipient location” at the moment of actual delivery.
OIDAR Services and the 2023 Amendments: An Attempt That Fell Short
The closest the IGST Act comes to addressing the digital services economy is through the concept of OIDAR, defined under Section 2(17) as services “whose delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply impossible to ensure in the absence of information technology.” Prior to the Finance Act 2023, this definition carried an additional condition: that the supply be “essentially automated involving minimal human intervention.” [3]
Section 160 of the Finance Act, 2023 amended Section 2(17) to remove the condition that the supply be “essentially automated and involving minimal human intervention,” brought into force with effect from 1 October 2023 vide Notification No. 28/2023-Central Tax dated 31 July 2023. [3] This drew within the OIDAR perimeter many services — interactive online education, hybrid human-automated digital platforms — that had previously relied on the “minimal human intervention” threshold to avoid the OIDAR classification. The Finance Act, 2023 also revised Section 2(16) to expand the definition of “non-taxable online recipient” to cover any unregistered individual or entity receiving OIDAR services within India’s taxable territory, regardless of the purpose for which the services are received. [4] This closed the earlier exemption available to government entities and individuals receiving OIDAR services for non-commercial purposes.
Despite these amendments, the definitional expansion of OIDAR addresses only who is taxed, not where. OIDAR’s place of supply rule under Section 13(12) still points to the “location of the recipient” — but in a CDN architecture, the recipient’s device connects to whichever edge server is algorithmically closest, a determination made in real time, not by contract or billing address. The question of where the OIDAR service was “supplied” becomes architecturally unanswerable within the current statutory scheme.
The CDN Problem: Geography Without Fixed Borders
A Content Delivery Network operates by replicating content — video streams, web pages, software packages, API responses — across a globally distributed network of proxy servers called Points of Presence (PoP). When an Indian user accesses a streaming platform, their device connects not to a central server but to whichever PoP node is algorithmically nearest, which may be in a different Indian state from both the user’s billing address and the streaming platform’s registered office. The billing relationship is between the user and the streaming platform. The CDN operator is an invisible infrastructure layer: the platform has contracted with the CDN for wholesale bandwidth and cached delivery; the end user knows nothing of this arrangement.
Under Section 12(2)(a), if both the streaming platform and the user are in India, the place of supply is the registered recipient’s location — the streaming platform’s state of registration. But the service was actually delivered at a PoP server in a different state, operated by a CDN provider that may be a foreign entity without GST registration. Section 13(8)(b) provides that for intermediary services, the place of supply is the location of the supplier. If the CDN were classified as an intermediary, this provision would fix supply at the CDN’s location — but CDN operators working on a principal-to-principal basis do not qualify as intermediaries in the statutory sense. Treated as principal-to-principal service providers, Section 13(2) would apply, placing supply at the recipient’s location — the streaming platform, possibly outside India. In either outcome, the actual locus of performance — the Indian PoP node — is irrelevant, and the state where the server sits collects no GST revenue from the transaction.
Edge Computing: When the Server Is Everywhere and Nowhere
Edge computing pushes data processing away from centralised data centers toward the network edge — which may be a telecom tower, a local server cluster at a railway station, an IoT hub in a factory, or a micro-data center embedded in a retail location. Major cloud providers have built products such as AWS Outposts, Azure Stack Edge, and Google Distributed Cloud that deploy computing infrastructure physically at or near the customer’s premises, often owned by the cloud provider but installed at the customer’s site.
Consider a specific scenario under the existing framework: an Indian manufacturer uses a cloud provider’s edge computing solution to run real-time quality-control AI on its factory floor. The edge servers are physically in Maharashtra. The cloud contract is with the manufacturer’s parent company, registered in Karnataka. Data flows to a central cloud region outside India for aggregation. Under Section 12(2)(a), the place of supply is the location of the registered recipient — Karnataka. But the service performs computing work on servers in Maharashtra, for Maharashtra-based manufacturing operations. Maharashtra’s state exchequer receives nothing from this transaction despite the economic activity occurring entirely within its territory. This inter-state revenue allocation failure is not theoretical; it will generate live disputes as edge deployments scale across India’s manufacturing corridor.
Section 13(3)(a) states that where services are supplied “in respect of goods which are made physically available by the recipient of services to the service provider,” the place of supply shall be the location of the service provider. CBIC’s Circular No. 232/26/2024-GST confirmed, in the data center context, that where the service provider owns or leases the data center and independently manages the infrastructure, the cloud customer cannot be said to have made hardware “physically available” under Section 13(3)(a). [5] However, edge computing presents the reverse scenario — hardware owned by the cloud provider is physically installed at the customer’s factory for the customer’s exclusive workloads. Whether Section 13(3)(a) applies to this reverse-outsourcing arrangement is a question the IGST Act leaves entirely open.
CBIC Circular 232/26/2024: Partial Relief and Remaining Gaps
The 54th GST Council meeting held on 9 September 2024 took note of the confusion among field formations regarding the place of supply of data hosting services provided by Indian service providers to overseas cloud computing entities. Some field officers had concluded that the place of supply was the location of the data center in India — treating the service as a domestic supply taxable at 18% with no export eligibility, a commercially devastating position for India’s growing data center sector. [5]
CBIC issued Circular No. 232/26/2024-GST on 10 September 2024, providing three clarifications. First, data hosting service providers are not “intermediaries” within the meaning of Section 2(13) of the IGST Act — which defines an intermediary as a broker, agent, or other person who arranges or facilitates supply between two other parties without being involved on his own account — because data hosting providers act on a principal-to-principal basis and supply their services directly. Second, the data center infrastructure is not goods “made physically available by the recipient” under Section 13(3)(a) since the data hosting provider owns, leases, and independently manages everything. Third, and most importantly, the circular confirmed that data hosting services to overseas cloud providers do not fall within any specific provision under Sections 13(3) to 13(13) of the IGST Act, and therefore the residual rule under Section 13(2) applies: the place of supply is the location of the recipient — outside India — qualifying the supply as an export of services under Section 2(6) of the IGST Act. [5]
The circular was commercially necessary but also a symptom of the statute’s inadequacy. It required an executive-level intervention to answer a question that Sections 12 and 13 could not resolve on their face. Circulars bind field officers but can be challenged before courts and do not carry the authority of enacted law. Crucially, the circular addressed only conventional data centers. It said nothing about CDN operators, edge computing hardware at customer premises, or multi-party cloud architectures where compute, storage, and networking are provided by separate entities across separate Indian states.
Judicial Precedent: The AWS Ruling and Its GST Implications
The Delhi High Court’s decision in Commissioner of Income Tax – International Taxation -1 v. Amazon Web Services, Inc. (Neutral Citation: 2025:DHC:4622-DB), delivered on 29 May 2025 by a Division Bench of Justices Vibhu Bakhru and Tejas Karia, is the most significant judicial statement on the taxation of cloud computing in India to date. [6] The dispute arose from reassessment proceedings for assessment years 2014-15 and 2016-17, where the Assessing Officer sought to tax payments received by AWS from Indian entities — including Snapdeal — as royalty under Explanation 2(iv) to Section 9(1)(vi) of the Income Tax Act, 1961, and as fees for included services under Article 12(4)(b) of the India-US Double Taxation Avoidance Agreement. The Revenue argued that AWS’s customers accessed scientific equipment (servers, storage, networking infrastructure) and acquired technical knowledge through AWS’s support materials.
The Delhi High Court rejected the Revenue’s appeals entirely. The Court held that “the Assessee’s customers do not acquire any right of using the infrastructure and software of the Assessee for the purposes of commercially exploitation” and that “the payments received cannot be considered as royalties within the meaning of Article 12(3) of the India-US DTAA.” [6] AWS retained full ownership and control of all infrastructure throughout; customers accessed standardised, automated resources on a pay-per-use basis without acquiring physical possession, independent control, or any intellectual property rights.
While decided under income tax law, the ruling carries structural implications for GST. If cloud services are services — not royalty, not fees for technical services, not access to equipment — then they must be classified and taxed as services under the GST regime. That immediately calls upon Sections 12 and 13 to determine the place of supply. Since cloud services fit within none of the specific categories enumerated under Sections 12(3)–12(13) or 13(3)–13(13), they fall to the residual default rules. It is precisely in this residual space that the structural inadequacies of Sections 12 and 13 are most acutely exposed when applied to distributed delivery architectures.
The Case for Legislative Reform
These problems cannot be resolved through circulars or creative judicial interpretation. They require targeted statutory amendment. A workable reform would involve, at minimum, the insertion of a dedicated category of “cloud infrastructure services” — encompassing CDN services, edge computing, data hosting, and distributed storage — with tailored place of supply rules for each sub-category. For CDN services, the appropriate rule would fix the place of supply at the location of the contracting recipient (the content platform) rather than the PoP node through which any specific delivery occurs, since the PoP location is determined algorithmically rather than by contract. For edge computing arrangements where physical infrastructure is installed at the customer’s site, the place of supply should follow the physical location of that infrastructure, with apportionment rules for multi-state edge deployments.
The OECD’s International VAT/GST Guidelines articulate a destination principle under which consumption taxes on digital services should follow the location of consumption — the business customer’s location for B2B and the individual consumer’s location for B2C transactions. [7] India has partially adopted this principle through the OIDAR framework and the reverse charge mechanism, but has not extended it to the sub-layer of digital infrastructure that makes OIDAR services possible. The IGST (Amendment) Act, 2023 (No. 31 of 2023) introduced structural corrections to the IGST Act but did not address cloud infrastructure as a distinct category. [8] The current legislative agenda presents an opportunity to make that correction before edge computing deployments generate a wave of place-of-supply disputes that will be expensive and slow to resolve through litigation.
Conclusion
Sections 12 and 13 of the IGST Act assume that a service has a single identifiable supplier, a single recipient, and a clear place of supply. However, modern cloud services, edge computing, and CDN networks challenge all three assumptions. Service delivery is distributed across nodes in multiple Indian states; contracting parties are separated from the infrastructure by layers of intermediation; and the actual place of supply changes in real time based on algorithmic routing, which neither the supplier nor the recipient controls.
While CBIC Circular No. 232/26/2024 clarified conventional data hosting GST questions, it left CDN operators, edge computing providers, and multi-party cloud infrastructure services without guidance. [5] The Delhi High Court in CIT v. Amazon Web Services confirmed that cloud services are not royalty, but offered no clarity on GST place of supply. Similarly, the Finance Act, 2023 expanded the OIDAR services GST category but did not create rules for geographically distributed delivery. India’s rapidly growing cloud economy demands legislative reform, not more circulars — specifically, a statutory category for distributed digital infrastructure services with place of supply rules tailored to the architecture of modern internet services.
References
[1] Integrated Goods and Services Tax Act, 2017 — CBIC, Government of India — https://cbic-gst.gov.in/hindi/IGST-bill-e.html
[2] CBIC Tax Information Portal — Section 2, IGST Act, 2017 — https://taxinformation.cbic.gov.in/content/html/tax_repository/gst/acts/2017_IGST_Act/active/chapteri/section2_v1.00.html
[3] Finance Act, 2023 — Section 160 (OIDAR amendment) — GST Council — https://gstcouncil.gov.in/sites/default/files/gst-knowledge/Finance-Bill-2023.pdf
[4] India Briefing — “Tax on Digital Services: OIDAR in India — GST Applicability and Compliance” (October 2023) — https://www.india-briefing.com/news/tax-digital-services-oidar-in-india-gst-applicability-and-compliance-22465.html/
[5] CBIC Circular No. 232/26/2024-GST, 10 September 2024 — https://cbic-gst.gov.in/pdf/circular-232.pdf
[6] CIT – International Taxation -1 v. Amazon Web Services, Inc., 2025:DHC:4622-DB — Delhi High Court, 29 May 2025 — https://www.livelaw.in/high-court/delhi-high-court/payments-made-to-aws-for-cloud-computing-services-not-taxable-delhi-high-court-296433
[7] OECD International VAT/GST Guidelines — https://www.oecd.org/tax/consumption/international-vat-gst-guidelines.pdf
[8] IGST (Amendment) Act, 2023 (No. 31 of 2023) — The Gazette of India — https://egazette.gov.in/WriteReadData/2023/248184.pdf
[9] Taxscan — “Charges Received by AWS Not Taxable as Equipment Royalty: Delhi HC” (May 2025) — https://www.taxscan.in/charges-received-by-amazon-web-services-for-cloud-computing-not-taxable-as-equipment-royalty-under-india-us-dtaa-delhi-hc/523590
[10] IRIS GST — “GST Circular No. 232/26/2024: Place of Supply of Data Hosting Services” — https://irisgst.com/gst-circular-no-232-26-2024-clarification-on-place-of-supply-of-data-hosting-services-provided-by-service-providers-located-in-india-to-cloud-computing-service-providers-located-outside-india/
