Amazon Web Services’ India Arm Not an ‘Intermediary’; CESTAT Quashes Massive Service Tax Demands on Data Hosting Services

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi while setting aside service tax demands exceeding Rs. 81 crore raised by the tax department on such services has held that Amazon Internet Services Pvt. Ltd. (now Amazon Web Services India Pvt. Ltd.) is not an “intermediary” under the Place of Provision of Services Rules, 2012, and that the data hosting services provided by it to its US affiliate qualify as export of services. The Bench bench of Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) has observed the place of provision of services was the location of the service recipient, i.e., AWSI in the United States. Consequently, the data hosting services qualified as export of services, and no service tax was leviable. Amazon Internet Services Pvt. Ltd. entered into a Data Services Agreement (DSA) and Marketing Services Agreement with Amazon Web Services Inc., USA (AWSI). Under these agreements, the Indian entity was responsible for operating and maintaining data centres in India, ensuring network connectivity, physical security, equipment maintenance, and temporary data storage to support AWSI’s global cloud computing operations. The tax department alleged that by hosting data and enabling faster access for Indian customers, the Indian entity was acting as an intermediary between AWSI and its customers in India, thereby attracting service tax under Rule 9 of the Place of Provision of Services Rules. Similar allegations were made in respect of marketing support services. Based on this reasoning, two show cause notices were issued demanding service tax of ₹34.31 crore for the period October 2013 to March 2016 and Rs. 47.08 crore for April 2016 to June 2017, along with interest and penalties. These demands were confirmed by the adjudicating authority. The central question before the Tribunal was whether the Indian entity could be classified as an “intermediary” under Rule 2(f) of the POPS Rules, 2012, which would make the place of supply India, or whether it was providing services on its own account to AWSI, making the services exportable and non-taxable in India. The Tribunal undertook an extensive analysis of the statutory definition of “intermediary” under both the service tax regime and the IGST Act, noting that the definitions are pari materia. It relied heavily on CBIC Circulars, particularly 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 are not intermediary services. CESTAT held that the Indian entity did not act as a broker or agent of AWSI. The DSA expressly established a principal-to-principal relationship, ruling out any agency. Amazon’s Indian arm provided only one service—data hosting—to AWSI, and was not involved in arranging or facilitating cloud services between AWSI and its customers. The cloud computing services were independently provided by AWSI under separate customer agreements, to which the Indian entity was not a party. Consideration paid to the Indian entity was on a cost-plus basis, not commission-based, which is inconsistent with intermediary arrangements. Merely because AWSI’s customers benefited indirectly from the infrastructure in India did not make them service recipients. Relying on consistent judicial precedents from the Delhi, Bombay, Punjab & Haryana, and Karnataka High Courts, as well as earlier CESTAT rulings, the Tribunal reiterated the settled principle that “your customer’s customer is not your customer.” The Tribunal set aside the entire demand, interest, and penalties relating to data hosting services. The Tribunal also rejected the department’s invocation of the extended period of limitation, holding that Amazon’s Indian entity had acted under a bona fide belief supported by prevailing law and disclosures in returns. As regards marketing services, the appellant had already paid service tax and claimed to have paid interest before issuance of the show cause notice, invoking Section 73(3) of the Finance Act, 1994, which bars further proceedings. Since there was a factual dispute on whether full interest had been paid, the Tribunal remanded the matter limited to verification of interest payment, observing that no penalty would survive if Section 73(3) was satisfied. Case Details Case Title: M/s. Amazon Internet Services Pvt.Ltd. Versus Commissioner of CGST (East) Case No.: Service Tax Appeal No. 55106 of 2023 Date: 19.01.2026 Counsel For Petitioner: B.L. Narasimhan and Shri Ashutosh Choudhary Counsel For Respondent: Mihir Ranjan, Special Counsel Click Here To Read Order Read More: Bombay High Court Quashes Income Tax Reassessment Notice for Failure to Prove Jurisdiction Transfer

Amazon Web Services’ India Arm Not an ‘Intermediary’; CESTAT Quashes Massive Service Tax Demands on Data Hosting Services

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