The issue of goods and services tax (GST) under the scope of Online Information and Database Access or Retrieval (OIDAR) services, which falls in the 18 percent tax slab, is now likely headed for litigation as some companies based overseas that have received retrospective demand notices citing tax evasion prepare to move the courts against it.

OIDAR services is a category of services provided and received online through the internet with or without any physical interface.

The foreign digital companies are preparing to approach the court in their respective jurisdiction against the retrospective GST demand notices issued to them for the period between 2017 and October 2023, a person familiar with the development said. In October 2023, the exemptions under OIDAR services were removed  expanding the scope of services subject to GST​.

“The companies will file soon in (the respective) high court,” the source told Moneycontrol, highlighting that firms in sectors like online training and online exams argue that their services do not meet the OIDAR definition.

GST notices were sent out to approximately 70 foreign firms in 2023 and this year across sectors like subscription-based services, edtech, online gaming and advertising, as tax authorities seek to enforce the 18 percent Integrated GST (IGST) on digital services. Even global digital giants including Meta (Facebook), Alphabet (Google), Netflix and Spotify reportedly received GST notices in 2023 under the scope of OIDAR. The notices demand payment of hundreds of crores as a result of the 18 percent GST being levied, the person cited above said.

"OIDAR is something GST authorities are going to be very focused on. According to the law, when foreign firms are providing services in India, they are supposed to register in India and pay GST. That has not happened," the person said. The individual added that a special commissionerate in Bengaluru has been set up to handle OIDAR compliance, with show-cause notices already issued.

The controversy has arisen as companies have argued that their services involve human intervention and can be delivered offline as well, which, prior to the October 2023 amendment, could have exempted them from GST. The law was modified to broaden the definition of OIDAR services, eliminating references to "minimal human intervention" and expanding the tax's scope, with the revised rules now applying whether there is human intervention or not.

"The definition of OIDAR services in the IGST Act covers services which require information technology, internet or other electronic networks to be delivered. India being a massive consumer of digital services, GST authorities see this as a significant source of revenue in the coming days," Sudipta Bhattacharjee, partner at law firm Khaitan & Co, told Moneycontrol.

Data from the Directorate General of GST Intelligence (DGGI) showed that the GST collected from OIDAR service providers rose sharply from Rs 80 crore in 2017-18 to Rs 2,675 crore in 2023-24. Authorities expect further growth in collections following the October 2023 amendment and intensified enforcement efforts. The DGGI also plans to coordinate with the Reserve Bank of India for forex transaction data and seek reciprocal arrangements with foreign governments for information sharing.

"The possibility of some high-stakes tax litigation may not be ruled out either," Bhattacharjee added, given the global contention around digital service taxation.