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Sale
of Advertisement Space on Web held liable to Service Tax
The
Authority for Advance Ruling ("AAR") for Service Tax has
held last week that Google Online India Pvt Ltd, ("Google India"),
a wholly owned subsidiary of the United States based Google International
LLC, would be liable to pay service tax on selling advertisement
space to Indian entities in its search site. This can set a precedent
for search engines with offices in India falling within the ambit
of this tax.
Google
India had approached the AAR - Service Tax to determine whether
providing selling space for advertisement on the website would
be exempt from service tax or fall within the meaning of " advertisement
service ", " computer network service " , " business auxiliary
service " or any other taxable service.
Google
India had argued that it did not provide any service involving
making and display of advertisements but merely engaged in space-selling
activity on Google India's own website and other websites with
which it had entered into a syndication agreement. However, the
Commissionerate of service tax pointed out that the definition
of advertisement space was wide enough to include providing of
advertisement service on the Internet by the applicant. Even mere
providing or selling of space for advertisement is itself a service
connected with display or exhibition of advertisements and hence
will fall within the tax net as advertisement service.
The AAR analyzed
the activities of Google India and held that the activity of selling
space on the website would tantamount to providing a service to
advertisers and clients and thus, would be covered by the definition
of "advertising agency". The AAR pointed out that the finance
ministry, in 1996, had made it clear in the context of "advertising
agency" definition that the scope of the service which is included
in the tax net extends not only to any service connected with
the making and preparation of advertisements but also includes
services connected with display or exhibition of advertisements.
It should
be noted that a ruling of the AAR is only binding on the applicant-
Google India and the Service Tax Department. Though it does not
set a precedent, it would have persuasive value in similar circumstances.
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can direct your queries or comments to the authors
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Source:
Business Standard , December 22, 2005
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