Case nº Ruling No. AAR/30/2005 in Application No. AAR/44/58/ST/2005 of Authority for Advance Rulings, December 13, 2005 (case Google Online India Private Ltd. (GIPL) Vs Commissioner of Service Tax)
| Judge | For Appellant: Atul Gupta, Consultant, Punit Bhardwaj and Amit Agarwal, Chartered Accountants for Deloitte Haskins & Sells and For Respondents: A.K. Roy, Joint CDR and Bipin Sapra, Jt. Commissioner |
| President | Syed Shah Mohammed Quadri, J. (Chairman), Somnath Pal and B.A. Agrawal, Members |
| Resolution Date | December 13, 2005 |
Judgment:
(Central Excise, Customs and Service Tax)
Syed Shah Mohammed Quadri, J. (Chairman)
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In this application under section 96C(1) of Chapter VA of Finance Act, 1994 (for short "the Act"), the applicant - M/s. Google Online India Private Limited - is a wholly owned subsidiary of M/s. Google International LLC (for short "Google USA"), a foreign company registered under the laws of the United States. In Annexure 1 to the application it is stated that the applicant's parent company is in the business of providing internet (Web) based search service which is rendered free of charge. Google USA also provides advertisement space to advertisers/clients to display the names of their websites on its sites on payment of charges. As is being done by Google USA, the applicant also proposes to provide service free of charge as well as to sell advertisement space slots on the Google search site to advertisers/clients in India. The applicant will engage in direct selling, syndication partnerships and reseller deals with agencies. All direct sales and reseller relationships will be managed locally and the contract will be with the applicant. Though most customers will be from India, the applicant may also engage in relationships with customers in Pakistan, Nepal, Sri Lanka and other neighbouring countries, which is a normal business practice within the TV/Print advertising industry in India. The applicant seeks advance ruling of the Authority on the following question:
"Whether the activity of providing/selling space for advertisement on 'Google Website' as proposed to be carried out by the applicant and as detailed in Annexure 1 of this application, is classifiable under any of the below mentioned heads of taxable services or as any other taxable service enumerated in Chapter V of the Finance Act, 1994:
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Advertisement Services (as defined under section 65(105)(zh)[sic] of Chapter V of Finance Act, 1994).
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Computer Network Service (as defined under section 65(105)(zh) of Chapter V of Finance Act, 1994).
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Business Auxiliary Service (as defined under section 65(105)(zzb) of Chapter V of Finance Act, 1994).
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Any other taxable service (as enumerated in section 65(105) of Chapter V of Finance Act, 1994)"
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In annexure 4 to the application, the applicant, having noted the definition of taxable services 1 to 3 in the question, submits that the service proposed to be provided by it does not attract levy of service tax. In regard to any other taxable service (as enumerated in section 65 (105) of Finance Act, 1994) - item 4 - it is pleaded that after examining the entire gamut of taxable services on which service tax is applicable under the Act, no other taxable service covers the activities which are proposed to be undertaken by the applicant.
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In reply to the comments of the Commissioner, the applicant points out that there is distinction between "providing of services connected with display or exhibition of an advertisement" and actual display or exhibition of an advertisement which is in effect the result of the media affording/providing a time or space slot whether on the radio or television or an internet page. It is denied that the applicant would be providing a number of value added services as contended by the Commissioner. It is also denied that 'Adsense for Search' and 'Adsense for Content' result in providing add on services to the advertisers. It is submitted that no extra charges are to be paid by the advertisers for these services which are optional. In the proposed system the advertiser choose's whether he wants his advertisement to also appear in a non-Google website. The applicant would merely be engaged in space selling activity to advertisers wherein the space essentially sold is space on website being the consolidated space on Google's own website and other websites with whom Google has entered into syndication agreement. No service is proposed to be provided by the applicant to its clients in connection with or in the form of abetting making, preparation, display or exhibition of advertisements. It is disputed that the applicant would charge its clients on CPC (Cost Per Click) basis which is a kind of performance based advertising, because the method or mode of charging for a particular service has no correlation with the basic character of service. The applicant would not be able to change the visibility or positioning of an advertisement as the same is determined by an equation which takes into account the 'Click Through Rate' (CTR) [which refers to whether users elected to select the link & go to the advertiser's website] and value of the bids for space. The proposed method devised by the applicant to determine the positioning/ranking of advertisements is applicable uniformly to all advertisements received by them. Neither the advertisers nor the applicant would have any say in the positioning of the advertisements. The applicant would not be involved with the contents of the advertiser's ad displayed on a web page from a search result so long it is in line with their editorial policy. They would also not be involved in conceptualizing or designing of the advertisement of the advertiser. What all it proposes to do, it would sell website space for display of the advertisement of the advertiser. The applicant would only be providing a technological platform which would be used independently by an advertiser; it is self serve and automated system wherein the advertiser manages his own account. The department's circular F.No.345/4/97-TRU dated 16.8.1999 is quoted in support of the submission that the service provided to advertisers by the print or electronic media which merely involves selling of space or time for the exhibition of advertisements, would not attract levy of service tax. The department's circular F.No.B.II/1/2000-TRU dated 9.7.2001 is also relied upon to show that the space/time selling activity does not fall within the purview of the service tax. It is submitted that the broadcasting service was introduced through Finance Act, 2001 to tax the amount charged by the television channel for display of advertisement under the head of broadcasting service but no analogous service for displaying or exhibiting advertisement on the internet website is subjected to levy of service tax. It is stated that the intent of introducing exhibition service is outlined in circular No.80/10/2004-ST which covers trade fairs, road shows, etc. The search website which merely displays user search results alongwith the advertisers' links relevant to that search cannot be termed as exhibition. On the same analogy, even classified product advertisements in the newspaper would also be subjected to service tax and the same result would follow treating publication of periodicals and journals as business exhibition. The business exhibitions are intended to have a definite theme say, industrial products, like machinery, plastics, etc. or consumer products like cosmetics, electronic items, etc. The purpose of exhibition is to exhibit, explain and showcase the...
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