Net ads may come under tax net

Google's plea on service tax clarification dismissed.

Websites that sell space to companies could be asked to pay service tax under the category of advertising services with effect from 1996.

The authority for advance ruling for service tax had earlier this month dismissed an application filed by Google Online India Pvt Ltd seeking a clarification whether advertising services was liable to the tax.

The company, in its application in July this year, sought a review of its earlier ruling, issued in December 2005, which stated that the services of Google came under the category of advertisement services.

At that time, the authority had ruled that Google Online India Pvt Ltd, a wholly owned subsidiary of US-based Google International LLC, was liable to pay service tax for selling advertisement space slots on its search site to advertisers and clients in India.

It said that the activity of selling space for display or exhibition of an advertisement meant providing a service to advertisers and clients. "From this angle, the applicant would be covered by the definition of advertising agency," it said.

Google then filed a review application in July. "As the Ministry of Finance till date does not consider display or exhibition of advertisement services, there is apparent scope for mis-interpretation of the ruling pronounced by the authority," Google said in its application.

The company wanted to clarify whether it was liable to pay service tax on the charges provided or for selling space to a customer for exhibition or display of an advertisement in case no value-added services were provided to such a customer.

With the authority disposing of the application, it was clear that the government could interpret sale of space by internet companies as covered under advertisement services, sources said.