Sale of space in Yellow Pages liable to pay service tax

Our company is in the business of marketing and selling Yellow Pages, business directories, greeting cards and stationery products like notebooks, note-pads etc in India. We have entered into contracts with other companies for displaying advertisements relating to their products or services on the front, back and/or inner cover of the yellow pages, directories, notebooks, note pads etc. for which we recover charges. Are we liable to pay service tax in relation to these charges?

From the description of the activities undertaken, it is clear that your company is allowing customers to use space on products like directories and notebooks for display of advertisements. The taxability of such activities is required to be examined under the category of sale of space or time for advertisement services.

Under the said category, sale of space for advertisement, other than in print media, is chargeable to service tax.

Given this, the question which has to be examined is whether sale of space in the yellow pages, directories, notebooks and note-pads can be considered as sale of space in the 'Print Media', in order that the above exemption applies.

'Print Media' for the purposes of service tax exemption means "Book" and "Newspaper" as defined under Section 1 (1) of the Press and Registration of Books Act, 1867. For the present discussion, "Book" is the relevant expression, which has been defined under the said Act as follows: "Book" includes every volume, part or division of a volume, and pamphlet, in any language, and every sheet of music, map, chart or plan which is separately printed.

Further, as per the proposed changes in the Finance Bill 2007, business directories, yellow pages and trade catalogues which are primarily meant for commercial purposes would be excluded from the above definition of 'Book'. Therefore, sale of space for advertisements in yellow pages and directories would be chargeable to tax.

Further, as per the common understanding of 'Book', there must be some printed content for something to qualify as a Book. Plain notebooks and note-pads with no content cannot be considered as Books. Therefore, sale of space in such notebooks for advertising is chargeable to service tax under the aforementioned category.

We are providing services of website application hosting and on-going maintenance of the application, data back-up, bug fixing etc. for our clients. There is a consolidated charge per user. What is the appropriate taxable category for our services for the purpose of service tax?

It appears that you are providing web hosting services. The relevant taxable category in this case is that of 'on-line information and data base access or retrieval services'. Further, the services of data back-up and bug fixing, although in the nature of repair or maintenance of software, are incidental to the main service of web hosting.

Even if they are seen as other services and are therefore composite services in aggregate terms, as per the principles of classification enunciated under Section 65A of the Finance Act, 1994, in case of composite services, the appropriate category of taxable service should be determined on the basis of that service which reflects the essential characteristic of the composite service.

Based on this principle also, the service of web hosting and its ongoing maintenance for a consolidated charge per user can be appropriately categorised as 'on-line information and data base access or retrieval service'.

This Q&A has been prepared by the indirect tax team at Pwc, lead by S Madhavan. Readers can send their queries to tax queries@business-standard.com