Service tax has been imposed on development and supply of content services by the Finance Act, 2007 as a separate taxable service with effect from 1st June, 2007 vide Notification No. 23/2007-ST dated 22.5.2007. The gross amount charged by or gross consideration received by any person being service provider from any other person in relation to content development and supply services shall be chargeable to service tax.
Meaning of Development and Supply of Content Services [Section 65(36c)]
“Development and supply of content” includes development and supply of mobile value added services, music, movie clips, ring tones, wall paper, mobile games, data, whether or not aggregated, information, news and animation films.”
The definition of ‘development and supply of content’ is an inclusive definition. It includes development and supply of —
(i) mobile value added services
(iii) movie clips
(iv) ring tones
(vi) mobile games
(vii) data (aggregated or otherwise)
(ix) news, and
(x) animation films
According to the definition, the development and supply of aforesaid items shall only be covered in the definition for the purpose of levy of service tax. Though it is an inclusive definition, words ‘such as’ or ‘like’ have not been used, it may cover other types of content but taxability shall be as per taxing provisions in section 65(105)(zzzzb) only. Each of the aforesaid terms will have to be understood in their general meaning and understanding of such terms as is in common use.
It intends to cover various value added services in relation to mobile phones or other specified categories.
It may be noted that though the content has to be developed and supplied, it will become a taxable service under section 65(105)(zzzzb) only if such content is developed and supplied for use in any one or more of the following —
(i) telecommunication services,
(ii) advertising agency services,
(iii) online information and database access or retrieval services .
Content means the substance and style of a communication’s subject matter. Content provider is one who provides the content, consisting of information of various kinds, such as financial, news, intended for terminal users; the person providing material for transmission and other similar services on the internet. (P. Ramanatha Aiyar’s Advanced Law Lexicon)
Development has not been defined in the Finance Act, 1994 or any other taxing statute. Generally, the word ‘development’ is used in relation to land or building or construction or engineering etc. P. Ramanatha Aiyer’s Advanced Law Lexicon provides that by development is meant the act, process or result of developing or growing or causing to grow; the state of being developed; happening; the application of research findings of other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services prior to the commencement of commercial production or use.
The term ‘development’ has been defined in the Advance Law Lexicon to mean’: ‘the act, process or result of developing or growing or causing to grow’.
The word ‘supply’ has to be understood literally or as the term is know in business. It implies amount of goods for sale at a given price; includes lending; includes supply by way of sale, lease-hire or hire purchase; provision of goods or services, or the amount of these available on the market.
According to P. Ramanatha Aiyar’s Advanced Law Lexicon, the word ‘supply’ is defined in the Standard Dictionary as ‘that which is or can be supplied; available aggregate of things needed or demanded; an amount sufficient for a given use or purpose’. In the Imperial Dictionary, ‘that which is supplied; sufficiency of things for use or want; a quantity of something furnished or on hand’. As used in a contract to purchase all supplies of a certain description for a certain period from a certain firm, the word means all of the specifies goods necessary for the purchaser’ business during such period. Supply would include sale or consumption.
Following judicial interpretation also help in understanding what is meant by supply –
The word ‘supply’ means ‘to give’ or ‘to provide or to afford something that is necessary’. In the context of its use in the provisions, it has to be construed as a form of sale and dispatch. The conception of supply of goods must be interpreted in the conception of sale. Somnath Rath v. Bikram Keshari Arukh, AIR 1999 Orissa 119, 126.
To supply anything — e.g., water — smeans passing it from one who has it to those who want it; you may provide a thing for yourself, but that is not supplying it. Somnath Rath v. Bikram Keshari Arukh, AIR 1999 Orissa 119, 126.
Shorter Oxford English Dictionary gives a large number of definitions for the word ‘supply’ and they have a common feature, viz., that in the word ‘supply’ is inherent the furnishing or providing of something which is wanted. R. v. Delgado, (1984) 1 AII ER 449, 452.
The word ‘supply’ in its ordinary natural meaning, conveys the ideal of furnishing or providing to another something which is wanted or required in order to meet the wants or requirements of the other. It connotes more that the mere transfer of physical control of some chattel or object from one person to another. R. v. Maginnis, (1987) 1 AII ER 907, 909.
The proper meaning of supply is the delivery of the goods as delivered by the seller or notification that they are available for delivery if they are to be collected by the buyer. Rees v. Munday, (1974) 3 All ER 506, 509 (QBD).
In today’s business environment which is highly competitive, specialization holds the key. While business process outsourcing (BPO) is a mechanical process which is outsourced, knowledge process outsourcing (KPO) involves skills, intellect and knowledge and covers the processes which demand advanced information search, analytical skills, technical knowledge, interpretational and judgmental skills. Development and supply of content for use in telecom, advertising and online information and database access or retrieval services is also a specialized service. This could include, apart from mobile value added services, research and analysis hosted on websites, content development on all websites including knowledge based portals, educational and academic data, report writing, reports and content writing, data rewriting, rendering and data management for use in telecom, advertising and online information and database access or retrieval services. Data is a wider term and shall include all and any form of data.
The definition reveals that all sorts of KPO activities are not covered under this category which may generally includes basic data research, equity research, simulation, medical/engineering/accounting/legal research and content, legal support, IPR research, industrial design and content etc. KPO activities include higher end research any analytical services to Indian and foreign clients in various business spheres. KPO services enable the business enterprises to trade off between efficiency, timing and costing, making the organizations leaner, cost efficient and competitive.
Meaning of Data
Section 65(36) defines ‘data’ as under—
“data” has the meaning assigned to it in clause (o) of sub-section (1) of section 2 of the Information Technology Act, 2000.
As per Section 65(36), data has been defined under Section 2(1)(o) of the Information Technology Act, 2000 to mean a representation of information, fact, knowledge, concepts or instructions which are being prepared or have been prepared in a formalised manner, and is intended to be processed, is being processed or has been processed in a computer system or computer network and may be in any form (including computer printouts, magnetic or optical storage media, punched cards, purchased tapes) or stored internally in the memory of the computer. Information includes data and data bases.
Data is information in a form suitable for processing by a computer, such as the digital representation of text, numbers, graphic images, or sounds. Etymologically, data is derived from the Latin word “datum” meaning an item of information. A representation of information, knowledge, facts, concepts or instructions which are being prepared or have been prepared in a formalised manner, and is intended to be processed, is being processed or has been processed in a computer system or computer network, and may be in any form (including computer printouts magnetic or optical storage media, punched cards, punched tapes) or stored internally in the memory of the computer.
The automatic collection of data, usually from somewhere outside the computer system is referred to as data acquisition. For example, from sensors monitoring toxic wastes from medical instruments hooked up to a patient etc.
Electronic data processing (EDP) is work done by mini and main frame computers. The processing of data by stand alone PC is also sometimes referred to as EDP.
Meaning of Information
Section 65(53) defines ‘information’ as under —
“information” has the meaning assigned to it in clause (v) of sub-section (1) of section 2 of the Information Technology Act, 2000.
As per Section 65(53), information has been defined under Section 2(1)(v) of the Information Technology Act, 2000 to include the following modes of information storages or transmission. Since information is invisible under the computer based environment, it shall cover any or all of the following —
(vii) computer programmes,
(ix) data bases,
(x) micro film, and
(xi) computer generated micro fiche.
It may be noted that e-commerce transactions does not provide on-line informations and data and would therefore, be excluded.
Information includes data, text, images, sound, voice, codes, computer programs, software and databases or micro-film or computer generated micro fiche.
Taxable service has been defined in Section 65(105)(zzzzb) as under –
“Taxable service means any service provided or to be provided to any person, by any other person in relation to development and supply of content for use in telecommunication services, advertising agency services and on-line information and database access or retrieval services.”
Any service in relation to development and supply of content service shall be taxable if it is meant for use in telecommunication services, advertising agency services and online information and database access or retrieval services.
This taxable services shall cover services provided by content developers in relation to development and supply of content for intended use by specified users i.e.,
(a) telecommunication service providers
(b) advertising agencies
(c) online information and database access or retrieval services which shall cover platforms like–
(iii) blogs, or
(iv) any electronic/telecom media
The taxable service has to undergo two-fold test — one, it has to be in relation to development and supply of content, and two, such content should be meant for use (actually used or intended for such use) in telecommunication services, advertising services and online information and data base access or retrieval services.
The meaning of development and supply of content has been defined in section 65(36c). The subject service has to be either development or supply or both, although the word ‘and’ is used between development and supply. It does not imply that if the service is only development or only supply, it will be out of service tax net. Either of the service, i.e., development or supply shall be a taxable service. It is also important that such development and supply must be of content only and nothing else. That means that only and only content should be the subject of service. If development and supply is of something other than content (e.g., spare parts, raw material, other inputs etc.), then it will not be a taxable service. The terms ‘data’ and information are in themselves very wide terms and shall include vast varieties of services. Software development and supply has not been specifically covered but software has otherwise been held to be a ‘good’ in Tata Consultancy Services v. State of Andhra Pradesh 2004 -TMI - 4143 - Supreme Court. It is also included in the definition of ‘information’ which specifically includes computer programmes.
Looking to the definition, if the content is developed and supplied for the purpose of publication to the publishers or other academic institutions for distribution to users or sale in any physical form (say book or even in computer drive), it may not be covered under taxable services because it will not be a case falling under online information and database access or retrieval services. However, where such content is used for loading on to the internet/website or in the form of e-books, it shall attract service tax.Saleof such content through e-commerce shall not be taxed but supply for online use shall be a taxable service.
If an author develops some content (say, a manuscript of a book or any other literary material) and transfers the copyright to publisher or allows him to use the copyright, then in such case, it shall be a case of intellectual property services wherein copyright has been specifically excluded from levy of service tax. However, in such cases, essence of nature of arrangement and service rendered, if any, would be the deciding factor.
Taxable service shall cover any services in relation to development and supply of content and not only actual development and supply of content.
Taxable services shall not cover any services of development and supply provided in relation to delivery of content of cinema in digital form after encryption, electronically in view of exemption provided vide Notification No. 12/2007-ST dated 1.3.2007.
To be a taxable service, following conditions should be satisfied –
(a) Service should be provided or agreed to be provided by any person to other person.
(b) The service provided should be any service in relation to development and supply of content.
(c) ‘Content’ should be the subject matter of development and supply
(d) The use of content should be for specified purposes only, i.e., for use in telecommunication services, advertising agency services and online data information and database access or retrieval services.
(e) Taxable service shall not include services provided in relation to delivery of content of cinema in digital form after encryption electronically.
CBEC has vide its Circular No. 234/1/2007-TRU dated 28.2.2007 clarified as under –
“Development and Supply of Content Service [section 65(105)(zzzzb)]:
Content developed for use in telecommunication, advertisement and internet or websites are leviable to service tax presently under “business support service”. It is proposed to separately specify services provided by content developers in relation to development and supply of content for use by telecommunication service providers, advertising agencies and on-line information and database access or retrieval services such as internet or website service providers under this service. The term “development and supply of content” is defined separately [section 65(36c)].”
Exemption in relation to Cinematography Films
Vide Notification No. 12/2007-ST dated 1.3.2007, an exemption has been provided in relation to services provided or to be provided under an agreement, by any person to any other person who has the right to authorise any person to exhibit any cinematography film, from the whole of service tax leviable thereon, subject to fulfilment of specified conditions.
The conditions for grant of exemption are as follows –
(a) Services should be provided under an agreement i.e., there must be an agreement between service provider and service receiver;
(b) Service provider should have right to authorise any person to exhibit cinematograph films;
(c) Service should be in relation to the delivery of content of the cinematograph films;
(d) Content of such films should be in digitized form;
(e) Content should be transmitted, after encryption, directly to the cinema theatre for exhibition through use of satellite, microwave or terrestrial communication line and not by any physical means including CD and DVD.
It may be noted that copyright service in relation to use cinematography are taxable as a new service introduced by Finance Act, 2010.
According to Cinematograph Act, 1952, cinematograph and film means as under —
(2c) “Cinematograph” includes any apparatus for the representation of moving pictures or series of pictures.
(2dd) ‘film’ means a cinematograph film but does not include a programme telecast on television. Cinema theatre means a place which is licensed under Part-III of the Cinematograph Act, 1952 or under any other law for the time being in force in a state for the exhibition of a cinematograph film.
Exemption to services provided or to be provided under an agreement by a person to other person, who has the right to authorise any person to exhibit cinematograph film, subject to certain conditions vide Notification No. 12/2007-ST dated 1.3.2007.
Any person providing services to any other person in relation to development and supply of content shall be liable to pay service tax.
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