TMI Blog2005 (12) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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 : 1. Advertisement Services (as defined under Section 65(105)(zh)[sic] of Chapter V of Finance Act, 1994). 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular 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 sys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng advertisement space or slot. According to the Commissioner, the applicant would be providing a number of value added services to its clients who advertise with it. These services constitute services provided by an advertising agency, he contends. Reliance has also been placed by the Commissioner on CBEC's Circular No. 341/43/96-TRU, dated 31-10-96 in support of his stand that the scope of the service which is included in the tax net extends not only to any service connected with making, preparation of advertisements but also includes any services connected with display or exhibition of advertisements. It is further stated that the product or service is the website itself for the purpose of advertising, so if the applicant is showcasing web addresses of these sites and charging only if the website is clicked then it is a case of business exhibition service; the goods in this case are not real but virtual web sites. This is analogous to a trade fair where goods are displayed in different stalls depending upon the places of origin or type of product. Here too, goods are displayed depending on the Adword entered by the person searching. The taxable service in the case of busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the service provided by the applicant does not fall under advertising service nor does it fall in computer network service, nor under business auxiliary services; indeed it does not fall in any other service enumerated in Section 65(105) of the Act. It is argued by Mr. Gupta that the Commissioner, in his comments, sought to bring the service in question under advertising service and business exhibition service and more particularly under the latter but the applicant is not an advertising agency and that there is a subtle distinction between providing services connected with display or exhibition of an advertisement and actual displaying or exhibition of an advertisement which is in effect the result of the media affording/providing time slots whether on the radio or internet page. It is submitted that the applicant would not be providing any service which involves making, preparation and display of an advertisement; it would merely be engaged in the space selling activity on Google's own website and other websites with whom the applicant has entered into syndication agreement. The applicant will not be involved in providing any value added service; it would only provide te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her a service provided by an applicant is a taxable service or not, cannot be the subject matter of advance ruling of the Authority under Section 96C(2) of the Act. The frame of the question in the application as to under which of the four categories of services enumerated in the question, will the service proposed to be provided by the applicant fall, presupposes that the service in question is a taxable service and the Authority is approached for a proper classification of the service. It would, therefore, be incongruous to argue that the service is not a taxable service and the contention is indeed contrary to the very postulate of the question. Be that as it may, of the four categories of service which have been enumerated in the application, the Commissioner classified the service proposed to be provided by the applicant as falling under business exhibition service and/or advertisement service . We shall, therefore, consider under which category of taxable service, will the service proposed to be provided by the applicant fall? Section 65(105) of the Act defines taxable service to mean any service provided or to be provided to a person enumerated in Clauses (a) to (zzzh) th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial clients. A brief description of these tools is as follows : (i) Adwords : Google's Adwords product specifically relates to a search engine query. Under this methodology in response to a key word typed in by the user, for instance, flower the Google search engine will display the most relevant links to this word, i.e. 'Flower'. AdWords is a mechanism for the advertisers to provide search-specific advertising to the users. On the Google website, AdWords ads are located on the top and to the right side of the search results. Adwords is an automated, self-serve system through which advertisers independently develop a set of keywords relating to their business, manage their own account online from the Google website and determine a daily or periodic advertising budget for AdWords on CPC basis. CPC implies a unit price or the advertising fee paid each time a user selects or clicks the advertiser's advertisement to access the advertiser's web page. (In other words the advertiser is required to pay the charges on the basis of no. of times his weblink (advertisement) has been opened and seen by any person. The advertising fees per click are also fixed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... methodology Google serves text-based ads precisely targeted to the content on the publisher's website. In such an arrangement when readers click on an ad shown on the left of the web page, the publisher is paid a percentage of revenue earned by Google from the advertisers. It is contended that since publishers are not limited to large portals, this offering is used by thousands of website publishers. (In other words Google's website would give text-based ads which when clicked would directly link the publisher's website). The earnings from such advertisements are shared between the publishers and Google. 9. Now we shall advert to the definition of business exhibition service contained in Section 65(19a) of the Act. (19a) Business exhibition means an exhibition, - (a) to market; or (b) to promote; or (c) to advertise; or (d) to showcase, any product or service, intended for the growth in business of the producer or provider of such product or service, as the case may be; A plain reading of the definition, quoted above, shows that business exhibition service means a service providing an exhibition to market, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orts, railway stations, hotels etc. which would be covered under that category. The list is not exhaustive but illustrative. Nonetheless it furnishes the genre of events to which the service relates. The Circular further clarifies that while services rendered in relation to a circular, label, documents, hoardings or any other audio-visual representation falls under advertisement services , the services relating to actual exhibition or display of the product or services would fall under the category of business exhibition services . The distinction drawn between display or exhibition of an advertisement of a product or service and the actual display or exhibition of the product or service is clear. There is apparently no scope for importing into the ambit of business exhibition services the concept of 'virtual' exhibition or display or even 'virtual' goods. Having carefully considered all aspects we are of the view that business exhibition service cannot be said to apply to a person who renders service connected with display or exhibition of an advertisement or actually displays/exhibits an advertisement on an internet website. 11. Now it remains to be cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sub-section (105) of Section 65, it must be shown that : (a) commercial concern is engaged in providing a service; (b) the service is connected with (i) the making, (ii) preparation, (iii) display or exhibition of advertisement; or (c) the commercial concern is an advertising consultant. It needs no emphasis to bring home the point that making, preparation, display/exhibition are alternative and not cumulative. A commercial concern engaged in providing a service connected with any one of those functions, would be within the ambit of advertising agency. It is a common ground that the applicant would be providing : (1) service free of charge; and (2) service on payment of charges, and that it is a commercial concern. That the applicant would be providing/selling space for display or exhibition of advertisement is not the subject matter of the controversy and this is enough to satisfy the requirements of the term advertising agency . However, what is asserted by the applicant is that it will not be providing any service connected with the display or exhibition of advertisement. This has been controverted by the Commissioner in his additional comments who referred to websites : ..... X X X X Extracts X X X X X X X X Extracts X X X X
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