Ever since the negative list of services was ammended vide Notification No. 18/2014 & 19/2014-Service Tax dated 25th August’ 2014, with an effective date of 1st October, 2014, there has been confusion among Indian adsense publishers whether they would now have to start paying service tax to the Government.
There are several articles on the Internet with arguments for and against payment of service tax on adsense income. Unfortunately, most of these articles seem to be based on incorrect information and facts.
After spending a week reading various articles, checking out case files containing decisions of Supreme Court, High Court, CESTAT, CEGAT, AAR, Advance Ruling Authority etc and after talking to experienced Chartered Accounts specializing in Service Tax, my opinion on this issue is…
“No, we do NOT have to pay service tax on adsense earnings”
The reason is, export of services is exempt from service tax. There are certain conditions to be met for a service to qualify as export of services and as adsense publishers, in my opinion, we meet all those conditions.
Here are the conditions and a short explanation about each of them
1. the provider of service should be located in the taxable territory
This is simple. An Indian adsense publisher is located in the taxable territory (inside India, except J & k)
2. the recipient of service should be located outside India
The recipient of service is Google Inc, USA and it’s located outside India. It is important to note that the recipient is NOT Google India Pvt. Ltd. or the individual adwords advertisers. In several similar cases, courts & tribunals have repeatedly ruled that in terms of service tax law, when a service is rendered to a third party at the behest of a customer, the ‘service recipient’ would be the ‘contractual recipient’ and not the third party who is effectively consuming the service.
Refer case files
1) Paul merchants Ltd. vs CCE
2) Vodafone Essar Cellular Ltd. v. CCE
In our case, Google Inc, USA is the service recipient and the adwords advertisers who are Google’s clients are the third parties. We have no contractual agreement with these (adwords) advertisers. We don’t know who they are, what price they are paying Google and what the terms of agreement are between them and Google. In effect, we sell ad space on our websites to Google Inc, USA who in turn sell the ad space to their clients (adwords advertisers)
Here’s the relevant clause from the agreement between Indian adsense publishers and Google, that shows that Google Inc is the contractual entity for Indian adsense publishers and not Google India Pvt. Ltd.
“This agreement (“Agreement”) between You and Google Inc. (“Google”) consists of these Google AdSense Online Program (the “Program”) Standard Terms and Conditions (“Terms and Conditions”).”
I’d like to emphasize again (since this is a very important point) that adsense publishers sell space on their websites, for the purpose of advertisements, to Google and NOT to Google’s clients. Google, in effect, resells this ad-space to it’s clients (through the adwords program) and to it’s partners (third party ad networks and agencies). Hence, based on the above facts, it is clear that the ‘recipient of the service’ is Google Inc., USA.
3. the service should not be a service specified in the section 66D of the Act
Sale of space for advertisement through Internet is not a service specified in the section 66D of the Act
4. the place of provision of the service should be outside India
As per the place of provision rules “The place of provision of a service shall be the location of the recipient of service. In case the location of the service receiver is not available in the ordinary course of business, the place of provision shall be the location of the provider of service.”
There are certain exceptions specified, but in my opinion as an adsense publisher we do not fall into any of those categories. Hence, in the case of an adsense publisher, the place of provision is the location of recipient of service, which is USA (outside India)
5. the payment for such service has been received by the provider of service in convertible foreign exchange
Google pays adsense publishers through wire transfer in USD. Hence this rule is met.
6. the provider of service and recipient of service are not merely establishment of a distinct person in accordance with item (b) of Explanation 2 of clause (44) of section 65B of the Act.
This point does not apply to us.
Hence, as adsense publishers, our adsense income is treated as export of services and no service tax needs to be collected/paid.
Disclaimer: I’m NOT a Chartered Accountant and I do not offer legal advice. Information contained within this website, is not, nor intended to be, legal advice. I makes no representations, warranties, or assurances as to the accuracy or completeness of the content contained on this website or any sites linked to this site.