Google India had earlier asked for clarifications on whether providing selling space for advertisement on the Google website would be exempt from service tax or was classifiable as advertisement service, computer network service, business auxiliary service or any other taxable service.
Google had argued that it was not providing any service involving 'making and display of advertisements but was merely engaged in space-selling activity' on Google's own website and other websites (through Google Adsense) with which it had entered into a syndication agreement.
However, The Authority for Advance Ruling said that the proposed activity of Google India to sell space on its site tantamount to providing a service to advertisers and clients. Therefore Google India will have to pay service tax for selling advertisement space on its search site to Indian entities.
The Commissionerate of Service Tax, in its argument, pointed out that the definition of advertisement space was wide enough to include providing of advertisement service on the Internet by the applicant. "Even mere providing or selling of space for advertisement is itself a service connected with display or exhibition of advertisements and hence will fall within the tax net as advertisement service," the commissionerate said.
When contacted, Google executives said they were still examining the ruling and did not wish to comment on it. A ruling by the advance authority is binding on the company with immediate effect unless it decides to appeal against the verdict.