GST Update on whether DVDs containing case laws can be considered as "e-books"

A recent advance ruling by the Tamil Nadu AAR has determined that DVDs containing law journals, which include search software and require installation, are not considered 'e-books'. The ruling stated that because the DVD contains an executable file rather than directly readable files like .doc or .pdf, it does not qualify for the reduced GST rate of 5% applicable to e-books. The AAR classified the supply as a composite supply where the DVD, as a storage device loaded with software, is the principal supply of goods, thus not falling under the GST notification for services.

In this update we shall discuss a recent advance ruling pronounced by Tamil Nadu AAR in the case of VENBAKKAM COMMANDUR JANARDHAN, proprietor of M/s Law Weekly Journal on the issue whether the sale of DVD’s/CD’s containing the printed content in electronic form with a software to search and read in computers fall under the category of E-books so as to be eligible for the benefit of reduced GST rate of 5% in terms of serial no. 22 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 13/2018-C.T. (Rate) dated 26.07.2018. 

The applicant supplies printed law journals and DVD’s of law journals. He seeks advance ruling with respect to the following four questions.

“1. Whether the assessee/dealer which publishes law journals in print and sells the same content that is in books in an electronic form in DVD’s/CD’s with a software to search and read it in computers and hand held devices come under the category of ‘E-book’, so that it can avail the benefit of notification dated 26.07.2018 in respect of E-book?

2. Whether the liability on the sale of DVD/pen drive which contains printed version of law citations can be adjusted against the available ITC?

3. Whether the liability on sale of e-book of printed version of law citation can be adjusted against the available ITC?

4. Whether the balance of ITC after adjustment accrued on the purchase of paper and other material can be reversed while filing GSTR 9?”

The AAR has answered the first question in negative stating that the supply of DVD containing content in electronic form does not fall under the category of E-books. This is for the reason that the DVD contains an executable file (setup) which is to be installed on the hard drive of the desktop/system. It was held that such DVD is not electronic version of the print journals as If it was an electronic version of the print journals, the DVD would have machine readable files in any format such as .doc, .txt, .pdf or any other readable files and not the executable file. 

As DVD/CDs do not contain electronic versions of the journals but an executable software application and therefore do not fall under the meaning of ‘e-book’ given in the said entry. Moreover, it was concluded that this is case of composite supply wherein supply of DVD/CD/Dongal is loaded with software and license to use the software during the subscription period. Hence, DVD/CD/Dongal being ‘storage devices’ containing the software shall be considered as principal supply of goods. Consequently, the notification no. 11/2017-Central Tax (Rate) dated 28.06.2017 pertaining to services does not apply. 

Moving on further to the next three question put forward before the Authority, it was ruled that since the AAR has authority only to discuss on the earmarked issues as stated in section 97(2) of the CGST Act, 2017, it is not possible to give ruling with respect to next 3 questions as it is out of their purview.

It is to be noted that the scope of advance ruling under section 97(2) of the CGST Act, 2017 is restrictive and many decisions have been reported wherein the advance rulings on issues concerning place of supply provisions, utilization of input tax credit have been rejected merely by stating that the said issues are not withing their purview. However, the High Court has ordered against this view and held that the advance ruling can give verdict on place of supply provisions.  Therefore, government should think of increasing the ambit of advance rulings so that their very purpose of creation, being reduced litigation is achieved. Moreover, the GST law is at initial stage of implementation and interpretations may vary. As soon as the verdict of Apex Court, various High Courts and tribunals will come and law will settle down. But it will take time and till that time, consultants will have to work hard.