Taxability of Digital Signatures and Certificates

Indian Information Technology Act 2000 came in to force about 5 years back. Among many things - it laid legal framework for making digital signatures on par with the physical signature of a person. Also it laid legal framework for issuance of digital certificates to certify/identify owner of a website as a particular person or an organization; and also to facilitate secure communication between the end user and the owner of the website over internet.

Currently there are number of organizations who are permitted to issue such digital certificates. For example, Safescrypt Ltd, Tata Consultancy Services, MTNL and few more. Person or Organizations desirous of getting such digital signature/certificate have to pay a certain fee or price for the same. These digital signatures/certificates are valid for a period of 1 or 2 years from the date of issuance. After the expiry - digital signature/certificate is re-issued after due verification and payment of renewal fee or price.

The issuance of digital signature/certificate has two deliverables. First one is related to checking and certifying existence of a person or an organization. The process involves submission of documents like Signature verification from bank, proof of doing business e.g., Certificate of Incorporation issued by Registrar of firms etc., Copy of Voter's identity Card etc. Second part is issuance of digital certificate by the supplier. Digital Signature/Certificate is used by the user (person) or organization to sign documents, establish website's identity on the internet, encrypt files/documents, securely communicate with internet users etc.

Surely, it's a welcome step towards embracing digital age of Internet and Information Technology by laying down legal framework. But any enacted legislation becomes effective only when entire eco system is geared up for its existence. Firstly act should be backed by making suitable amendment to the related acts e.g., what will be tax implication of digital signature/certificate issuance, in case of any legal problem how will audit trail of entire process will be kept and accepted as evidence in court of law etc.

It is quite sad to note that hardly any state governments have modified/added or clarified applicability of Sales tax or VAT on sale of such digital signatures/certificates. Although sale of these digital signatures/certificates have been going for almost 5 years - there is no clarity on such vital issue. Also, Central Government is silent about applicability of service tax on issuance of digital signatures/certificates. This problem get compounded in certain states where entry tax or octroi is charged on entry of goods/services.

It is high time that state and central government understands this trade issue and makes suitable amendments by correctly classifying digital signature/certificate under existing or new category and giving clear direction on taxability.

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