Custom, Excise & Service Tax Tribunal
Shri J.C.Patel And Shri M.H.Patil, ... vs Shri D. Nagvenkar, Addl. Commissioner ... on 26 July, 2016
ORDER ON DIFFERENCE OF OPINION Appearance: Shri J.C.Patel and Shri M.H.Patil, Advocates for the appellants Shri D. Nagvenkar, Addl. Commissioner (AR) for the respondent
CORAM:
Honble Shri C J Mathew, Member (Technical) Date of hearing: 26/07/2016 Date of decision: 24/11/2016 ORDER NO: ____________________________
22. This matter is placed before me for resolution of difference arising from the separate order authored by Honble Member (T) disagreeing with the findings of the Honble Member (J) in appeals filed by M/s Datamini Technologies (India) Ltd and M/s Zenith Computers Ltd against order-in-original no. 32/BR-28/ST/Th-1/2009 dated 5th October 2009 of Commissioner of Central Excise, Thane-I and order-in-original no. 33/BR-29/ST/Th-1/2009 dated 7th October 2009 of Commissioner of Central Excise, Thane-I. The specifics of the difference on which I am required to render my decision has been framed by the regular Bench thus:
Whether the Member (Judicial) is correct in holding that the appellants are engaged in the activity of promoting the brand of Intel/Microsoft consequently, the activity of promotion or marketing of logo or brand does not cover under the category of Business Auxiliary Service by relying on the judgment of Jetlite (India) Ltd. (supra) Or Whether the Member (Technical) is correct in holding that the appellants are engaged in the activity of promoting the branded goods of Intel/Microsoft, therefore, the judgment of Jetlite (India) Ltd., (supra) is not applicable to the facts of this case and the demands are rightly confirmed under the category of Business Auxiliary Service and the extended period of limitation has rightly been invoked.
23. I do not propose to narrate the facts leading to the appeal as these have been adequately covered by Honble Member (J) and, to the extent felt necessary in recording distinguishment, by Honble Member (T). Briefly, the appellants are manufacturers of personal computers and use the products of M/s Intel Corporation and M/s Microsoft Corporation for such manufacture. A specified percentage of the net monthly off-take from these two suppliers are accrued in a separate fund from which appellants are entitled to some reimbursement of costs of publicity and advertisement subject to inclusion of pre-approved logos of both M/s Intel Corporation and M/s Microsoft Corporation in the publicity copy or material. The case of Revenue is that these displays are for a consideration and the said consideration is taxable under section 65(105)(zzb) of Finance Act, 1994 for having rendered business auxiliary service within the meaning of section 65(19)(i) of Finance Act, 1994. M/s Datamini Technologies (India) Ltd and M/s Zenith Computers Ltd were determined as being liable to tax of `1,81,84,526/- and `67,80,664/- respectively for the period from 1st July 2003 to 31st August 2006 and from 11th July 2003 to 28th February 2007.
24. I must confess to being confronted with a predicament in resolving this difference of opinion as the order of Honble Member (J) concludes with his finding that the said contributions of M/s Intel Corporation and M/s Microsoft Corporation are not liable to tax under section 65(105) (zzb) of Finance Act, 1994 but Honble Member (T) has, besides confirming liability to tax under this head, gone on to render findings against appellants on the claim that the said consideration is exempted from tax being an export and on the claim that the demands are barred by limitation prescribed in section 73(1) of Finance Act, 1994. As Honble Member (J) did not find it necessary to consider these aspects, it is moot whether there is a difference of opinion on these aspects of the order of Honble Member (T) and whether the scope of the reference placed before me permits record a finding thereon.
25. However, I notice that the difference of opinion concurred with by both Honble Members does include the issue of limitation as decided upon by Honble Member (T) and must, therefore, be addressed by me in the event that the primary issue is against appellants with the potential of the legality of that determination being questioned. I also notice that M/s Datamini Technologies (India) Ltd is a unit issued with Letter of Approval under the Special Economic Zones Act, 2005. The applicability of Export of Service Rules, 2005 to that appellant is, therefore, questionable. Service as defined in the said Act and Special Economic Zones Rules, 2006 is not in congruence with the descriptive entries relating to taxable services in section 65 of Finance Act, 1994. Special Economic Zones Act, 2005 is a self-contained, comprehensive statute with provisions for exemption and taxation that do not need to resort to any other taxing statute except where limited and specific references are found in provisions of the Special Economic Zones Act, 2005 itself. While section 30 of Special Economic Zones Act, 2005 is the charging provision for goods removed from special economic zones (SEZ) to the domestic tariff area (DTA), there is no corresponding provision for charging tax on services. It would appear that provision of taxable services to the domestic tariff area (DTA) is not envisaged under Special Economic Zones Act, 2005 which is not surprising considering that the there is no congruity of definition of services in the two laws. Export of service, if any, rendered by a unit in a special economic zone has, necessarily, to be ascertained within the scope and meaning of services in the Special Economic Zones Act, 2005. I do not dilate further on this claim of the appellant that has been disposed off against them because such a determination does not lie within the scope of the reference.
26. On the issue of limitation, Learned Counsel for appellants have drawn my attention to the finding in the order of Honble Member (T) that the circumstances do not warrant imposition of penalty under section 78 of Finance Act, 1994. However, Member (T) while setting aside the penalty imposed under section 78 of the impugned order which has in:
04.19 Now I deal with the issue of limitation. The Noticees have contended that extended period for issue of the SCN could not have been invoked against them as they had acted in a bona fide manner and no evidence has been presented in the SCN that the omission to pay service tax was intentional in nature. It is observed that Noticees are managed by professionally qualified persons. They are well aware of the laws for the time being in force and they have to comply with such laws. They have neither informed the Department of the chargeability nor have they obtained any clarification about the taxability of the revenue forming pat of their main income. There is no evidence of any correspondence with the jurisdictional Central Excise officers on this issue or with any Departmental Officers. It was only when the Revenue authorities came to know that they were rendering taxable services against receipt of monetary considerations that the investigations were initiated against them.
04.20. Their argument that they were under a genuine belief that it was not rendering any promotional activities with respect to brand of Microsoft or Intel and consequently not required to pay Service Tax on these activities is not acceptable. The proviso to Section 73(1) of the Act is rightly invoked in this case as the Noticees failed to declare the value of taxable service for charging service tax under section 67 of Chapter V of the Finance Act 1994, in the ST-3 returns. The Noticees failed to adduce any documentary evidence to the effect that the issue of receipt of commercial consideration was earlier brought to the notice of the Department. Therefore, it cannot be said that they acted under a bonafide belief. In the case of M/s Interscape as reported in 2006 (198) ELT 275, it has been held that a bonafide belief is not a blind belief and a belief can be said to be bonafide only when it is formed after all the reasonable considerations are taken into account. Therefore, the Noticees can not contend at this stage that they had not suppressed any information from the department and had acted in a bonafide manner. rendered a finding on the ingredients applicable to penalty under section 78 of Finance Act, 1994 and proviso to section 73(1) of Finance Act, 1994, approved the finding on the latter.
27. Proviso to section 73(1) of Finance Act, 1994 and section 78 are predicated on the same ingredients and recourse to the proviso, while acknowledging that circumstances do not justify penalty under section 78, does not appear to bear the hallmark of consistency. I am, therefore, unable to concur with the finding of Honble Member (T) that the extended period has been correctly invoked.
28. Learned Counsel for appellants reiterate the submissions made before the regular Bench, viz., that that the impugned order had travelled beyond the notice in rendering a finding that the appellants were promoting the sale of goods of client, that appellants are in the business of manufacture using inputs obtained from M/s Intel Corporation and M/s Microsoft Corporation which, as per the decision of the Tribunal in Charanjit Singh Khanuja v. Commissioner of Service Tax Indore & others [2016 (41) STR 213 (Tri-Del)], is beyond the ambit of business auxiliary service, that the services, if any, are rendered to overseas entities and hence not taxable and that a difference of opinion is a clear indication that appellants also entertained bona fide belief that the transaction were not liable to tax. Learned Authorized Representative reiterated the contents of impugned order and urged concurrence with findings of Honble Member (T). Referring to paragraph 4.1 and 4.2 of circular no. 334/1/2010-TRU dated 26th February 2010, Learned Authorized Representative also submitted that the legislative intent to subject promotion of specific product as business auxiliary service to tax is evident.
29. Both the Honble Members have cited elaborately from the show cause notice to support their respective findings; Honble Member (T) has come to the conclusion that the authority issuing the notice , the appellants and the adjudicating authority had all addressed the issue of the use of the logo of M/s Intel Corporation and M/s Microsoft Corporation in publicity advertisement materials of the appellants as promotion of the products of the latter and, therefore, Tribunal was not required to assume any other interpretation. I do not propose to delve further into this aspect as, in my opinion, the impugned order, the activity under scrutiny and the definition of business auxiliary service should suffice for determination of taxability and applicability of the decision of the Tribunal in Jetlite (India) Ltd v. Commissioner of Central Excise, New Delhi [2011 (21) STR 119 (Tri-Del)] that has been relied upon by both sides in their submissions. Learned Authorized Representative contended that the two entries viz., brand promotion and business auxiliary service are entirely different activities and incorporation of the former in section 65(105) does not cast out the tax burden that did always subsist as articulated below 96.?Evidently the new entry deals with a specific subject which relates to promotion of a brand even though the same may not directly have any link to the promotion of the service itself. Evidently, therefore, the original entry Business Auxiliary Service did not include the activity in the form of promotion of brand unconnected with the promotion of particular service as part of the activity under the said category. The letter therefore rather then lending any support to the defence by the department, it conveys the meaning of the existing entry to be contrary to the arguments advanced on behalf of the department.
97.?In Board of Control for Cricket Control in India, the Tribunal while dealing with the entry sale of space or time for advertisement and sponsorship services which was introduced in the said Act w.e.f. 1-5-2005 had observed that we find that a subsequent entry having been enacted covering the activity without any change of the existing entry, has to be interpreted as if the earlier existing entry did not cover the subsequently created entry. If the subsequent entry was covered by the earlier entry, there is no reason or scope to create the present entry specially when the rate of tax in respect of both the entries remains unchanged. Certainly, creation of new entries was not by way of bifurcation of earlier entry inasmuch as the earlier entry relating to advertisement remains unchanged without any change in the tax rate. As such, the introduction of new tariff entry would imply that the coverage in the new tariff for the purposes of tax was out of the scope of the earlier entry. It was so held in the case of Glaxo-smithkline Pharmaceuticals Limited v. CCE, Mumbai-IV reported in 2006 (3) S.T.R. 711 (Tri.) = 2005 (188) E.L.T. 171 (Tri.-Mum.) as also in the case of M/s. Zee Telefilm and M/s. Star India Private Limited v. CCE, Mumbai reported in 2006 (4) S.T.R. 349 (T) = 2006-TIOL-945 CESTAT (Mum.). If it is held that the activities of sponsorship and sale of space were covered under the earlier heading of advertising agency, the same would lead to redundancy of new legislation and would defeat legislative intent.
30. Learned Counsel for appellants, on the other hand, relies upon 103.?There can hardly be any quarrel about the proposition that introduction of specific entry does not mean that the subject covered by the specific entry was not covered by general entry prior to the introduction of specific entry. But that is not the case in the matter in hand. In our case, the earlier entry speaks of Business Auxiliary Services of the client, whereas the subsequent entry speaks of display of logo per se to be amounting to promotion and advertisement of the business activity of the client. In relation to the earlier entry, the activity conducted by the service provider should disclose promotion and marketing of the service rendered by the service recipient to the others and there must be tangible evidence to establish the same. In case of subsequent entry mere fact of display of logo of the service recipient would lead to presumption about promotion and advertisement of the business of the client. Such a presumption is not available in case of earlier entry.
104.?Perhaps, the contention that the appellants were required to prove that the display of logo was not helpful to promote real estate business when the source of information was given to the passengers for promoting and marketing the project of Sahara Corporation would have some relevancy if the period involved was subsequent to the new entry regarding brand promotion, but certainly irrelevant for the relevant period as for the said period, taking into consideration the nature of the entry, it was for the department to establish the positive effects of display of logo and it was not for the assessee to prove the negative. The burden to establish the charge was squarely upon the department which it failed to discharge.
31. Tax under section 65 (105) (zzb) of Finance Act, 1994 is liable upon rendering of service provided or to be provided to a client by any person in relation to business auxiliary service and section 65 (19) of Finance Act, 1994 defines the activity thus Business Auxiliary Service means any service in relation to, -
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii) promotion or marketing of service provided by the client; or xxxxx
(vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), . From the above, it is clear that the recipient of any of the specified activities has to be a client for the tax to crystallize. In relation to the publicity material carrying the logo of M/s Microsoft Corporation, Honble Member (T) has come to the conclusion that the activity may fall either under the head of service or goods without altering taxability for rendering business auxiliary service. With the decision of the Honble Supreme Court in Tata Consultancy Services v. State of Andhra Pradesh [2004 (178) ELT 22 (SC)], products of M/s Microsoft Corporation are also goods and hence the relevant activity does not have to be related to service. We need not concern ourselves with all the specific activities enumerated in section 65(19) and may restrict ourselves to that of promotion or marketing or sale of goods produced or provided by or belonging to the client.
32. A key element in the definition of business auxiliary service are the goods in relation to which service is rendered. The goods are to be produced or provided by or belonging to the client. There is no dispute that the goods supplied by M/s Intel Corporation and M/s Microsoft Corporation are bought by appellants thus ruling out an allegation that service is rendered by appellants in relation to these goods. Neither do the facts hold that goods are provided by M/s Intel Corporation or M/s Microsoft Corporation to the appellant for rendering of services.
33. Appellants use the products of M/s Intel Corporation and M/s Microsoft Corporation not to sell them as such but to manufacture personal computer; the portion of the definition supra relating to sale of goods referred to in section 65(19)(i) will not, therefore, apply to the present dispute. Marketing has many connotations ranging from the most common one, of a foray for purchases, to the professional one, of describing an organized discipline in management of commercial organizations. In the context of its employment in the definition supra, it would appear that legislative intent tends towards the latter. Marketing professionals consider the four Ps to be at the very foundation of their vocation, viz., price, product, promotion, and place. Unless all the four facets are mixed in the formulation of strategy, the expression marketing may not be an appropriate usage and will not apply to the activity undertaken by the appellants.
34. The proceedings culminating in the impugned orders would, consequently appear to rest on the allegation that appellants are paid consideration for promotion of goods produced by M/s Intel Corporation and M/s Microsoft Corporation. Promotion is one of the four Ps in the marketing mix which as a strategy, necessarily relates to product. Though there is extensive reference in the records of proceedings to the respective brands that are showcased in the advertisement and publicity material of the appellants, it is the products that, if at all, may be alleged to be the object of such promotion. Promotion of brand as a taxable service was, as yet, an unheard of activity in the realm of taxable services and rigorous delineation of brand and product is received wisdom which certainly could not have weighed with the authority issuing the notice or the adjudicating authority.
35. Appellants are manufacturers of branded products and, by no stretch of imagination, can it be inferred that, in the process of promoting their own products, the components in the personal computers were also marketed for a consideration paid by M/s Intel Corporation and M/s Microsoft Corporation. Obviously, the allegation of having promoted the products of these two entities can only be with reference to future releases from the two entities. The terms of the agreements have been adverted in sufficient detail by Honble Member (J) and does not bear repetition. Suffice it to say that appellants are reimbursed some portion of the cost of advertising and publicity conducted upon inclusion of the logos of the two entities in the advertising and publicity material of the appellants. The reimbursements are drawn from a fund created out of a contribution of the two entities that is directly linked to purchases effected in the past by appellant. There is no connect between the source of contribution for the publicity campaign and the outcome of the publicity campaign.
36. A question that arises is whether the two supplies benefit in any manner from the inclusion of their logos in the advertisement and publicity material deployed by the appellants. In scale and reputation, appellants are incomparable with the two global giants. It is difficult to conceive that the products of these two entities will find additional acceptability in the market owing to the inclusion of their respective logos. The products themselves are amenable to utilization only by computer manufacturers and the publicity, if any, among the potential customers of the two appellants is unlikely to derive any economic benefits to the supplier.
37. On the contrary, the products of the appellant are likely to find greater acceptance among potential customers owing to the acknowledged incorporation of the products of M/s Intel Corporation and M/s Microsoft Corporation in the computers manufactured by the appellants. Such a reversal of roles would alter the relationship in a manner that was not contemplated in the show cause notice. That the reimbursements are circumscribed by funds added in proportion to the procurements effected by the appellants from the two suppliers and not from enhanced sales attributed to the alleged promotion of product would reinforce the conclusion that the objective of the schemes is not the enhancement of the customer-base of M/s Intel Corporation and M/s Microsoft Corporation and, thus, not in consonance with the definition of taxable activity in section 65(19)(i) of Finance Act, 1994.
38. At best, it may be surmised that the scheme incentivizes the appellants to procure more products from the two suppliers and to enhance the sales of the computers manufactured by the two appellants. Such a benefit to the appellants would not qualify as promotion of product of client. Indeed, the impugned order should have ascertained the existence of a client-provider relationship between the appellants and the two suppliers along the nature of the fiscal flow accruing to the appellants as a prelude to determining the taxability. Owing to this lack in the impugned order and in view of the above, I find myself unable to concur with Honble Member (T) that the activity of the appellants is promotion of the branded goods of M/s Intel Computers and M/s Microsoft Computers taxable as business auxiliary service. I, therefore, concur with Honble Member (J) to find in favour of the appellants.
39. Registry is directed to place matter before the regular bench.
(Pronounced in Court on 24/11/2016) (C J Mathew) Member (Technical) */as 16 97