Custom, Excise & Service Tax Tribunal
M/S. Microsoft Corporation (I) (P) Ltd vs C.S.T. New Delhi on 23 September, 2014
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
WEST BLOCK NO.II, R.K. PURAM, NEW DELHI-110066.
BENCH-DB
Service Tax Appeal No.ST/866/2008
[Arising out of Order in Appeal No.77/VKG/CST/2008 dated 23rd September, 2008 passed by the Commissioner of Service Tax, New Delhi]
Service Tax Appeal No.ST/828/2010
[Arising out of Order in Appeal No.10/JM/2010 dated 9th March, 2010 passed by the Commissioner (Adjudication), Service Tax, New Delhi]
Date of Hearing :19.05.2011
Date of Pronouncement: ________
M/s. Microsoft Corporation (I) (P) Ltd. Appellant
Vs.
C.S.T. New Delhi. Respondent
Present for the Appellant: Shri N. Venkatraman Sr.Advocate
Shri Muttu Venkatraman,
Shri Shafiq, Advocates,
Shri Gajendra Maheshwari, Advocate
Shri Nikhil Suri, Consultant.
Present for the Respondent:Shri Somesh Arora Advocate &
Shri B.K. Singh, Jt. CDR
Coram: Honble Mr.D.N.Panda, Judicial Member
Honble MR. Mathew John, Technical Member
FINAL ORDER NO. 53737, DATED: 23.09.2014
Per: D.N. Panda
ST/866/2008
1.1 Being aggrieved by the order of adjudication dated 23/09/2008, the appellant came in Appeal to Tribunal raising the principal grievance that the service provided by the Appellant in terms of Agreement dated 01.07.2005 to the foreign principal is not Business Auxiliary Service and not taxable u/s 65(105) (zzb) read with section 65 (19) of Finance Act, 1994 (hereinafter referred to as the Act) since such services were exported under the provisions of Export of Service Rules 2005 and immune from service tax. Further grievance was that the activity of repair and maintenance of software was not taxable prior to 07.10.2005. So also the Adjudication was time barred and the Appellant was entitled to Cum-tax benefit and Cenvat Credit. It was also agitated that the appellant was not liable to penalty. With all these grievances prayer of the Appellant was to set aside the order of adjudication while Revenue opposes the same.
ALLEGATIONS MADE IN
SHOW CAUSE NOTICE (SCN)
2.1 Show Cause Notice (SCN) dated 24.04.2008 was issued to the appellant covering the period 09.07.2004 to 06.10.2005 making various allegations resulting in contravention of provisions of section 67 and section 69(1) read with section 68 and section 73 of the Act made by the appellant. It was alleged that there was failure of the appellant to seek registration as well as gross value of taxable service provided were incorrectly stated and the appellant failed to deposit service tax into the Government account as required by section 66 of the said Act. It was further alleged that there was failure to remit the service tax leviable within the stipulated time of the service rendered as required by section 68 of the Act read with rule 6 of the Service Tax Rules 1994 and service tax at applicable rates as stipulated under provisions of the aforesaid Act remained unpaid. It was further alleged that there was failure to pay the cess as was leviable under respective law and the appellant had deliberately suppressed material facts from the Department to intentionally evade payment of service tax and has intentionally and willfully suppressed the facts of receiving value of taxable service rendered and did not pay service tax and also did not file the required return under law.
2.2 The SCN further pointed out that the appellants claim of export of service was baseless and without sanction of law when the Market Development Agreement dated 01.07.2005 entered into by the subsidiary appellant with the Microsoft Operations Pvt. Ltd. of Singapore required the appellant to identify the consumers in Indian Territory to provide marketing and technical support services on behalf of the foreign principal while making sale of Microsoft Products in India and maintaining the same.
MARKET PROMOTION IN INDIA
WAS ESSENCE OF THE CONTRACT
3.1 In terms of a?market Development Agreement dated 01/07/2005 (Ref: pages 41-46 of the Appeal folder), Microsoft Operation Pvt. Ltd. of Singapore (hereinafter referred to as MO) appointed the appellant to provide various technical support services including marketing of Microsoft products in the territory defined by the agreement and to identify the services to be provided by the Appellant in that territory. In the said agreement, the Appellant was referred to as the subsidiary and the term territory was defined to include India. Both MO i.e. Singapore concern and the subsidiary i.e. appellant were wholly owned subsidiaries of the holding company M/s. Microsoft Corporation of Washington (hereinafter referred to as MSFT). Services intended to be provided in terms of the above Agreement were principally as follows :
2. PRODUCT SUPPORT SERVICES & CONSULTING SERVICES
2.1 Product Support Services and Consulting Services. Subsidiary shall have a non-exclusive right to provide product support services and consulting services for Microsoft Products in the Territory.
2.2 Subsidiarys Duties
2.2.1 Subsidiary will use its best efforts to further the interests of M.O. and to maximize the markets for product support services and consulting services in the Territory.
2.2.2 Subsidiary shall not solicit orders of agreements from outside the Territory.
2.2.3 Subsidiary may provide product support services, which may include standard Microsoft product support services for products which are generally made available to end-users and may include requests for support originating from the Territory.
2.3 MOs Duties. MO will use its best efforts to assist Subsidiary with technical matters in connection with the marketing of Microsoft Products and Services.
3. MARKETING OF MICROSOFT PRODUCTS
3.1 Marketing. Subsidiary shall have a non-exclusive right to market Microsoft Products in the Territory.
3.2 Subsidiarys Duties. Subsidiary will use its best efforts to further the interests of MO and to maximize the markets for Microsoft Products in the Territory.
3.2.1 Subsidiary shall not solicit orders or agreements from outside the Territory. In soliciting orders, Subsidiary shall only be authorized to inform customers of price, payment, delivery and other terms offered by MO in accordance with information received from MO or its affiliates, as appropriate. Unless otherwise authorized herein or otherwise agreed by the parties, Subsidiary shall not enter into any agreements with customers regarding Microsoft Products, but shall instead promptly submit written customer orders to MO or its affiliates, as appropriate, for its acceptance or rejection.
3.2.2 Subsidiary shall assist MO as requested in collection past due accounts and performing other activities reasonably related to MOs business.
3.3 MOs Duties.
3.3.1 MO will use its best efforts to fill, or procure the fulfilment of, orders as scheduled and assist Subsidiary with technical matters in connection with the marketing of Microsoft Products and Services.
3.3.2 MO shall permit Subsidiary to operate a service on MOs or its affiliates web sides for the support of MOs or its affiliates customers in the Territory, without charge by MO.
4. RGE SERVICES
MO shall reimburse Subsidiary for expenses arising from Resident Guest Employee Services (RGE Services). RGE Services include but are not limited to human resource expenses, legal expenses and internal information technology expenses.
5. OTHER INTERCOMPANY SERVICES
5.1 Services between MO and MSFT and Affiliates. Subsidiary acknowledges that MO provides services to MSFT and its other affiliates from time to time. Subsidiary acknowledges that MO may from time to time provide as a service the physical payment to Subsidiary of amounts owed by MSFT or its other affiliates to Subsidiary. MO shall clearly identify for Subsidiary which portion of funds are paid on its own behalf and which are paid on behalf of MSFT. Subsidiary shall not hold MO liable for any disputed amounts owed by MSFT to Subsidiary that are not provided by MSFT to MO for payment to Subsidiary.
5.2 Services between MO and Subsidiary. MO and Subsidiary acknowledge that MO and/or its affiliates may from time to time provide services to Subsidiary and Subsidiary may from time to time provide services to MO and/or its affiliates.
3.2 Consideration payable to appellant for providing aforesaid services was prescribed by clauses 6.1, 6.2, 6.3 and 6.4 of the agreement which reads as under:
6.1?Product Support Services and Consulting Services. For product support services and consulting services rendered pursuant to Article 2, MO shall pay Subsidiary an amount equal to one hundred and ten percent (110%) of Subsidiarys actual expenses, less revenues, incurred in connection with its duties, provided such expenses comply with Subsidiarys budget, as adjusted from time to time, and provided, further, such expenses are not already covered by another section of this Agreement or covered in another agreement between Subsidiary and MO or any MO affiliate. The reimbursement and additional compensation shall be exclusive of any applicable consumption tax such as a Value Added Tax or a Goods and Services Tax, which consumption tax shall be the responsibility of MO.
6.2?Marketing of Microsoft Products. For assistance in the marketing of Microsoft Products under Article 3, MO shall pay Subsidiary one hundred and fifteen percent (115%) of Subsidiarys actual expenses, less revenues, incurred in connection with its duties as defined in Article 3, provided such expenses comply with Subsidiarys budget, as adjusted from time to time, and provided, further, such expenses are not already covered by another section of this Agreement or covered in another agreement between Subsidiary and MSFT or any MSFT affiliate. Taxes, insurance, duties, freight and other charges not attributable to the Microsoft Product itself paid by the customer shall not be considered in calculating the amount of commission. The commission payments shall be exclusive of any applicable consumption tax such as a Goods and Services Tax or a Value Added Tax which consumption tax shall be the responsibility of MO.
6.3?RGE Services. For RGE Services rendered pursuant to Article 4, MO shall pay subsidiary an amount equal to one hundred and ten percent (110%) of Subsidiarys actual expenses, less revenues, incurred in connection with its duties, provided such expenses comply with Subsidiarys budget, as adjusted from time to time, and provided, further, such expenses are not already covered by another section of this Agreement or covered in another agreement between Subsidiary and MO or any other MSFT affiliate. The reimbursement and additional compensation shall be exclusive of any applicable consumption tax such as a Value Added Tax or a Goods and Services Tax, which consumption tax shall be the responsibility of MO.
6.4?Other Inter-company Services. For other services and/or sales provided pursuant to Article 5, MO or Subsidiary shall invoice the recipient of the sales and/or services for such sales and/or services at a price as may be agreed between the parties from time to time, provided, however, that any amount so invoiced shall be consistent with the arms length standard (as defined in the OECD transfer pricing guidelines and relevant national legislation). The invoice shall contain a general description of the sales or services and the cost of the sales and/or services to be paid.
3.3 It may be appreciated that in terms of the agreements, the Appellant promoted market in the Territory of India for providing MICROSOFT Products and technical support service by the foreign principal in India.
ADJUDICATION OBSERVATIONS
AND CONCLUSION
4.1 On the basis of materials on record, evidence led and pleadings made by the appellant, learned Adjudicating Authority found that as per agreement dated 1-7-2005 business support was provided by the appellant to the foreign principal situated in Singapore for marketing MICROSOFT products available in India and also to provide technical support to maintain the same. Such services were provided by the Appellant in India and were not provided elsewhere for which there was no export of services made within the meaning of Rule 3(1) (iii) of Export of Services Rule 2005 for the period 19-4-2006 to 31-5-2007. Further, for the period 1-6-2007 onwards the criterion of providing of service outside India being omitted from the law, the condition of service provided from India and used outside India still remained in force and the Appellant had not made any export of service. Such finding brought the appellant to the ambit of tax as Business Auxiliary service provider.
4.2 The plea of export of service was discarded in adjudication elaborately discussing the same in Para 224 to 226 of the order which reads as under:
224.?The notice has tried to make out a case that under the Market Development Agreement with M/s. M.O. Singapore they were providing Marketing support services. Even though with regard to Marketing Support Services, MCIPL creates services awareness of Microsoft products in India, they were delivered and used abroad in as much as in respect of these services with regard to the condition of services delivered outside India and used outside India, they submitted that the service recipient i.e. Microsoft Singapore did not have any office in India, the provision of marketing support services by MCIPL increased the sales turnover of Microsoft Singapore and impacted the following aspects of business operations of Microsoft Singapore in Singapore, i.e. Production operations, Sales operations, Finance operations, Recruitment plans etc. Therefore, the services were deemed to be delivered and used outside India. In other words, Noticee feels that the place of use of service will also be the place where the intended beneficiary is located. I am afraid to say that if this interpretation were to be accepted it would load to the redundancy of the legal provisions. The Rules clearly specify two separate set of conditions i.e. the user should be located outside India and the use should also be outside India. These conditions have to be satisfied independently of each other. If the Noticees explanation were to be accepted, a mere change in location of the recipient will also lead to change in the place of use of service. For example, if in the case the recipient were to be relocated from Singapore to say Japan, in terms of the Noticees logic, the place of use of service will stand automatically shifted from Singapore to Japan. There is no effort made in the submissions to draw the distinction and establish independently where the services are being provided and/or used. If the mere location of the recipient was to determine the place of use, it will open innumerable loopholes of misuse whereby services meant to be used in India would be merely routed through a foreign recipient.
225.?I, therefore, proceed to examine the case on pure merits as to whether the services rendered in this case have actually been used in India. The services involved in this case are Marketing Support Services for the marketing of Microsoft products in India. This comprises a host of services viz. maximising the markets for Microsoft products including all local advertising, and performing other activities including dissemination of information to potential customers, commenting on any developments in the territory affecting the software industry, investigating feasibility of new markets for Microsoft retail products and providing other services of marketing nature etc. Much of this is accomplished by way of identifying the customers regarding marketing of Microsoft products, local advertising, performing other activities including dissemination of information to potential customers, commenting on any developments in the territory affecting the software industry. These services once provided, are not capable of being used in a territory other than where they have been provided. In fact most of the time provision, delivery and use is happening simultaneously. It will be naive to even conceive that the above said services provided in India can even be delivered or used in a territory other than where these have been provided.
226.?It has been stated in a number of circulars issued by the Board that Service Tax levy is a destination- based tax. This understanding follows similar understanding in some parts of the world. Particularly Europe, where the tax is levied at the place where the services are finally destined or used. The Indian Law, however, has clearly laid down that both the test of customers location and use should be satisfied. This will be clear from the following diagram :
USER
In India
Outside India
USE
In India
1 (Taxable)
2 (Taxable)
Outside India
3 (Taxable)
4 (Export)
It is only in situation 4 (subject to meeting other conditions) that the conditions of export are satisfied. It is inconceivable to imagine how maximizing the markets for Microsoft products including all local advertising, performing other activities including dissemination of information to potential customers, commenting on any developments in the Indian territory affecting the software industry, investigating feasibility of new markets for Microsoft retail products and providing other services of marketing nature rendered in India, can be used elsewhere. Each of these services involves considerable physical execution that can not be provided outside India or used outside. These are not mere advisory services, whereby an opinion or a report is sent abroad MCIPL is in the business of sourcing clients from India for Microsoft products. It is an important pre-requisite for the business to source information that meets comprehensive marketing campaign/strategies to promote and market their products and to achieve the results as targeted by the company. The services are required to be provided continuously in order to keep pace with the changing technological advancements and to meet local the requirements of the customers. Merely, because the payments are being received from overseas does not mean that the services have been used in a place outside India. If MCIPL were to even try using these services for a customer located in a place other than India, it will not yield the desired results.
4.3 Ld. Adjudicating Authority attributed reasons for his decision to deny plea of export of service in Para 227, 228, 229 and 230 which read as under:
227.?The services in this case were to be of no use if they were not put to use in the place where they originated. The word use in its widest connotations also means non-use. The use of a service does not mean that the service provided must be liked or appreciated or acted upon. There can be a variety of reasons that may compel the beneficiary not to act upon the service received exactly in the manner service provided proposes to. But non-action or taking an action other than what naturally seems to flow from the service provided does not take away the fact that service has been used. I consider relevant to mention that a distinction must be drawn amongst the words user, beneficiary and buyer of a service. While many a times they are same, they may not be so in all the cases. The benefits in this case would definitely flow to Microsoft Singapore but that does not mean that services have been used outside India.
228.?The Noticee has also given example of Call Centres/B.P.Os. where, according to the Noticee, the services are being considered as export on the ground that these are being provided to the recipients located abroad. The Noticee has, however, failed to cite any decided case law or adduce any other evidence, which could form the basis of coming to the conclusion that either the services of Call Centres/B.P.O.s are comparable to the services rendered by them or whether, if such a practice at all exists at some level, it has attained legal finality or precedential value for the determination of this case. Likewise, comparison made under Foreign Trade Development & Regulation Act, 1992 in respect of export of goods are of no avail as the export of goods is an entirely different matter governed by the lay specified elsewhere.
229.?Moreover, during the period from 19-4-2006 to 28-2-2007, there was an added requirement that the service should have been delivered outside India and during the period of SCN from 19-4-06 to 31-5-07 there was one more requirement that service should have been provided outside India. The Noticee while interpreting the criterion for any service to qualify as exports has during the periods i.e. 19-4-06 to 28-2-07 and 1-3-07 to 31-6-07 represented that for any service to qualify as export in terms of Export of Service Rules, 2005, as amended, only the condition of delivery and use outside India is required to be fulfilled. They have completely ignored the condition which states that payment for such service provided outside India is to be received by the service provider in convertible foreign exchange and the fact that all these conditions are required to be satisfied together for Business Auxiliary Services to qualify as export of service.
230.?The word and as conjunction had been inserted at the end of condition (a) clearly mandates that both the conditions have to be satisfied together. The moment both the conditions are read together the confusion regarding delivery and use disappears, as the words provided outside India clearly do not lend themselves to any confusion in as much as the intention of the law makers becomes immediately clear that the services to qualify as exports have necessarily to be provided outside India and not provided in India. The word provided is the equivalent of the word manufacture in the case of goods. It means creation or origin. Undoubtedly, the service has been provided in India. Thus the service was never provided outside India. For this additional reason also I feel that the services in this case do not constitute export within the meaning of Rule 3(i) (iii) of the Export of Service Rules 2005 for the period from 19-4-06 to 31-5-07. Further for the period 1-6-2007 onwards the criterion provided outside India was omitted but the condition of services provided from India and used outside India still remained in force.
4.4 On the? aforesaid background, Ld. Adjudicating authority discarded plea of export of services made by the appellant and held that Business Auxiliary service was provided by it for which it was to be liable to pay service tax under Finance Act, 1994for the impugned period. Also the plea relating to repair and maintenance of software not liable to service tax for the period 9-7-04 to 6-10-05 was decided by the Adjudicating Authority against the appellant with the reason of his decision appearing in Para 237 of the impugned order. Point of limitation raised by the appellant was negatived by the learned adjudicating authority holding that the proceeding was not time barred for the reasons stated in Para 254 and 255 of the impugned order. Service tax liability was thereby determined by the ld. Commissioner with consequences of law to follow.
SUBMISSIONS ON
BEHALF OF APPELLANT
5.1 Ld. Sr. Counsel? appearing for the appellant submitted that services provided by the Appellant in terms of agreement dated 1-7-2005 were export services. Board Circular issued on 24-2-2009 vide No. 111/05/2009-ST in terms of Para 1 (iii) of stated that Indian agents who undertake marketing in India of goods of a foreign seller, the agent undertakes all activities within India and receives commission for his services from foreign seller in convertible foreign exchange and such services which would generally include knowledge or technique based services, which are not linked to an identifiable immovable property or whose location of performance cannot be readily identifiable (such as, Banking and Other Financial services, Business Auxiliary services and Telecom services) shall be export service. Interpreting Rule 3(1) (iii) of Export of Services Rules 2005, he submitted that Board clarified that above types of services shall be export:
(a) If they are provided in relation to business or commerce to a recipient located outside India; and
(b) If they are provided in relation to activities other than business or commerce to a recipient located outside India at the time when such services are provided.
5.2 According to the Appellant, as per Board Circular location of the receiver but not the place of performance is relevant to decide export service. The phrase used outside India appearing in Export of Service Rules 2005 is to be interpreted to mean that the benefit of the service should accrue outside India and it is possible that export of service may take place even when the relevant activities take place in India so long as the benefits of these services accrue outside India. Accordingly benefit of promotion of business of a foreign company accrues outside India, for which the appellant is not liable to tax under the Act.
5.3 It was further submission on behalf of the Appellant that it is an accepted legal principle that the law has to be read harmoniously so as to avoid contradictions within the legislation. Keeping this principle in view, the meaning of the term used outside India has to be understood in the context of the characteristics of a particular category of service as mentioned in sub-rule (1) of rule 3. For example, under Architect service (a Category I service [Rule 3(1)(i)]), even if an Indian architect prepares a design sitting in India for a property located in U.K. and hands it over to the owner of such property having his business and residence in India, it would have to be presumed that service has been used outside India. Similarly, if an Indian event manager (a Category II service [Rule 3(1)(ii)]) arranges a seminar for an Indian company in U.K. the service has to be treated to have been used outside India because the place of performance is U.K. even though the benefit of such a seminar may flow back to the employees serving the company in India. For the services that fall under Category III [Rule 3(1)(iii)], the relevant factor is the location of the service receiver and not the place of performance. In this context, the phrase used outside India is to be interpreted to mean that the benefit of the service should accrue outside India. Thus, for Category III services as per Rule 3(1)(iii) of Export of Services Rules, 2005, it is possible that export of service may take place even when all the relevant activities take place in India so long as the benefits of these services accrue outside India. In all the illustrations mentioned in the opening paragraph, what is accruing outside India is the benefit in terms of promotion of business of a foreign company. Similar would be the treatment for other Category III [Rule 3(1)(iii)] services as well.
5.4 Ld. Sr. Counsel argued that service recipient being located outside India and that is not being disputed by Revenue; there was export of service which shall enjoy exemption under Rule 3 of Export Service Rules, 2005. Notwithstanding the place of performance of services if the service recipient is located outside India, the phrase used outside India has to be interpreted to mean that the services are used outside India. But such contention was rejected in Adjudication holding that it is not sufficient, if the user of service is located outside India. According to Revenue, not only the use of service should be outside India but also the recipient should be out side India and these two conditions being cumulative have to be satisfied independently.
5.5 It was also argued by ld. Sr. Counsel that Board Circular No. 111/05/2009-ST dated 24-2-2009 clarifies that the relevant factor for category-III (Rule 3 (i) (iii) is the the location of the services recipient and not the place of performance. The phrase used outside India is to be interpreted to mean that the benefit of the services should accrue outside India. The Board Circular while referring to illustrations has vide Para 1(iii) refer to marketing support services explained that Indian Agents to undertake marketing in India of the goods of a foreign seller. In this case, the Agent undertakes the activities within India and receives commission for his services from the foreign seller in convertible foreign exchange.
5.6 It was further argued on behalf of the Appellant that in Para 3 of the circular it has been clarified that in all the illustrations mentioned in the opening paragraph of the Circular says that what is accruing outside India is the benefit in terms of promotion of business of a foreign company. Hence the issue is no longer resintegra and has been set at rest through the Ministrys clarification dated 24-2-2009 and latest Circular No. 141/10/2011-TRU dated 13.5.2011 has no significance in law since earlier Circular is binding on Adjudicating Authority following the ratio laid down by the Honble High Court of Gujarat in the case of Indichem V. UOI 1996 (88) ELT 35 (Guj) holding that Board cannot issue circular to make the order of the Tribunal nugatory and also following the decision in Kishan Chemicals V. UOI 1996 (88) ELT 648 (Del) for the same proposition. It was further pleaded that latest Circulars should not guide the decision of the Tribunal in the present appeal. According to Appellant, Tribunal in the case of ABS India Ltd. v. CST, Bangalore, 2009 (13) S.T.R. 65 (T) and Blue Star v. CCE, Bangalore - 2008 (11) S.T.R. 23 has held that as long as the recipient of service is located outside India, it cannot be said that the service is delivered in India or used in India. The services are utilized only outside India and therefore would be eligible for the benefit of export of services.
5.7 It was also submitted on behalf of the Appellant that the Id. Commissioner in the impugned order had clearly noticed that the service recipient is located outside India and does not have an office in India and the appellants have received the payment only in foreign exchange. In view of such finding, the entire demands relating to export of service needs to be set aside.
5.8 Demand relating to repair and maintenance service was pleaded to be hit by limitation for the reason that Show Cause Notice was issued on 24 April 2008 seeking differential tax for the period 9-7-2004 to 6-10-2005 on the following grounds :
(a) The Central Board of Excise & Customs vide circular No. 70/19/03-ST dated 17-12-2003 was pleased to clarify that maintenance/repair service of computer software was not liable to tax since software are not goods.
(b) The Ministry changed its stand vide circular No. 81/2/05-ST dated 7-10-2005 communicating that maintenance or repair or servicing of computer software is liable to service tax under section 65(105)(zzg) read with sec. 65(64) of the Finance Act 1994.
(c) Consequently, for the period 9-7-2004 to 6-10-2005 the appellants were guided by the Ministrys own circular dated 17-12-2003 which was withdrawn only with effect from 7-10-2005.
5.9 It was also pleaded on behalf of the appellant that both input credit and cum-tax benefit is available to it.
5.10 It was further submitted on behalf of the appellant that Show Cause Notice was issued on 24-4-2008 for which entire demand was time barred because Department was aware of the facts of the case of the appellant when registration application was filed on 17-10-2005 (Page 73 of Paper Book) and export intimation filed on 4-10-2005. So also refund of CENVAT credit relating to the input services was granted by the Department. Periodical refund claim of export rebate was entertained and refunds for the period December 2006 and January, 2007 were sanctioned.
SUBMISSIONS OF
REVENUE
6.1 Ld. Counsel appearing on behalf of Revenue supporting entire adjudication order submitted that the same was speaking and well reasoned. The Appellant rendered market promotion service to its foreign principal in terms of agreement dated 01/07/2005 identifying potential consumers in India and thereby invited liability to service tax under section 65(105)(zzb) of the act. Market was explored in India on behalf of foreign principal to serve the target group of customers in this defined territory. The appellant was under an obligation to achieve object of the agreement without frustrating the same for which it was remunerated by the principal.
6.2 Adjudication was never time barred for the intentional evasion made by the Appellant suppressing material facts. Therefore tax and penalty was rightly imposed with interest to follow. Microsoft USA, products came to India due to promotion of market by the appellant for its foreign principal situated abroad. There was no export of service at all made by the appellant as has been rightly held by ld. Commissioner. Following principles of equivalence as has been laid down by Apex Court in All India Federation of Tax Practitioners case 2007 (7) STR 625 (SC) and constitutional provision in Article 286(1)(b), export plea of the appellant was discarded when the appellant promoted market for its foreign principal situated in Singapore. Activity of the Appellant occasioned entry of MICROSOFT products into the territory of India and technical support was provided to the customers in Indian Territory as concomitant to the supply of above products. Therefore by no innovative argument, the service provided in India can be converted into export of service.
6.3 It was further submitted by ld. Counsel for Revenue that the Export of Services Rules 2005 do not approve plea of export made by the Appellant in view of Circular No. 141/10/2011-TRU dated 13.05.2011. All circulars issued prior to 13.5.2011 do not alter law laid down by Apex Court in the case of Madras Marine & Co. v. State of Madras 1992 (61) ELT 161 (SC) and also the law laid down in All India federation of tax Practitioners 2007 (7) STR 625 (SC). Reliance placed on the citations by ld. Sr. counsel for the Appellant did not deal meaning of export under Constitutional provisions of Art. 286 and ratio laid down in Madras marine Judgment (supra). So also none of the decisions of the Tribunal dealt with the principles of equivalence as has been laid down in All India Federation of Tax Practitioners (supra). Therefore those citations are not profitable to the appellant. Boards Circulars no where stated that it had nullified orders of the Tribunal. It is misconstruction of Board Circular by the Appellant. Law declared by Apex Court governs the field. Board circular is not binding on Courts. Therefore decision in each case shall flow on the basis of material facts thereof and according to the law applicable to such facts. Appellant has misconceived meaning of export. Meaning of this term is well known to this country from Constitutional provision and various fiscal legislations like Customs law, Excise law and Export and Import Policy dealing with export. Similar analogy of the term export being applicable to Finance Act, 1994, Board has not intended to interpret the concepts of export otherwise while issuing circulars. It is only misconstruction of the Circulars by appellant that has brought it to the jaws of taxation.
6.4 It was further urged on behalf of Revenue that there is wide latitude given to legislature to pick and choose the objects and subjects in the matters of taxation. Neither the law nor the Circular has caused any bias. The latest Circular reinforces that what is not an export cannot be imagined to be so. When promotion of market was intended in respect of Territory of India that cannot be construed to be a service provided abroad. The service of market promotion resulted in identifying consumers in Indian Territory only. Such identification service brought that to an end as soon as customers were identified. Nothing goes abroad to identify the customers. Therefore origin and termination of market promotion is Territory of India only. There was no export of service at all made by the Appellant.
6.5 According to Revenue, the territory of service was defined to be India only in terms of agreement dated 01.07.2005 and no market promotion was to be done beyond such territory. When no service was provided out side the defined territory, there was no export of service. The Appellant received remuneration for promoting market in the territory of India only and nothing was taxed in Adjudication beyond this.
6.6 Further submission of ld. Counsel for revenue was that when no service has gone out of India for consumption abroad, the Export of Service Rules, 2005 by no means approves export of service plea of appellant. The Rules envisaged that services have to flow abroad for consumption thereat to uphold the same to be export of service. That is not the case of the Appellant. Neither the Rules nor the circulars permit the appellant to plead that there was export of services made by it. Latest circular dated 13.05.2001 removed the anomaly barring the plea of export in absence of real export of service made by the appellant. Therefore plea of export made by the appellant has no basis under law.
6.7 It was further argument on behalf of Revenue that entire adjudication was proper and nothing was time barred. The appellant was liable to service tax, interest and penalty as has been levied in Adjudication. It is neither entitled to cum-tax benefit nor Cenvat credit and refunds if any granted shall not be basis to plead export of service. If refund was granted under error of law it is open to the Department to always pass appropriate order and direct the Appellant to pay back the same to the Treasury. Accordingly appeal of the appellant may be dismissed in liminie.
FINDING AND DECISION
OF TRIBUNAL
7. In order to redress grievance of both sides, the law relating to levy of service tax following principle of Equivalence and meaning of export is necessary to be dealt.
PRINCIPLE OF EQUIVALENCE
APPLICABLE TO LEVY OF SERVICE TAX
8.1 Law relating to service tax has been laid down by Apex Court in All India Federation of Tax Practitioners 2007 (7) STR 625 (SC). In Para 22 of the judgment in Association of Leasing & Financial Service Companies Vs. Union of India - 2010 (20) STR. 417 (S.C.), Apex Court reiterated service tax jurisprudence in following terms:
In All India Federation of Tax Practitioners case (supra), this Court explained the concept of service tax and held that service tax is a Value Added Tax (VAT for short) which in turn is a destination based consumption tax in the sense that it is levied on commercial activities and it is not a charge on the business but on the consumer. That, service tax is an economic concept based on the principle of equivalence in a sense that consumption of goods and consumption of services are similar as they both satisfy human needs. Today with the technological advancement there is a very thin line which divides a sale from service. That, applying the principle of equivalence, there is no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. It is this principle of equivalence which is inbuilt into the concept of service tax under the Finance Act, 1994. That service tax is, therefore, a tax on an activity. That, service tax is a value added tax. The value addition is on account of the activity which provides value addition, for example, an activity undertaken by a chartered accountant or a broker is an activity undertaken by him based on his performance and skill. This is from the point of view of the professional. However, from the point of view of his client, the chartered accountant/broker is his service provider. The value addition comes in on account of the activity undertaken by the professional like tax planning, advising, consultation etc. It gives value addition to the goods manufactured or produced or sold. Thus, service tax is imposed every time service is rendered to the customer/client. This is clear from the provisions of Section 65(105)(zm) of the Finance Act, 1994 (as amended). Thus, the taxable event is each exercise/activity undertaken by the service provider and each time service tax gets attracted. The same view is reiterated broadly in the earlier judgment of this Court in Godfrey Phillips India Ltd. v. State of U.P. [(2005 (2) SCC 515] in which a Constitution Bench observed that in the classical sense a tax is composed of two elements : the person, thing or activity on which tax is imposed. Thus, every tax may be levied on an object or on the event of taxation. Service tax is, thus, a tax on activity whereas sales tax is a tax on sale of a thing or goods [Emphasis supplied].
8.2 While delivering judgment in the case of All India Fedn. of Tax Practitioners v. UOI - 2007 (7) STR 625 (S.C.), Apex Court noticed that Economics holds the view that there is no distinction between the consumption of goods and consumption of services as both satisfy the human needs (para-4 of the Judgment). In Para 6 and 7 the Honble Court held as under :
6. ?At this stage, we may refer to the concept of Value Added Tax (VAT), which is a general tax that applies, in principle, to all commercial activities involving production of goods and provision of services. VAT is a consumption tax as it is borne by the consumer.
7.?In the light of what is stated above, it is clear that Service Tax is a VAT which in turn is destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on services provided within the country. Service tax is a value added tax. [Emphasis supplied]
8.3 While dealing with meaning of service tax Honble Court in Para 17 to 20 held as under :
17.?As stated above, the source of the concept of service tax lies in economics. It is an economic concept. It has evolved on account of Service Industry becoming a major contributor to the GDP of an economy, particularly knowledge-based economy. With the enactment of Finance Act, 1994, the Central Government derived its authority from the residuary Entry 97 of the Union List for levying tax on services. The legal backup was further provided by the introduction of Article 268A in the Constitution vide Constitution (Eighty-eighth Amendment) Act, 2003 which stated that taxes on services shall be charged by the Central Government and appropriated between the Union Government and the States. Simultaneously, a new Entry 92C was also introduced in the Union List for the levy of service tax. As stated above, as an economic concept, there is no distinction between the consumption of goods and consumption of services as both satisfy human needs. It is this economic concept based on the legal principle of equivalence which now stands incorporated in the Constitution vide Constitution (Eighty-eighth Amendment) Act, 2003. Further, it is important to note, that service tax is a value added tax which in turn is a general tax which applies to all commercial activities involving production of goods and provision of services. Moreover, VAT is a consumption tax as it is borne by the client.
18.?In Moti Laminates Pvt. Ltd. v. Collector of Central Excise, Ahmedabad - 1995 (76) E.L.T. 241 (S.C.) we get a clue of an important principle, namely, principle of equivalence. In that judgment, this Court was required to explain the words excisable goods and produced or manufactured. It was held by this Court that the expression excisable goods has been defined in Section 2 of the Central Excise Act, 1944 to mean goods specified in the Schedule. It was held that the object for having a schedule in the Act was to fix rates under different entries including residuary entry. At this stage, we may say that the object of the Finance Act is also to fix rates of duty under different entries. However, the question which arose before this Court in Moti Laminates (supra) was the meaning of the word goods in Central Excise Act, 1944. This Court noticed that Section 3 of the 1944 Act levied duty on all excisable goods mentioned in the schedule provided they are produced and manufactured, therefore, this Court laid down the test that where goods are specified in the schedule they are excisable goods but whether such goods can be subjected to duty would depend on whether they were produced or manufactured by the assessee. This Court further explained that the expression produced or manufactured would mean that the goods produced must satisfy the test of saleability/marketability. The reason being that the duty under the 1944 Act is on manufacture/production but the manufacture/production is intended for taking such goods to the market for sale. It was observed that the obvious reason for levying excise duty linked with production or manufacture is that the goods so produced must be a distinct commodity known in the market. We quote herein below para 7 of the said judgment, which is as follows:
The duty of excise being on production and manufacture which means bringing out a new commodity, it is implicit that such goods must be useable, moveable, saleable and marketable. The duty is on manufacture or production but the production or manufacture is carried on for taking such goods to the market for sale. The obvious rationale for levying excise duty linking it with production or manufacture is that the goods so produced must be a distinct commodity known as such in common parlance or to the commercial community for purposes of buying and selling. Since the solution that was produced could not be used as such without any further processing or application of heat or pressure, it could not be considered as goods on which any excise duty could be levied.
Therefore, even if an item is manufactured or produced, it will not fall in the concept of goods till the test of marketability is satisfied. In the case of Moti Laminates (supra) the solution was an intermediate product produced in the course of manufacture of laminated sheets. It had a short shelf life. It was not marketable, therefore, this Court took the view that the solution was not goods and, therefore, not dutiable.
19.?The importance of the above judgment of this Court is twofold. Firstly, applying the principle of equivalence, there is no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. It is this principle of equivalence which is in-built into the concept of service tax, which has received legal support in the form of Finance Act, 1994. To give an illustration, an Event Manager (professional) undertakes an activity, namely, of organizing shows. He belongs to the profession of Event Manager. As long as he is in the business or calling or profession of an Event Manager, he is liable to pay the tax on profession, calling or trade under Entry 60 of List II. However, that tax under Entry 60 of List II will not cover his activity of organizing shows for consideration which provide entertainment to the connoisseurs. For each show he plans and creates based on his skill, experience and training. In each show he undertakes an activity which is commercial and which he places before his audience for its consumption. The tax on service is levied for each show. This situation is very similar to a situation where goods are manufacture or produced with the intention of being cleared for home consumption under the Central Excise Act, 1944. This is how the principle of equivalence equates consumption of goods with consumption of services as both satisfy the human needs. In the case of Internet Service Provider, service tax is leviable for on-line information and database provided by web sites. But no service tax is leviable on E-commerce as there is no Database Access.
20.?On the basis of the above discussion, it is clear that service tax is VAT which in turn is both a general tax as well as destination based consumption tax leviable on services provided within the country. ????????????????????????(Emphasis supplied)
8.4 Applying the principle of equivalence as has been laid down by Apex Court, which is inbuilt into the concept of service tax under the Finance Act, 1994, there is no difference between manufacture of marketable excisable goods and providing of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. It follows that service tax being a tax on an activity is also destination based value added tax. There is no ambiguity that taxable service provided in India is meant to be taxed under the provisions of Finance Act, 1994. Through different clauses, number of taxable service entries are spread over section 65(105) of the said Act. Terms and expressions used in these clauses are defined by various subsections of section 65 of that Act.
MEANING OF EXPORT
PRESUPPOSES TAKING
OUT OF INDIA TO A PLACE
OUT SIDE INDIA
9.1 Material facts, Agreements and recorded statement as well as modus operandi of the appellant suggest that element of agency was implicit in the contract between the parties as was reduced in writing by agreement dated 01.07.2005. Foreign principal of the Appellant situated in Singapore intended the Appellant to be provider of market promotion service. Para 2.1, 2.2.1, and 3.2 of the Agreement dated 01.07.2005 obliged the Appellant for the same. Targeted consumers were required to be identified and served according to the terms of contract. Entry of MICROSOFT products and technical support for maintenance thereof to the territory of India was outcome of market promotion and foreign principal was under an obligation to cater to such need.
9.2 Article 286 (1) (b) of the Constitution explains what export means. Such concept was incorporated into Customs Act, 1962 in term of section 2(18) thereof. The activity of taking out of India to a place outside India is recognized test to hold an activity to be export. Activity relating to goods being equal to the activity relating to service, following Principles of Equivalence, meaning of the term export recognized by Constitutional provision and tested by law relating to Central Sales Tax, Customs, Central Excise and Export and Import Policy of the government leaves no doubt to construe meaning of the said term in the context of export of service under the provisions of Finance Act, 1994 read with Export of Service Rules, 2005. There should be two termini for export of service. Service generated in one termini if travels outside that termini for ending thereat, export can be said to have been made. The activity of promotion of market ended in India upon identification of customers and nothing travelled abroad to end there.
9.3 In the case of? The State of Kerala and Others v. The Cochin Coal Company Ltd. - (1961) 12 STC 1 it has been held that concept of export in Article 286(1)(b) of the Constitution postulated the existence of two termini as those between which the goods were intended to move or between which they were intended to be transported and not a mere movement of goods out of the country without any intention of their being landed in specie in some foreign port. It therefore follows that there should be two termini for export. Dominant object of contract between the parties was to promote market in the Territory of India to cater to the needs of the targeted consumers in the said territory and nothing to export. Accordingly plea of export of service by appellant is inconceivable.
9.4 In the present cases, market promotion was done by Appellant in the territory of India for sale of MICROSOFT products and rendering of technical support in that territory. Law laid down by Apex Court in the decision of Burmah Shell Oil Storage and Distributing Co. of India Ltd. and Another v. Commercial Tax Officer and Others - (1960) 11 STC 764 (SC) is that in respect of export of goods all exports involve a taking out of the country. The test that the goods must have a foreign destination ought to have been satisfied by the appellant demonstrating that market promotion was done abroad but not in the territory of India. Foreign destination where service would be received as imports is totally absent in the present case. Crucial fact in this case is finding of market by the appellant in India for the foreign principal which brought it to the incidence of tax under Finance Act, 1994 as a Business Auxiliary Service provider.
9.5 Export of Services Rules, 2005 was made in exercise of power conferred on the Central Government. That came into force w.e.f. 10.09.2004. Rule 3(2) of the said Rules defines the event occasioning export. That has undergone amendment from time to time as is apparent from Para 218 of the order of adjudication reading as under:
During the relevant period the law relating to export was?218 specified in the Export of Service Rules, 2005. The specified service (BAS) was covered under Rule 3(1) (iii). The law has undergone changes from time-to-time. The said sub-rule together with sub-rule 3(2) provides the following conditions for this service in order to constitute as export :
From 19-4-06 to 28-2-2007:
(i) Recipient should be located outside India.
(ii) Such service is delivered outside India and used outside India and
(iii) Payment for such services, provided outside India is received by the service provider in convertible foreign exchange.
From 1-3-2007 to 31-5-2007
While condition number (i) and (iii), as mentioned above, remained same, the condition number (ii) was revised as follows:-
Such service is provided from India and used outside India, and
From 1-6-2007 to 31-12-2007
The words provided outside India were omitted from the condition mentioned at (iii) above.
9.6 There is no ambiguity that legislature in terms of Export of Service Rules 2005 intended that service consumed outside India shall be export. In the present case when market was promoted by the Appellant to bring MICROSOFT products and technical support into India in terms of the Agreement dated 1-7-2005, ultimate consumption of service was made in India and the appellant as agent of the foreign principal acted on its behalf in India. The circulars issued by CBE&C subscribe to the concept of export as is stated in the Constitution and finds support from aforesaid decisions of Apex Court on the subject of export. It appears that Board has clear perception of such term having gained vast experience from law of Customs and Central Excise as well as Export & Import Policy. Service extincting in India when fails to move out of India that does not occasion export. Identification of customers in India brings an end to the promotion of market handicapping such promotion to travel abroad. Circulars do not appear to have made any approach contrary to such proposition.
9.7 It may also be stated that a Circular is not law by itself to bind a Court as has been held by five judges Bench of Apex Court in the case of CCE, Bolpur V. Ratan Melting & Wire Industries 2008 (12) STR 416 (SC). Courts have to declare what particular provision of statute says and not the Executive Circular contrary to statutory provisions and law laid down by Apex Court. Further, Circular contrary to statutory provisions has no existence in law. This is the reason why CBE&C vide Circular No. 141/10/2011-TRU dated 13.5.2011 removed the anomaly of Circular No. 111/05/2009 dated 24.02.2009 and there is no element of bias.
9.8 In the course? of hearing, learned Counsel placed reliance on the decisions of Tribunal in case of ABS (India) Ltd. v. - 2009 (13) S.T.R. 65 and Blue Star - 2001 (11) S.T.R. 23. to advance argument that when recipient of services is located outside India, it cannot be said that the services were delivered in India or used in India. Services are utilized only outside India and such services shall be eligible to benefit of export of services. Decision of the Tribunal in the case of Lenovo (India) Pvt. Ltd. - 2009 -TIOL-911-CESTAT-BANG was also relied to submit that that the said case was similar to case of ABC (India) Ltd. and Blue Star (supra). So also reliance was placed on Dell International service India Private Ltd Vs. CCE 2010(17) STR 540 (T) Schott Glass India Private ltd. V. CCE 2010 (18) STR 445 (T), KSH International Private Ltd. V. CCE 2010 (18) STR 404 (T) and M/s Em Jay engineers V. CCE 2010-TIOL-1200-CESTAT-Mum. But all these decisions do not lend support to the appellant for the law laid down by Apex Court in All India Fedn. of Tax Practitioners - 2007 (7) S.T.R. 625 (S.C.) and meaning of export having been explained in the Constitutional provision and decisions of Apex Court as aforesaid.
9.9 Learned Sr. Counsel relied on the judgments in Indichem (supra) and Kisan Chemicals (supra) to submit that the Circulars cannot negate the orders of Tribunal. There was nothing specific brought out how the circular of 13.05.2011 negated orders of Tribunal. When neither the statutory provisions nor judicial pronouncements made by Apex court enable market promotion by appellant in India on behalf of its foreign principal to be export of service, the appeal fails on the count of claim of export.
9.10 On the aforesaid premises of law discussed, plea of export raised by the Appellant does not sustain and service tax liability under Finance Act, 1994 arises on such count.
SOFTWARE MAINTENANCE
CONTRACT
10. In respect of? maintenance contract, appellant relied on various circulars i.e. 70/19/03/ST dated 17-12-2003 and 81/02/05 dated 7-10-2005. According to appellant, these circulars clarified that software was not considered to be goods for which maintenance thereof was not repair and maintenance for taxability. Such view survived for limited period from 17-12-2003 to 6-10-2005 when Circular No. 81/02/05 was issued to the contrary. By circular 81/02/05 software was made liable to service tax. Appellants plea was that it was eligible to the benefit of circulars during relevant period before issuance of show cause notice is not assailable and there shall not be liability to service tax on such service for the period prior to 7.10.2005.
TIME BAR
11.1 So far as pleading of bar of limitation is concerned, it may be stated that imitation is counted in reverse order from the date of noticing of the fact of willful evasion, by the Taxing Authority. Facts of each case are tested on the touch stone of law and material facts of the case.
11.2 It was pleaded by learned Sr. Counsel that in terms of letter dated 4-10-2005 (Ref: page 47 of the Paper Book) the appellant informed learned Asst. Commissioner, Gurgaon about providing of marketing of services to Microsoft Corporation USA located outside India and as per Rule 3 of Export Services Rules, 2005 the marketing services provided by the Microsoft, USA was export of service. Refund was claimed under Rule 5 of CENVAT Credit Rules, 2005 in respect of input services. Similar such letter was also issued by the Appellant on 30-11-2005 (Ref: page 54 of Paper Book), on 31-1-2006 (Ref: page 56 of Paper Book) and on 31-3-2006 (Ref: page 65 of Paper Book).
11.3 Record reveals that for the first time by letter dated 7-2-2007 acknowledged by Revenue on 9-2-2007 (Ref: page 79 of Paper Book), the appellant informed the Department as above and stating recipient of marketing services provided by the appellant was the Singapore subsidiary of Microsoft USA While appellant was also a subsidiary company of Microsoft USA. It was also informed that the USA concern has no EOU and not required to submit quarterly return to the licensing authority as required by an EOU. The appellant was sanctioned Cenvat credit refunds relating to inputs in terms of pages 82 to 95 of Paper Book.
11.4 Ultimate exercise of the Appellant resulted in provision of Business Auxiliary Services in India and outcome thereof resulted in import of MICROSOFT products and technical support into India for consumption. Nothing occasioned movement of market promotion out of India since both the foreign principal and the appellant were obliged to fulfill their obligation in terms of Article 2.1, 2.2.1, 2.2.3, 2.3, 3.1, 3.2.1, 3.2.2, 3.3.1 and 3.3.1 of the agreement dated 01/07/2005. Reading of the letters filed by the Appellant as stated in this order hereinbefore and also reading of the agreement throws light that the appellant had incurred liability under Finance Act, 1994.
11.5 In Anand Nishikawa Co. Ltd. v. Commissioner of Central Excise, Meerut, (2005) 7 SCC 749 = 2005 (188) E.L.T. 149 (S.C.) it has been held by the Apex Court that suppression of facts is made when information was not disclosed deliberately to evade payment of duty but when facts were known to both the parties, omission by one to do what he might have done not that he must have done would not render it suppression. It is settled law that mere failure to declare does not amount to willful suppression. There must be some positive act from the side of the assessee to find willful suppression.
11.6 In Continental Foundation Jt. Venture v. Commissioner of Central Excise, 2007 (216) E.L.T. 177 In Paragraphs 10 and 12 of the judgment it has been held that the expression suppression has been used in the proviso to Section 11A of the Act accompanied by very strong words as fraud or collusion and, therefore, has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression.
11.7 When Revenue invokes extended period of limitation under Section 73 of the Finance Act, 1994, the burden is on it to prove suppression of fact. An incorrect statement cannot be equated with a willful mis-statement. The latter implies making of an incorrect statement with the knowledge that the statement was not correct. As far as fraud and collusion are concerned, it is evident that the intent to evade duty is built into these very words. So far as mis-statement or suppression of facts are concerned, they are clearly qualified by the word willful, preceding the words mis-statement or suppression of facts which means with intent to evade duty. The next set of words contraventions of any of the provisions of this Act or Rules are again qualified by the immediately following words with intent to evade payment of duty. Therefore, there cannot be suppression or mis-statement of fact, which is not willful and yet constitute a permissible ground for the purpose of the proviso to Section 73. A mis-statement of fact must be willful to hold evasion of tax and adjudication for the extended period shall not be time barred in such event.
11.8 In the? circumstances where it is difficult to hold that there has been conscious or deliberate withholding of information by the assessee it can be said that there has been no willful misstatement much less any deliberate and willful suppression of facts. To invoke the proviso to Section 73 of the Finance Act, 1994 a mere misstatement is not enough but such misstatement or suppression of facts must be willful to evade tax.
11.9 Pleadings by the ld. Sr. Counsel suggested that Investigating Authorities had scope to examine records of the Appellant and collect necessary information as well as relevant details from the Appellant. The Authorities were aware of the facts of the case of the appellant when intimation of export was filed by the Appellant before the Authorities on 04.10.2005 and when registration was sought on 17.10.2005 as pleaded by the ld. Sr. Counsel. Relevant facts appear to be within the knowledge of the Departmental Authorities. The Department did not lead any evidence to demonstrate that there was willful misstatement or suppression of facts with intent to evade payment of service tax by the Appellant. Therefore extended period cannot be invoked in the present case while adjudication for the normal period if any, is permissible.
12. The Appellant is entitled to cum-tax benefit and cenvat credit in accordance with law.
13. On the aforesaid back drop of law and facts, there was no export of service made by the Appellant for which immunity from service tax claimed is deniable. The appellant is liable to service tax for the normal period in respect of Business auxiliary service provided without being liable for the extended period and no penalty is imposable for no intention to evade being patent from the conduct of the Appellant. Interest as per law on service tax demand shall follow.
14. In the result, Appeal is partly allowed and remanded to the learned adjudicating Authority to recompute the tax liability as well as interest for the normal period granting cum-tax benefit and Cenvat credit in accordance with law.
ST/828/2010
15. This case was not argued by both sides. Hence not disposed by above order. Registry is required to list the matter for hearing if stay order dated 12.10.2010 is complied by the Appellant by the date stipulated by the order.
(Pronounced in the Open Court on / /2011)
(Mathew John) (D.N.Panda)
Technical Member Judicial Member
15.
I have gone through the views recorded by my Ld. Brother. The basic issue at hand is what constitutes export of services, in particular with reference to Business Auxiliary Service taxable under Section 65(105)(zzb) of Finance Act, 1994 and Maintenance and Repair Service taxable under section 65 (105) (zzg) of the Finance Act, 1994. This matter in relation to Business Auxiliary Service has come up before the same bench earlier in the appeal filed by Paul Merchants Ltd. and there was difference between my views and the views of my Ld. Brother. The matter is not yet finally decided. There is some difference between the facts of that case and facts of this case. In that case part of the activities constituting the service was taking place outside India. In this case all the activities were taking place in India. But in my view, this difference cannot lead to a different conclusion when the matter is examined with reference to the relevant rules. So I am recording my views and its reasons.
16. The relevant period is 19-04-2006 to Dec 07 for Business Auxiliary Service and 09-07-2004 to 06-10-2005 for Maintenance and Repair Service. A Show Cause Notice dated 24-04-08, was issued for tax which was not paid by the appellants on the ground that the services were actually exported. I agree with the findings of my Ld. Brother on the following issues, namely,-
(i) that no liability for service tax on account of Maintenance of Repair of software prior to 07-10-2005 can be enforced against the appellants;
(ii) that in case of Maintenance and Repair Services, that services cannot be considered to be exported (This issue is not disputed by Appellants either)
(iii) that the extended period of limitation of demanding tax cannot be invoked in this case.
17. It is possible that no demand may survive if normal period of limitation for issue of notice is taken into account but the matter has to be decided by verifying the relevant date. However the issue whether the impugned Business Auxiliary Service was actually exported has to be decided on merits because the issue has to be decided for deciding appeal number ST-828/2010 which was also listed for hearing together with this appeal on the same day but is not being decided by this order. It will not be in the interest of justice if this matter which was the main point argued during the hearing is to be re-argued for deciding that appeal.
18. What constitutes export of services is an issue where there are reasons for different understanding in the matter. This is an issue where the government has been changing the criteria from time to time outside the period relevant for this case and during the period relevant for this case. This is an area where CBEC has issued a few circulars with changing perspectives. This is an issue which has come up before the Tribunal in a few other cases in the past. This issue is of a recurring nature. So it is extremely necessary to achieve a harmonious, predictable, easily understandable legal position on this issue which should preferably be available to the public in condensed legal Act or Rules. It will be desirable to avoid a situation where the public has to read too many decisions of the courts and clarifications issued by CBEC for understanding the matter. So I would like to first examine this issue with reference to Export of Service Rules, 2005 and find whether the issue can be answered based on these Rules. Here also there is the complication that these Rules itself were changed on few occasions during the relevant period.
19. It is seen that the officers of the department and the public get confused about these Rules quite often and giving an outline of the concept of the Rules will help in easy understanding of the Rules. As per these Rules the taxable services have been grouped into three categories by specifically mentioning the clauses of section 65 (105) of the Finance Act, 1994 under which each such service is brought under service tax net. The Category-I is of services is for services relating to properties, like service of an architect. For this category the rule stipulates that if the property is situated outside India the service will be considered as exported. That is to say even if the architect and the person availing the service are situated in India but the property is outside India, the service will clearly be considered to be exported as per Rules in existence after 27-02-2010. The Category-II is of services in respect of which performance is given emphasis and the question whether service is exported, is decided with reference to place of performance. For example Business Exhibition will fall under this category. In this category also even if the person providing service and the person availing the service are situated in India but the exhibition is performed outside India, it will clearly be considered as export of service after 27-92-2010. Category-III is for the rest of the services and here the emphasis is on the location of the person receiving the service. In this category the question whether service is exported, is decided with reference to residence of the person availing the service. For example let us take the case of Medical Records Maintenance Service ( 65 (105) (zzzzp). Here all activities relating to maintenance of records may be done in India. But if the person requesting for the service and paying for the service is located outside India, it is considered as export of service. Further it appears that even if such person is undertaking the business of maintaining the records of a Hospital in India for the use of doctors in the hospital then also the service will be covered as export so long as the hospital in India has not paid for the service. It is this type of situation that is at hand. This is a worry the Ld Adjudicating authority had in mind when he was talking about achieving export just by routing of the service as may be seen from para 224 of the impugned order. I would like to clarify that the above exposition is a very simple explanation for understanding of the scheme and the Rules and there are some other conditions applicable to each of the three categories and the conditions have changed from time to time. This paragraph should not be read as an interpretation the Rules.
20. Maintenance and Repair service is Category-II service where export is decided with reference to place of performance. Business Auxiliary service is Category-III service where export is decided with reference to location of the service receiver. This is the reason why I come to different conclusions in respect of these two services.
21. The impugned Business Auxiliary Service is that of promotion of sales in India of products of Microsoft Operations PTE Ltd., a Singapore corporation. The activities for promotion and the sales consequent to the promotion take place substantially in India, though there is a marginal issue that there may be some activities relating to promotion of business in Bhutan, Nepal, Maladives and British Indian Ocean Territory apart from India. That marginal issue is not central to the dispute. Thus activity is subjected to tax under Section (105) (zzb) and this is covered by Category-III discussed above. On these facts and legal position there is no dispute.
22. The criteria applicable for deciding export of services of Category-III during the period 19-04-2006 to 28-02-2007 was as under:
3. Export of taxable service. (1) The export of taxable service shall in relation to taxable services,-
---
---
(iii) Specified in clause (105) of section 65 of the Act, but excluding,-
(a) Sub-clauses (zzzo) and (zzzv);
(b) Those specified in clause (i) of this rule except when the provision of taxable services specified in sub-clauses (d), (zzzc) and (zzzr) does not related to immovable property; and
(c) Those specified in clause (ii) of this rule.
When provided in relation to business or commerce, be provision of such services to a recipient located outside India and when provided otherwise, be provision of such services to a recipient located outside India at the time of provision of such service;
Provided that where such recipient has commercial establishment or any office relating therein, in India, such taxable services provided shall be treated as export of service only when order for provision of such service is made from any of his commercial establishment or office located outside India.
(2) The provision of any taxable service shall be treated as export of service when the following conditions are satisfied, namely :-
(a) such service is delivered outside India and used outside India; and
(b) payment for such service provided outside India is received by the service provider in convertible foreign exchange. The words provided outside India in Rule 2(b) above was omitted with effect from 01-06-07.
23. The whole dispute is about expressions delivered outside India and used outside India appearing in the above rules. The government found it necessary to omit these expressions. First the expression delivered outside India was replaced with is provided from India with effect from 01-03-2007. It stands omitted from the rules w.e.f. 27-02-2010 which date is outside the period relevant for this case. The expression used outside India continued till 27-02-2010 when it was omitted. The issue before us has to be examined with reference to rules in existence during the relevant period. But the fact that these got omitted later is indicative of the governments intentions. The first question to be considered is when the service was performed in India but the service recipient was resident outside India can the service be considered as delivered outside India. This issue is complicated by the fact the consumer benefiting from the products sold in India and the after sales services done in India are located in India. This is the argument that is reflected as the need to test location of the customer (see para 226 of the impugned order). I am of the view that the service that is sought to be taxed is the service provided to the person paying for the service and not the service which is provided to a person in India who is not paying for the service though such person may also be a beneficiary of such service. Though the concept that taxable service and consideration paid for it flow in opposite directions is an important concept I think that there is no need to dwell at great length on this issue especially because this issue has been dealt with in the case of Appeal No.ST-311/2009 filed by M/s. Paul Merchants Ltd. which matter is not yet finally decided because of difference in opinion between the two members who original heard the case. I am of the view that the customer for the impugned service of sale promotion is Microsoft Singapore and not the person buying the software. That is to say I am of the view that the customer, with reference to whom issue is to be decided, is in Singapore in this case and if this logic is followed there is no doubt that the service is delivered outside India.
24. In my view the expression delivered outside India which existed in the rules till 28-02-2007 cannot have the same connotation as performed outside India used in same Rules in respect of Category-II services. The legislature has used these two expressions in the same Rules and hence there is a presumption that both the expressions have different meanings. Nothing to rebut this presumption has come out from the legal arguments. This presumption is strengthened by the fact that all the clarifications issued by CBEC prior to 13-05-2011 are consistent with this view and anything contrary does not come out. An interpretation that deliver is to the person paying for the service and not any person who may incidentally benefit from the activity of the service provider, gives a harmonious interpretation. Since the promotion activity was of products belonging to a person resident abroad it is to be considered that the impugned service was delivered outside India.
25. At this stage I note that the clarification issued on 13-05-2011 gives the impression that the matter is to be decided with reference to the accrual of benefit. This expression is not used in the Rules though it was used in the earlier circular dated 24-02-2009. The meaning of the expression itself can be disputed. For example in the case before us is the benefit accruing in Singapore or India? The circular does not give any clarity to the issue. If the Rules are not giving the intent that the government desires, the proper course in this sort of inherently complicated matter, is to amend the Rules rather than achieve it through circulars.
26. I have also considered the issue whether the expression delivered outside India which was present in the Rules during the period till 28-02-2007 would be redundant if the interpretation as given by me is accepted. It appears to be not the case. This condition in Rule 3(2) is applicable to services Category-I and Category-II and could make a difference to a case where an architect is providing service to a person in India for his property outside India.
27. I have mulled over the issue that the consequence of this interpretation can be that the answer to the question whether any service is exported can be changed by a clever routing of service. I have already mentioned the possibility of medical reports of a hospital in India for use in India being maintained at the request of a company situated abroad and paid for by such company. If this arrangement is a farce with the special objective of avoiding service tax it is a matter to be challenged and if the law is found to be weak to prevent such leakage of revenue law itself found to be weak to prevent such leakage of revenue law itself should be amended. A fear of such a possibility cannot be a reason for interpreting the rule as is before me now.
28. The next issue is the effect of the expression used outside India which was in force till 27-02-2010. This is a more contentious issue. It is argued by the Appellants that the use of marketing efforts in India is for a sale of products developed outside India and since the service results in increased sale of such product the use is outside India. This is a debatable issue. A harmonious construction considering the evolution of these Rules as also the circulars issued by CBEC prior to 13-05-2011 like the Circular No.111/05/2009-ST dated 24-02-09 supports the interpretation that use outside India is to be judged with regard to the fact where the benefit accrues (para 3 of the Circular). The clarifications issued by CBEC on 24-02-2009 and 13-05-2011 talks about an interpretation with reference to accrual of benefit. This further strengthens the case of the Appellant and not that of Revenue.
29. I have difficulty in agreeing with the argument that export of service should be determined, especially in the case of category-III services, by looking at the origin and termination of activities constituting a service because this test is not laid down in the Rules. Criterion with reference to activity is the same as a criterion with reference to performance laid down for Category-II. The new concept being introduced is of the last of the activities. If there is a need for such a criterion it has to be introduced specifically in the rules. That is to say Category-III should either be altogether abandoned and services specified in this category should be shifted to Category-II or additional criteria specifically introduced in the Rules applicable for Category-III. Such a criterion can also lead to complication as to what is the last of the activities in a service whether delivery of the outcome of service is part of the activity or not is also to be factored in.
30. The outcome of the above interpretation is that if a person does market promotion for a manufacturer located outside India for selling the goods in India after its import, the goods will be considered to be imported but the marketing services will be considered to be exported. It may prima facie appear to be contradictory. But this is the outcome of the Rules as it exists now and this was the position clarified by CBEC vide Circular No.111/05/2009-ST dated 24-02-2009 (see para (iii) and para 3 of the Circular).
31. In the matter of interpreting Rules on a subject like this were the law is evolving, it is necessary that an interpretation consistent with the direction of evolution has to be adopted. Such an approach will also lead to the interpretation I have given above.
32. There can be other possible arguments that in this case the company receiving services is located in Singapore whereas the actual development of the software might have been elsewhere, even possibly in India itself because Microsoft Corporation may have development centres in India (routing issue). There can also be a concern that the company in India providing service and the company in Singapore receiving services are inter-related companies (see para 4 CBEC circular dated 13-05-2011). There can be another concern that category-II services, performed in India, used as input services may also be getting the benefit of export because the output service gets classified as Category-III. These are not issues contested at any stage in these proceedings but only mentioned to illustrate how complicated things can become in the matter of deciding export of services. Obviously the matter before us cannot be decided on the basis of all what we do not know.
33. Now I wish to examine whether there is anything in Export of Services Rules, 2005, which is contrary to meaning of export for interpreting Article 286 (1) (b) of the Constitution and definition of the term in Customs Act, 1962 and the decisions fo the Apex Court I the case of Association of Leasing and Financial Service Companies-2010 (20) STR 417 (SC) and All India Federation of tax Practitioners Vs. UOI 2007 (7) STR 625 (SC) relied upon by my Ld. Brother. Though there is equivalence between goods and services in certain aspects for taxing the two, there is a fundamental difference between them in the matter that the former is tangible while the latter is not tangible in most cases though its effect or outcome may be tangible. It is difficult to conceive of taking the service and crossing the border, be it the services of an architect residing in India designing building located outside India (though the tangible outcome namely designs can be carried outside) or be it the activity of a person organizing a business exhibition outside India or be it maintenance of medical records.
34. The word export in Article 286 in the Constitution is used with reference to goods. So is the case with definition of export in section 2(18) of the Customs Act, 1962. It will obviously need some dovetailing in the context of export of service which issue has come up only after 1994. It is this dovetailing that is being achieved through export of Service Rules, 2005 and the criteria laid down in the Rules are neither arbitrary nor inconsistent with the any provisions in the Constitution. The issue being dealt with in the Rules is that whether taking out of India should be decided with reference to the situs of the property or the situs of the activity or the situs of the person receiving the service. The Rules choose to deal differently with different services and this cannot be considered as arbitrary. Further in a proceeding before this Tribunal there is no scope for deciding on the virus of Rules framed by Government of India under section 94 of Finance Act, 1994.
35. The Honourable Supreme Court in the case of All India Federation of Tax Practitioners (Supra) observed that service tax is a destination based consumption tax. The question at hand is how the destination is to be decided whether it is to be decided with reference to the location of the person who paid for the service or with reference to the last of the activities constituting the service. In para 19 of the order the Hon Court observes as under:
19. The importance of the above judgment of this Court is twofold. Firstly, applying the principle of equivalence, there is no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. So it is clear that the Hon Court is talking about the destination based of the consumer of the service. So the actual issue in this case is to determine the consumer of the service. The consumer of the service is the person paying for the service and not any person who may also benefit from the activity.
36. In the matter of theory of equivalence decided by the Apex Court first in the case of All India Federation of Tax Practitioners (supra) and later referred to by the Court in the case of Association of Leasing and Financial Service Companies (supra) what I find is that the observation is made while answering the question whether Union of India has power to levy service tax on the services in question and the decision cannot be interpreted to mean that goods and services are exactly equivalent in all matters relating to taxation. Already there are a few differences in practices followed for levy of excise duty and levy of service tax as in the case of point of taxation, taxability of services rendered free of cost, taxability of activity for the benefit of the person doing the activity which would have constituted service if another person did the activity for the benefit of the such person (corresponding to excise duty levied on captive consumption), etc. It is not possible to achieve exact equivalence between taxation on goods and services and especially so in the matter of criteria for deciding the question whether services is exported. The Apex Court has not ruled in the above decisions that tax on services and duties on goods are identical footing in all respects.
37. For the above reasons I am of the view that the impugned Business Auxiliary Services were exported as per the provisions of Export of Services Rules, 205 as in force during the relevant period and in this respect I would like to differ with my learned Brother for reasons stated above.
38. In the matter of Appeal No.ST-828/2010 also the basic issue is whether the output service is exported, that is the issue discussed in this order. There were no submissions in respect of that appeal during the hearing. It may be proper that that appeal is heard for any other relevant issue that may be involved in that appeal, after this appeal is finally decided.
Mathew John (Member Technical) Considering the two different views of the Members of the bench of the Tribunal which heard the matter as coming out from the orders drafted by each Member as above, we have agreed to list out the following points of difference to be decided by a Third Member of the Tribunal.
Points of difference:
(i) Whether the impugned Business Auxiliary Service of promotion of market in India for foreign principal made in terms of Article 2 and 3 of the Agreement dated 01/07/2005 amounts to export of service considering Article 286 (1) (b) of the Constitution of India read with Apex decisions in the case of State of Kerala and Others Vs. The Cochin Coal Company Ltd. (1961) 12 STC 1 (SC), Burmah Shell Oil Storage and Distributing Co. of India Ltd. and Other Vs. Commercial Tax Officers and Others (1960) 11 STC 764 (SC) and the provisions of Export Service Rules, 2005 as well as Circular No.141/10/2011 TRU dated 13.05.2011 issued by C B E & C?
(ii) Whether the impugned Business Auxiliary Service of promotion of market in India for foreign principal made in terms of Article 2 and 3 of the Agreement dated 01/07/2005 was delivered outside India and used there at and is immune from levy of service tax as export of service in terms of the provisions of Export Service Rules, 2005 read with circulars issued by C B E & C excluding Circular No.141/10/2011 TRU dated 13.05.2011?
(iii) Whether the impugned Business Auxiliary Service provided in terms of Agreement dated 01/07/2005 is governed by the principles of equivalence and destination based consumption tax as well as law laid down by Apex Court in All India Federation of tax Practitioners Vs. UOI 2007 (7) STR 625 (SC) and Association of Leasing and Financial Service Companies-2010 (20) STR 417 (SC).
(iv) The Appeal in Appeal No.ST-828/2010 without being argued by both sides whether can be said to have involved the issue that output service was exported or conclusion is to be arrived at upon hearing both sides?
(v) Whether demand for the normal period sustains subject to grant of cum-tax benefit and CENVAT Credit?
(Pronounced in the open Court on 9.11.2011) (Mathew John) (D.N.Panda) Technical Member Judicial Member The Registry is to place the matter before the Honble President for appropriate order.
(Mathew John) (D.N.Panda) Technical Member Judicial Member Per Archana Wadhwa :
39. The difference on the following points, arrived at in terms of two separate orders recorded by two Members of the original Bench stand placed before me, as a Third Member.
(i) Whether the impugned Business Auxiliary service of promotion of market in India for foreign principal made in terms of Article 2 and 3 of the Agreement dated 01/07/2005 amounts to export of service considering Article 286 (1) (b) of the Constitution of India read with Apex decisions in the case of Sate of Kerala and Others vs. The Cochin Coal Company Ltd. [1961 (12) STC 1 (SC)], Burmah Shell Oil Storage and Distributing Co. of India Ltd. and other vs. Commercial Tax officers and others [(1960) 11 STC 764 (SC) and the provisions of Export Service Rules, 2005 as well as Circular No. 141/10/2011 TRU dated 13.5.2011 issued by C B E & C issued by C B E & C ?
(ii) Whether the impugned Business Auxiliary Service of promotion of market in India for foreign principal made in terms of Article 2 and 3 of the Agreement dated 01/07/2005 was delivered outside India and used threat and is immune from levy of service tax as export of service in terms of the provisions of Export Service Rules, 2005 read with Circulars issued by C B E & C excluding Circular No. 141/10/2011 TRU dated 13.5.2011?
(iii) Whether the impugned Business Auxiliary Service provided in terms of Agreement dated 01/07/2005 is governed by the principles of equivalence and destination based consumption tax as well as law laid down by Apex Court in All India Federation of Tax Practitioners [2007 (7) STR 625 (SC)] and Association of Leasing and Financial Services Companies vs. UOI [2010 (20) STR 417 (SC)].
(iv) The appeal in Appeal No. ST-828/2010 without being argued by both sides whether can be said to have involved the issue that output service was exported or conclusion is to be arrived at upon hearing both sides?
(v) Whether demand for the normal period sustains subject to grant of cum-tax benefit and Cenvat Credit?
40. Inasmuch as the facts already stand detailed in the said orders recorded by my brothers, the same are not being repeated so as to avoid redundancy. In fact I find that there is no dispute on the factual position and it is only the legal issue, on which there are separate opinions by both the sides. The main issue required to be decided is as to whether the appellant, who is subsidiary company and had entered in the market development agreement with foreign principal located at Singapore is liable to Service tax on the services so rendered by them to its principal company.
41. The matter was heard at length on different dates when the representative of both the sides appeared and made extensive arguments. Subsequent to the conclusion of the arguments, both the sides have placed on record the written submissions.
42. The appellants is admittedly covered under the definition of business auxiliary services. The said services are being provided by the appellant to its principal company, which is located at Singapore. The dispute required to be resolved is as to whether rendering of business auxiliary services to a service recipient, which is located outside India, would be covered by Export Service Rules, 2005 so as not to create any service tax liability against the appellant. The said Rules stand reproduced and discussed by both the Members and as such are not being reproduced.
43. According to the Revenue inasmuch as the services involved in the matter are marketing support services for the marketing of Microsoft products and services in India. This comprises host of services such as maximizing the markets for Microsoft products including all local advertising and performing the other activities including dissemination of information to potential customers, commenting on any developments in the territory affecting the software industry, investigating feasibility of new markets for Microsoft retail products and providing other services of marketing nature, etc. Much of this is accomplished by way of identifying the customers regarding marketing of Microsoft products; local advertising; performing other activities including dissemination of information to potential customers, commenting on any developments in the territory affecting the software industry. These services once provided are not capable of being used in a territory other than where they have been provided. In fact most of the time; provision, delivery and use is happening simultaneously. It will be inaccurate to suggest that the above said services provided in India can even be delivered or used in a territory other than where these have been provided because the intended target group of the service provider is the prospective buyer located in India .
44. The word and as a conjunction has been inserted at the end of condition (a) clearly mandates that both the conditions have to be satisfied together. The moment both the conditions are read together the confusion regarding delivery and use disappears, as the words provided outside India clearly do not lead themselves to any confusion regarding delivery and use disappears, as the words provided outside India clearly do not lead themselves to any confusion in as much as the intention of the law makers becomes immediately clear that the services to qualify as exports have necessarily to be provided outside India and not provided in India. The word provided is the equivalent of the word manufacturer in the case of goods. It means creation or origin. Undoubtedly, the service has been provided in India. Thus the service was never provided outside India. For this additional reason also the services in this case do not constitute export within the meaning of Rule 3(1)(iii) of the Export of Services Rules 2005 for the period from 19/4/2006 to 31/5/2007. Further for the period 01/06/2007 onwards the criterion provided outside India was omitted but the condition of services provided from India and used outside shall remained in force.
45. The Rules clearly specify two separate conditions i.e. the user should be located outside India and the use should also be outside India. These conditions have to be satisfied independently of each other. If the Noticees explanation were to be accepted, a mere change in location of the recipient will also lead to change in the place of use of service. For example, if in this case, the recipient were to be relocated from USA to say Japan, in terms of the noticees logic, the place of use of service will stand automatically shifted from USA to Japan. This legal position could have been obtained if the Government gave an exemption from payment of taxes based on country to which the contractee-buyer in the service purchase agreement belongs. In Double Tax Avoidance Agreements (DTAA) under the Income Tax Act which Government of India enters into with different taxing jurisdictions outside India, this position does emerge because the Income Tax Act gives a facility to tax payers belonging to a particular territory that has DTAA with India, to pay taxes according to that agreement and not according to the main provisions of the Income Tax Act, provided that the tax payer pays Indian Income Tax department withholding taxes on certain remittances made by them abroad. There is no legally binding international treaty in respect of taxation of services which can free non-resident companies from payment of service tax where the provision and exhaustion of the service is on Indian soil .
46. He has also referred to certain provisions of Income Tax Act and based upon the reasoning adopted by learned Member Judicial, has pleaded that there is no ambiguity that legislature in the terms of Export of Services Rules 2005 which clearly intended that service consumed outside India shall be export. Inasmuch as in the present case the market was promoted by the appellant to bring Microsoft products and technical support into India and the ultimate consumption of services was made in India, it has to be held that services was provided in India and would be liable to Service Tax.
47. On the other hand, the appellants have strongly adopted the reasoning of the learned Member (Technical) and have stated that in terms of Export of Services Rules, 2005, the service recipient i.e. the Microsoft Operations Pvt. Ltd. is located in Singapore and as such is outside India. The services provided by the appellants is to the parent company and not to any Indian customers. Payment for the services are being received by the appellant from their parent company located in a foreign land and in convertible foreign exchange. As such, inasmuch as the service recipient is not in India and the services being provided is to a foreign company located outside India, it has to be held that services being provided by the appellant are export of services. It also stand argued that services are intangible as against the export of tangible goods and as such, definition of export as appearing in Customs Act being in respect of goods is irrelevant and the entire issue has to be adjudged in accordance with the provisions of Export Service Rules, 2005. Learned advocate appearing for the appellant has also drawn my attention to the other decisions, in support of his submissions.
48. Without going into the detailed facts involved and the detailed submissions made by both the sides, I find that an identical dispute was the subject matter of another decision of the Bench constituting the same Members, in the case of M/s. Paul Merchants Ltd. vs. CCE Chandigarh . The said difference of opinion referred to third Member stand resolved in favour of the assessee. It stand held by third Member that the services provided by a sub-agent in India to a service recipient located outside are export of services and hence not liable to be taxed.
49. Inasmuch as the same issue is involved in the present matter also, by adopting the said majority decision in the case of Paul Merchants Ltd. laying down that the services provided by the agents and some agencies being delivery of money to the intended beneficiary of the customer of the western units abroad, which may be located in India and the services provided being business auxiliary services is also to the western unit who is recipient of services and consumers of services, it has to be held that services were being exported in terms of Export of Services Rule 2005 and not liable to Service Tax.
50. In a recent decision the Tribunal in the case of Larsen & Toubro [Misc. order No. 59225-59226/13 dated 9.9.13] held that a majority decision is Larger Bench decision having the same binding criteria as that of Larger Bench. If that be so, the majority decision in the case of Paul Merchant is required to be followed.
51. Even otherwise also, I find that the disputed service is the service being provided by the appellant to his principal located in Singapore. The marketing operations done by the appellant in India cannot be said to be at the behest of any Indian customer. The service being provided may or may not result in any sales of the product in Indian soil. The transactions and activities between the appellant and Singapore principal company are the disputed activities. As such, the services are being provided by the appellant to Singapore Recipient company and to be used by them at Singapore, may be for the purpose of the sale of their product in India, have to be held as export of services.
52. Apart from the above, we note that there was identical issue was before the Bench of the Tribunal in the case of Gap International Sourcing (India) Pvt. Ltd. [2014-TIOL-465-CESTAT-Del]. Vide its detailed order and after considering the various decisions of the higher Court as also various circulars issued by the Board, it stand held that services of identifying the Indian customers, for procurement of various goods on behest of foreign entity is the service provided by a foreign entity and such service provided by a person in India is consumed and used by a person abroad. It has to be treated as export of services. I also take note of the Tribunals decision in the case of Vodafone Essar Cellular Ltd. vs. CCE Pune [ 2013-TIOL-566-CESTAT- Mum] wherein it stand held that when the services is rendered to third party at the behest of the assessees customers, the service recipient is assessees customer and not the third party i.e. his customers customer. As such, the services being provided at the behest of the foreign telecommunication services provided to a person, roaming India were held to be constituting export services under the Export of Services Rules, 2005. The said decision stand subsequently followed by the Tribunal in the case of CESTAT, Mumbai vs. Bayer Material Science Pvt. Ltd. vs. CST Mumbai [2014 TIOL- 1064 CESTAT- Mum] Business Auxiliary services provided by the assessee to their members located outside India by marketing their product in India was held to be export of services inasmuch as the service was held to be provided to the foreign located person who was also paying to the assessee on such services in convertible foreign exchange.
53. Learned DR appearing for the appellant has not been able to brought to my notice any other decision of any other Court which is contrary to the law declared in the above referred decision. Accordingly, I agree with the learned Member (Technical) that the services provided by the appellant are covered by the Export of Service Rules 2005 and are not liable to service tax.
54. In view of the above, the difference of opinion on various points is resolved as under:
(i) That the business auxiliary services of promotion of market in India for foreign principal made in terms of agreement dated 1.7.2005 amount to Export of Services and the Honble Supreme Court decision in the case of State of Kerala and Others vs. The Cochin Coal Company Ltd. [1961 (12) STC 1 (SC) as also Burmah Shell Oil Storage and Distributing Co. of India Ltd. vs. Commercial Tax Officers [1960 (11) STC 764 ] explaining the meaning of export is not relevant inasmuch as the same deals with the export of goods and not export of services;
(ii) That the Business Auxiliary services provided by the assessee to their Singapore parent company was delivered outside India as such was used there and is covered by the provisions of Export of Service Rules and are not liable to Service Tax.
(iii) The principal of equivalence between the taxation of goods and taxation of services, as laid down by the Honble Supreme Court in the case of All India Federation of Tax Practitioners [2007 (7) STR 625 (SC) as also the principals of destination based consumption Tax were in the context of Constitutional Authority of levy of Service Tax on certain services and the issue of Export of Service in terms of Export of Service Rules was not the subject matter of said decision. The Export of Service Rules, 2005, being destination based consumption tax are in accordance with the declaration of law by the Honble Supreme Court.
(iv) Inasmuch as the appeal No. ST 828/2010 was not argued by both the sides, the same can be listed for final disposal even though issue involved is identical.
(v) Having held that services involved were export of services, the same are not liable to be sustained against the appellants.
Files to be placed before original Bench for recording of final majority order.
(Pronounced in the open Court on 11.09.2014) (Archana Wadhwa) Member(Judicial) ss Majority Order
55. Service Tax Appeal No.ST/866/2008 is allowed and Service Tax Appeal No.ST/828/2010 is to be listed for hearing. Registry to list the Appeal No.ST/828/2010 in due course.
(Pronounced in the open Court on 23.09.2014)
(RAKESH KUMAR) (D.N.PANDA)
TECHNICAL MEMBER JUDICIAL MEMBER
SSK
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Service Tax Appeal No.ST/866/2008
Service Tax Appeal No.ST/828/2010