2012 (12) TMI 274 - AT - Service Tax

Referring the matter to Hon ble President Classification of Service either under the head Business Auxiliary Service or Advertisement Agency Service - The appellants are engaged in brand promotion of INTEL and MICROSOFT for which commercial considerations were being paid by both the brand owners periodically. Held that - Case be placed before the Hon ble President to refer it to a 3rd Member to decide the issue on the following points - Difference of Opinion - Whether the Member (Judicial) is correct in holding that the appellants are engaged in the activity of promoting the brand of Intel/Microsoft consequently, the activity of promotion or marketing of logo or brand does not cover under the category of Business Auxilliary Service by relying on the judgment of M/s JETLITE (INDIA) LIMITED Versus CCE , NEW DELHI, 2010 (12) TMI 40 - CESTAT, NEW DELHI . Or - Whether the Member (Technical) is correct in holding that the appellants are engaged in the activity of promoting the branded goods of Intel/Microsoft, therefore, the judgment of Jetlite (India) Ltd., (supra) is not applicable to the facts of this case and the demands are rightly confirmed under the category of Business Auxilliary Service and the extended period of limitation has rightly been invoked.

Summary

Issues Involved:
1. Whether service tax is payable under "Business Auxiliary Service" on the advertisements of computers carrying "Intel Inside" and "Microsoft Windows" logos.
2. Whether the show-cause notice dated 11.04.2007 is barred by limitation.
3. Whether the services rendered can be considered as export of services.
4. Whether the amounts received from Intel and Microsoft are subject to service tax.
5. Whether penalties and interest imposed are justified.

Issue-wise Detailed Analysis:

1. Service Tax under "Business Auxiliary Service":
The appellants argued that the advertisements were primarily for promoting their own products, with the Intel and Microsoft logos merely enhancing their product image. They cited the Tribunal's decision in Jetlite (India) Ltd., which held that brand promotion was not covered under 'Business Auxiliary Service' but under 'Brand Promotion Service' from 1.7.2010. The Tribunal examined the agreements and advertisements, concluding that the appellants were promoting Intel and Microsoft's products, thus falling under 'Business Auxiliary Service' as per Section 65(19) of the Finance Act, 1994. The Tribunal rejected the argument that the activity was merely incidental to promoting their own products.

2. Barred by Limitation:
The appellants contended that the show-cause notice was barred by limitation, as there was no suppression or deliberate withholding of information. However, the Tribunal found that the appellants had not disclosed their agreements with Intel and Microsoft to the department, constituting suppression of facts. Therefore, the extended period for issuing the show-cause notice was justified.

3. Export of Services:
The appellants claimed that the services should be treated as exports, as Intel and Microsoft did not have establishments in India, and the benefits accrued outside India. However, the Tribunal found that both companies had offices in India and the services were rendered and used in India. The payments were received in Indian Rupees, not convertible foreign exchange, disqualifying the services from being considered exports under the Export of Service Rules, 2005.

4. Amounts Received from Intel and Microsoft:
The appellants argued that the amounts received were reimbursements for advertisement expenses and should not be subject to service tax. The Tribunal, however, found that the payments were linked to promotional activities specified in the agreements, qualifying as consideration for 'Business Auxiliary Service'. The Tribunal also rejected the argument that the amounts were trade discounts, as they were contingent upon meeting promotional milestones.

5. Penalties and Interest:
The Tribunal upheld penalties under Sections 75A, 76, and 77 for failure to obtain registration, default in payment of service tax, and non-filing of returns. However, the Tribunal set aside the penalty under Section 78, considering the issue involved classification of services, which warranted leniency. The Tribunal also upheld the imposition of interest on delayed payment of service tax.

Separate Judgments:
The Tribunal delivered a split decision, with one member holding that the services fell under 'Business Auxiliary Service' and the other member disagreeing, leading to a reference to a third member for a final decision.