2016 (12) TMI 1535 - AT - Service Tax

Business Auxiliary Services - services of brand promotion of INTEL and MICROSOFT - activity of promotion or marketing of logo or brand - the advertisements of computers (the Appellants final products), carrying a foot note Intel Inside and Microsoft Windows logos, belonging to their respective owners - advertisement expenses is received from Intel and Microsoft? - suppression of facts - extended period of limitation - levy of penalty - difference of opinion - 3rd member decision Held that - We need not concern ourselves with all the specific activities enumerated in section 65(19) and may restrict ourselves to that of promotion or marketing or sale of goods produced or provided by or belonging to the client . A question that arises is whether the two supplies benefit in any manner from the inclusion of their logos in the advertisement and publicity material deployed by the appellants. In scale and reputation, appellants are incomparable with the two global giants. It is difficult to conceive that the products of these two entities will find additional acceptability in the market owing to the inclusion of their respective logos. The products themselves are amenable to utilization only by computer manufacturers and the publicity, if any, among the potential customers of the two appellants is unlikely to derive any economic benefits to the supplier. At best, it may be surmised that the scheme incentivizes the appellants to procure more products from the two suppliers and to enhance the sales of the computers manufactured by the two appellants. Such a benefit to the appellants would not qualify as promotion of product of client. Indeed, the impugned order should have ascertained the existence of a client-provider relationship between the appellants and the two suppliers along the nature of the fiscal flow accruing to the appellants as a prelude to determining the taxability. The activity of promotion or marketing of logo or brand does not cover under the category of Business Auxiliary Service - In view of the judgment in the case of Jetlite (India) Ltd. 2010 (12) TMI 40 - CESTAT, NEW DELHI , demand set aside - decided in favor of appellant.

Issues Involved:
1. Whether service tax is payable under “Business Auxiliary Service” for advertisements featuring "Intel Inside" and "Microsoft Windows" logos.
2. Whether the notice to show cause is barred by limitation.
3. Whether the services rendered qualify as export of services.
4. Whether the appellants are liable for penalties under various sections of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Service Tax under “Business Auxiliary Service”:
The appellants, M/s Datamini Technologies India Ltd. and M/s Zenith Computers Ltd., were found to be engaged in brand promotion of "Intel" and "Microsoft" for which they received commercial consideration. The primary question was whether these activities fall under the “Business Auxiliary Service” category as defined under Section 65(19) of the Finance Act, 1994.

The Tribunal analyzed the agreements between the appellants and Intel/Microsoft, which required the appellants to prominently feature Intel and Microsoft logos in their advertisements. The Tribunal noted that the primary objective was to promote the appellants' own products (computers) and not directly the products of Intel or Microsoft. The Tribunal referenced the case of Jetlite (India) Ltd., which held that promotion of a brand/logo was not covered under 'Business Auxiliary Service' but under 'Brand Promotion Service' effective from 1.7.2010.

The majority decision concluded that the appellants were promoting their own products and the incidental promotion of Intel/Microsoft logos did not constitute a taxable service under “Business Auxiliary Service” for the period in question.

2. Limitation:
The appellants argued that the notice to show cause was barred by limitation as there was no suppression or deliberate withholding of information. The Tribunal examined the facts and found that the appellants had not informed the department about the agreements with Intel and Microsoft nor sought any clarification regarding taxability. The Tribunal held that the extended period for demand was rightly invoked due to the appellants' failure to declare the value of taxable service in their returns, thus rejecting the appellants' claim of bona fide belief.

3. Export of Services:
The appellants contended that the services rendered to Intel and Microsoft should be treated as export of services, as the recipients were located outside India. The Tribunal examined the agreements and found that the services were rendered in India, and the payments were received in Indian Rupees. Therefore, the services did not qualify as export of services under the Export of Service Rules, 2005, which require the service to be delivered and used outside India and payment to be received in convertible foreign exchange.

4. Penalties:
The Tribunal imposed penalties under Sections 75A, 76, and 77 of the Finance Act, 1994, for failure to obtain registration, default in payment of service tax, and non-filing of returns, respectively. However, the penalty under Section 78 was set aside, as the issue involved classification of service, and it was held that mandatory penalty need not be imposed in such cases.

Conclusion:
The majority decision of the Tribunal held that the activities of the appellants did not fall under the category of “Business Auxiliary Service” and thus set aside the impugned orders demanding service tax. The appeals were allowed with consequential relief. However, the extended period for demand was upheld, and penalties under Sections 75A, 76, and 77 were imposed, while the penalty under Section 78 was set aside.

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