9911796707
TMI Blog2012 (12) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, it appeared that the services provided by the appellants are taxable under 'Business Auxiliary Service' as per Finance Act, 1994 effective from 01.07.2003. It was found that the appellants were not discharging their service tax liability on the commercial considerations received by them from the two brand owners. Therefore show-cause notices were issued dated 11.04.2007 for the period 01.07.2003 to 28.02.2007 in the case of Zenith and dated 30.03.2007 for the period 01.07.2003 to 31.08.2006 in the case of Datamini. The matters were adjudicated, demands of service tax along with interest and various penalties were confirmed against the appellants under the category of 'Business Auxiliary Service'. Aggrieved by the same, the appellants are before us. 3. On behalf of Zenith Shri M.H. Patil, learned Advocate appeared before us and submitted that the issue involved in the matter are as follows:- (a) Whether service tax is payable under "Business Auxiliary Service" on the advertisements of computers (the Appellants final products), carrying a foot note "Intel Inside" and "Microsoft Windows" logos, belonging to their respective owners, in a case where r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertise Computers and inserting brands of "Intel" and "Microsoft" is just incidental, to the said main purpose, and, hence, such incidental activity is not subject to levy of service tax; (F) that as per clause (a) to Section 65A(2) of the Finance Act, 1994, for the purpose of classification of services, sub clause providing most specific description is to b e preferred to sub clauses providing a more general description; (G) that the Head of "Advertisement Agency Service" under Section 65(105)(e) of the said Act gives more specific description, than "Business Auxiliary Service" under Section 65(105)(zzb) of the said Act, and hence, the said activity of the advertisement of brands of Intel and Microsoft is correctly classifiable under "Advertisement Agency Service", and the Advertisement Agency is already paying service tax under the said Head. (H) that, subjecting the said amount of re-imbursement to service tax, again would lead to double taxation, in view of service tax already paid by the Advertisement Agency; (I) that in view of the above, levy of Brand Promotion Service has been brought from 1.7.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner, in impugned order takes cognizance of reimbursement of advertisement was received by them in convertible foreign exchange, but the benefit of export of service has been denied by the Commissioner solely on the ground that service was neither delivered outside India nor used in business outside India but consumed or u sed for business in India. (L) Ld. Commissioner accepts fulfillment of condition under Export of Service that order for provision of such service is made by the recipient of such service from any of his commercial or industrial establishment or any office located outside India. (M) that, even if value for services is received in Indian currency, benefit of export of service is available, based on the following judgments: i) Nipuna Services - 2009 (14) STR 706 (Tri) ii) CCE vs. Shelpan Export - 2010 (19) STR 337 (Tri) (N) that, the amounts re-imbursed from Intel and Microsoft are at actual, thereby making the Appellants acting as a pure agent; (O) that it may be held hat, demand for the period 1.7.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice tax was under challenge and export in general was discussed. When the term 'export' has been given specific meaning under Export of Service Rules, taking recourse to general law, would not be correct. 4.4 The judgments directly on the issue would prevail. 4.5 The ratio of judgments to hold that subsequent entry still have prospective effect, the judgments of Hon'ble Bombay High Court in the case of Indian National Shipowners Assn. (supra) and the judgment of tribunal in the case of IBM India(supra), since have been upheld by the Hon'ble Supreme Court, the Tribunal's judgment cited by the Ld. Commissioner would be of no avail to Ld. Revenue. 4.6 The binding effect of Tribunal judgment in Nipuna Services (supra) would not be wiped out, since the same has not been stayed by High Court, although appealed against by Department and in any case, various other judgments, cited, on the issue have not been challenged by Department and the CBEC Circulars dated 24.2.2009 and 13.5.2011 clearly spell out the interpretation on the issue. 4.7 The Constitution Bench judgment of Hon'ble Supreme Court in Ratan Melting Wire Ind. [2008 (231) ELT 22(SC)] would not apply to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and Microsoft. As stated above the Appellant is neither promoting, marketing or selling the goods Intel/Microsoft as the advertisement is for the sale of he computers manufactured by them and therefore no service is provided by the Appellant and in the event the same will not fall under the taxable category of Business Auxiliary Service. - Only services in relation to promotion or marketing or sale of goods produced or provided by or belonging to the client i.e., a third party entity, fall within the ambit of taxable entry of 'Business Auxiliary Services' - Fact that some benefit may have accrued to Intel and Microsoft has been wrongly perceived as promotion being made of the products of Intel and Microsoft. - Reliance is placed on: * Philips India Ltd vs. CCE, Pune [1997 (91) ELT 540 (SC)] (Advertisement made by dealer benefitted in equal degree the Appellant therein and the dealer. Cost of such advertisement borne half and half by the Appellant and the dealer. Making a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi High Court in the case of Microsoft Corporation (India) Pvt. Ltd. v. Commissioner - 2008 (16) S.T.R. 545 (Del.) is erroneous as same is an interim order. * It is submitted that the Larger Bench of the Hon'ble Appellate Tribunal in the case of Surya Roshni Ltd. v. Commissioner - 2010 (260) E.L.T. 417 (Tribunal-LB) has held that interim order deciding a stay application cannot have the effect of binding precedent; * In any event the issue in the case of Microsoft (supra) has not attained finality as the same is pending before the Hon'ble Third Member. * It is further submitted that reliance cannot be place on the Judgment of the Hon'ble Supreme Court passed in the case of All India Fed. Of Tax Practitioners (supra) as the same does not deal with export of service Rules. 5.4 Impugned Order beyond the scope of SCN: - It is submitted that the impugned order classifying he services under the category of BAS is beyond the show cause notice issued to the Appellant in as much as it is not in dispute that the SCN defines the service provided by the Appellant as brand promotion; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to mean that the benefit of the service should accrue outside India. Reference is also made to Circular No.141/10/2011-TRU, dated 13-5-2011. - For all the different periods set out above, the beneficial enjoyment of the services was always outside India and the services allegedly provided to 'Intel' at all times was an 'export of services'. * ABS India vs. CST, Bangalore [2009 (13) STR (65) Tri-Bang] * Blue Star vs. CCE, Bangalore [2008 (11) STR (23) Tri-Bang] * Lenovo (India) Pvt. Ltd. vs. CCEx, Bangalore [2010 (20) S.T.R. 66 (Tri-Bang.)] * Muthoot Fincorp Ltd. v. Commissioner - 2010 (17) S.T.R. 303 (Tribunal) - In any event it is submitted that payment received in Indian Rupees from an Indian entity who had in turn received consideration in foreign currency has to be treated as receipt in foreign currency only. Reliance is placed on the following decisions of this Hon'ble Tribunal: - Natio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of a tax is, in law, much more than a mere failure to pay the tax - Burden of establishing intent to evade payment of a tax is that of the Revenue and must be established with cogent, positive evidence. Department failed in bringing on record any positive of intent to evade payment of service tax. - Reliance is placed on: - C.C.Ex. Aurangabad vs. Balakrishna Industries (2006) (201) ELT325 (SC) - Godrej Soaps vs. C.C.Ex. reported in 2004(174) ELT 25 (Tri-LB) - Tamil Nadu Housing Board vs. CCE reported in [1994(74) ELT 9 (SC)] - Hindustan Steeel Ltd v. State of Orissa reported in [1978 (2) ELT 159 (SC)] - CC.Ex. vs. HMM Ltd reported in 1995 (76) ELT 497(SC) - There can be no levy of penalty in terms of both Section 76 and Section 78. - Appellant is entitled to the benefit of Section 80. Reliance is placed on ETA Engineering Ltd. vs. Commr. Of C.Ex reported in 2006 (3) S.T.R. 429 = (20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing system - Logo prominence/Position color/other specification. 6.1 He further submitted that in case of Datamini the actual expenditure incurred by them towards advertising and publicity charges as reflected in their balance sheets of respective period. This additionally proves that they are not merely advertising the logo but are also indulged in activities of promoting the sale of goods and are rendering the business auxiliary service which talks about promotion and marketing services as reflected in its ambit per the contracts. 6.2 He further submitted that M/s. Microsoft Corpn. (I) Ltd., the terms of agreement are as follows:- - The agreement defines a cooperative framework between Microsoft and company to improve end customer experience by improving product quality and customer support as well as promoting Microsoft Technologies. - In consideration of company's successful completion and accomplishment of the agreed milestones activities, Microsoft will offer company an agreed amount for Market Development Activities as stipulated in term of the agreement. - In exihi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellants are to be dismissed. 7. Heard and considered the submissions made by both the sides. 7.1 The allegation in the show-cause notice is that the appellants are engaged in brand promotion of "INTEL" and 'MICROSOFT' for which they have paid commercial consideration by both the owners and the said activity appears to be taxable under 'Business Auxiliary Service'. In paragraph 6 of the show-cause notice it is clearly mentioned that the above facts indicate that Zenith was intentionally promoting the INTEL INSIDE brand for INTEL & MICROSOFT technologies for MICROSOFT. Further, in para 7 it is recorded that the foregoing discussions lead to the inferences, viz., the service provided by ZENITH viz. that of promoting the INTEL Inside brand and to encourage demand creation activities for branded Qualifying Licensee Products. Further in para 15 and para 15.1 of the show-cause notice concluded the allegation that why the service rendered by INTEL and MICROSOFT viz. promotion of INTEL Inside brand and MICROSOFT technologies should not be treated as taxable services under the category of 'Business Auxiliary Service' under Section 65 (105)(zzb) as amended from time to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (iv) undertakes any activities relating to such sale or purchase of such goods or services; (b) "excisable goods" has the meaning assigned to it in clause (f) of section 2 of the Central Excise Act, 1994 (1 of 1944). 7.3 The definition of 'Business Auxiliary Service' means promotion or marketing or sale of goods produced or provided by or belonging to the client. Therefore, for promoting or marketing or sale, there should be goods. As in the concluding paragraph of the sho-cause notice alleging that the appellants are engaged in the activity of promotion of INTEL Inside brand and MICROSOFT Technologies. There is no allegation that the appellants are promoting or marketing or selling the goods of INTEL Inside/MICROSOFT. 8. The issue came up before this Tribunal in the case of Jetlite (India) Ltd. (supra) wherein the allegation was that as per the agreement between Sahara Corporation and Jetlite (India) Ltd. in order to promote business of Sahara Corporation by Jetlite (India) Ltd. Accordingly, the business activity of Sahara Corporation in relation to housing and real estate projects was sought to be promoted and publicized by prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the law makers. To bring into the tax net even mere promotion of a brand, the new entry was introduced in the said Act. It is only consequent to the said entry that mere display of brand could amount to promotion of services rendered by the client and not otherwise. Thereafter, it was held that the activity undertaken by them was of brand promotion and not to be included in the category of Business Auxiliary Service prior to 01.07.2010. 9. In this case also we have seen that putting the logo of MICROSOFT/INTEL do not specify which product of 'INTEL' or of 'MICROSOFT' is being promoted by the appellant. As the 'INTEL' is a common b rand for various products like 'CPU Chip', 'motherboard' etc. and MICROSOFT brand name is also common to various software like Windows 95, Win-98, Win 2000 etc. Moreover, as per the advertisement in the newspaper regarding the product is merely for promoting the sale of computers manufactured by the appellants which are having the features of Intel/Microsoft which does not mean is the activity or promoting/marketing or sale of the goods manufactured by the Intel/Microsoft. 10. Moreover, we further observe in the advertisement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting authority in the matter. All the documents on record have to be read as a whole and in a harmonious way so as to understand the issues in contention and arrive at a balanced and unbiased view of the matter. It would be relevant and important at this juncture to see how the three different parties to the issue, the authority which investigated the matter and issued the show cause notice, the Noticee and the adjudicating authority understood and appreciated the matter. 15.2 Now let me take up the show-cause notice dated 30-3-07 issued to M/s DataMini Technologies (India) Ltd., one of the appellants. Para 3.1 of the said notice briefly narrates the submissions made by the notice as follows:- "that while advertising its product, the logos of INTEL and MICROSOFT were also advertised; that the purpose of such advertising was that the products of INTEL & MICROSOFT were being used in its (Datamini) product; that while purchasing the said products form INTEL & MICROSOFT, Datamini was entitled for a percentage of market expense support from INTEL & MICROSOFT. That these amounts were not paid to them at the time of purchase from INTEL & MICROSOFT but it accrued in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "The General Requirements specified in Chapter 2 of the said Agreement has laid down that to be eligible to become a Licencee in Track 2 of the Program, a company must be a manufacturer or integrator of QLPs, advertise and sell the ALPs to end users or resellers under the Licensee's system brand name, purchase a minimum dollar amount of the Qualifying Intel Processors from an Intel authorized source. Sellling counterfeit and/or remaked processors is prohibited and is ground for immediate termination from the program..." 15.5 Similarly in the case of Microsoft System Builder Program for Market Development 2005-06 (India only), in para 5 of the notice, the following points have been noted: "Exhibit D to the said agreement lays down that in consideration of Datamini's successful achievement of the following mile stone activities. Microsoft would offer a fixed amount per Windows Licence for market development activities. The activities listed and the description given are as follows:- (i) PC certification which is related to DATAMINI successfully completing the Windows logo certification. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received a consideration on successful completion and accomplishment of the agreed milestone activities from MICRFOSOFT for market development activities. INTEL & MICROSOFT are registered trademarks of the respective companies." (emphasis supplied) 15.8 On the basis of the above findings the show cause notice in para 7(i) concludes as follows:- (i) The service provided by DATAMINI, vis., that of promoting the INTEL inside brand and to encourage demand creation activities for branded Qualified Licenceee Products that are based exclusively on Qualifying Intel Processors for INTEL and similarly, that of promoting MICROSOFT technologies for MICROSOFT, under respective agreements discussed above, amounted to a taxable service, as defined in the Act. 15.9 In para 15.1 of the show cause notice, it has been proposed to classify the service rendered by the notice to INTEL and MICROSOFT under the category of 'business auxiliary service' as defined in section 65(19) read with section 65(105)(zzb) of the Finance Act. 15.10 From the extracts of the show cause notice as detailed above, especially, the underlined portions, it is very clear that the allegation in the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain expenses incurred by the Noticee for demand generation, market development and partner readiness activities from the amount accrued in the Co-operative Marketing Fund. The notice, to be eligible for the co-operative marketing fund scheme, should apart from purchasing a minimum stipulate number of Microsoft Operating System builder licences, also satisfy certain technical requirements like Microsoft Certification requirements, etc. Under the said Agreement and the Guidebook thereto, to be entitled to re-imbursement of expenses, the activities to be carried on by the notice should interalia satisfy the following requirements: * Directly support the sale of fully assembled computer systems pre-installed with Windows software; * Feature prominently the Company brandname and contact information of the Noticee; * An appropriately displayed ' genuine Windows Advantage statement. In para 1.6 of the reply to the show cause notice, it has been stated as follows: "1.6 In this background, the Directorate General of Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Noticee and not for increasing the sales of Intel or Microsoft to the end customer through the Noticee, when in fact there are none." In para 4.5.2 of the reply to the show casue notice, it has been ineralia stated as follows: "4.5.2 The Noticee submits that even when it recommends "licenced Microsoft MS Windows XP Professional for Business as a part of its advertisement campaign, it is mainly for the purpose of rendering credibility to its own brand of computers, i.e. "Datamini"brand of computers so as to repose faith in the minds of the prospective customers". 15.13 From the extracts of the reply to the show cause notice enumerated above, especially the underlined portions, it is crystal clear that the notice understood the allegation as they were promoting the sale of Intel brand Processors and Microsoft brand software. That is why they have taken pains to explain that what they were promoting was their own manufactured goods and not those belonging to the brand owners. If they had understood the show cause notice in any other way, there was no need to explain that the consideration s received from Intel and Microsoft were in effect and substance a trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority, as evident from the extracts of the order cited above, clearly reveals a categorical finding to the effect tha the notice has been promoting the marketing of the products of Intel and Microsoft. 15.16 I have also carefully perused the grounds of appeal filed by the appellants Datamini in this case. The grounds urged are broadly as follows:- 1. Activities carried on only to promote the 'Datamini' brand and no activity or promotion or marketing or sale of goods produced by or belonging to the client; 2. Amount received from Appellant is only in the nature of a 'trade discount' and can not be treated as an activity liable to service tax; 3. Amount received from Microsoft and Intel in the nature of mere re-imbursement of expenses and can not be treated as an amount liable to service tax; 4. Amounts received from 'Intel' are in foreign convertible exchange and hence is not liable to service tax; 5. The show cause notice is time barred, hence extended period of limitation can not be invoked; 6. No penalty or interest can be levied in the facts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is necessary to go through the various provisions of the agreement entered into by the appellants with INTEL & MICROSOFT. 16.2 Clause 2 of the Intel Inside Program Trade Mark Licence and Market development Fund Agreement entered into between Intel Corporation, California and the appellants, reads as follows:- "2. License Grant: Intel hereby grants and integrator accepts a world wide, non-exclusive, non-transferable, royalty free, revocable license to use and display the Licensed Logos in accordance with the terms of this Agreement, and the Intel Inside Terms and Conditions. Intel further grants integrator a worldwide, non-exclusive, non-transferable, royalty free revocable license to use and display the Licenced Materials and in-Store Promotional Material solely to advertise and promote Qualifying Licensee Products and Platform-Compliant QLP in accordance with the instructions provided by Intel. No other right, title, or license is granted hereunder." Definitions of the various terms used in clause 2 are as follows:- "1.7 "Licensed Logos" shall mean the Processor Logos and Platform Logos as shown as Attachment A to this agreement which may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nium 2 processors Intel Itanium processors Intel Xeon processors Intel Pentium III Xeon processors Intel Pentium M processor Mobile Intel Pentium 4 Processors -M Mobile Intel Pentium III Processors - M Intel Pentium 4 Processors Intel Pentium III Processors Intel Celeron Processors Mobile Intel Celeron Processors 16.3 Relevant Extracts of Intel Inside Program - Terms & Conditions Track 2 are given herein below:- "Welcome to the Intel Inside Program (Called "Program" in the document). The purpose of this program is to positively promote the Intel Inside Brand and to encourage demand creation activities for branded Qualified Licensee Products (QLPs) i.e., Computer Products that are based exclusively on Qualifying Intel Processors (QIP)." 2.1 Eligibility To be eligible to become a Licensee in track 2 of the Program, a company must- * Be a manufacturer or integrator of QLPs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent claims will be made directly to the Licencee via check, wire transfer or electronic funds transfer, with Intel paying the wire transfer bank fees. The bank beneficiary name must be the same as the Licencee's name in all cases. 16.5 From the terms and conditions of the agreement delineated above, the facts which emerge are as follows:- (1) The eligibility criterion is integrating Intel's QIPs in the QLPs of the Licencee and the quantum of consideration is also dependent on the purchase of the QIPs by the Licencee; (2) The service to be rendered is to advertise the QLPs prominently displaying the Licenced Logos for Intel for Processors specified in Annexure B of the agreement; (3) Licenced Logos in Annexure A is the logo for the processor and the trade/brand name of the processor is contained in the logo; (4) The advertisements have to be placed in various media such as Print, Signage, Audio/Video, Online Media and Intel-created Merchandise. (5) The reimbursement is dependent upon the purchase of QIPs (Qualifying Intel Processors) from authorized sources. 16.6 In other wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y7 a fixed amount per Window Licence (COEM product purchased from an Authorized Distributor) for market development activities stipulate below: SL. NO Activity Description Payout/Unit Windows XP Professional Payout/unit Windows Home// Media Centre Edition1 1 PC Certification On Company successfully completing the Windows Logo Certification 25 25 2 Service Pack Support Company provides service pack support for all Company PCs that ship with windows XP The above should be messaged prominently on: Support page of COMPANY WEBSITE "Visit www.microsoft.com/genuine " to check if your windows is genuine 25 25 3 Windows Tagline Run at least two print advertisements (minimum 60 Column Centimeters) in a daily newspaper fro COMPANY desktop PC Systems and/or Laptop/Notebook PCs with Windows XP (Professional, Home or Media Center Edition), This advertisement must not contain any Desktop and /or Laptop/Notebook PC configuration that are preloaded with an operating system that is not Microsoft Windows XP (Professional, Home or Media Center edition) 150 100 4 Recommendation Tagline COMPANY must append the tagline "COMPANY recommends Windows XP (Professional, Home ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws XP software and should also recommend the use of the said software and/or affix Windows Genuine Advantage sticker. In other words, the advertisement is for the "Windows XP software" manufactured by MICROSOFT. Thus the service rendered by the Indian Company is for the promotion/marketing of Windows XP software. If computer software is treated as "goods", then it becomes the promotion/marketing of goods. If it is treated as "service" then it becomes promotion/marketing of service. In other words, whichever way onje looks at the transaction, the activity is for promotion/marketing of goods or service of the client. It is not a promotion of logo/brand name of the client as wrongly assumed in the Ld.Member (Judicial)'s order. It is further revealed that the payment for the services rendered is received in Indian Rupees and not in any convertible foreign exchange for undertaking the promotional activities in India through placement of advertisements in the media. 16.10 It will also relevant to see how the promotion/marketing is done in terms of the agreements entered into with INTEL & MICROSOFT. A copy of the advertisement for the Zenith's Personal Computer is available on re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our discussion as it does not affect our analysis. 17.2 As discussed in detail above, the noticees in the instant case were promoting the computer processors of INTEL and computer software of MICROSOFT for which they received a consideration. The consideration was paid out of the funds created wherein the money accrued on the basis of the purchase of goods/services from the client. The payment of consideration was subject to the service provider (noticees in this case) undertaking certain promotional activities in India by way of advertisements. Therefore, the said activity squarely comes under the purview of Business Auxiliary Service as defined in the Finance Act, 1994 and is liable to service tax accordingly. These facts emerge as bright as daylight from the terms and conditions of the agreement entered into between the noticees and M/s INTEL & MICROSOFT and the advertisements placed by the appellants in terms of the said agreements. 17.3 The findings of the hon'ble Member (Judicial) that the activity undertaken was one of promotion of logo/brandname and hence not taxable at the material period based on the decision of this Tribunal in the Jet Lite case is contrary to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... housemark without reference to any specific product or service using a celebrity. As already discussed in the preceding paragraphs, it is amply clear that in the case under consideration what is being promoted is the product of INTEL & MICROSOFT, namely, computer processors and computer software. As per the Ministry's clarification, the said service continue to remain taxable under "Business Auxiliary Service" and not under "Brand Promotion Service", It is a well-settled principle of interpretation that "courts in construing a statute will give much weight to the interpretation put upon it at the time of its enactment by those whose duty has been to construe, execute and apply the same enactment" [as held by the hon'ble apex court in Collector of Central Excise, Guntur vs. Andhra Sugars Ltd. - 1989 AIR 625]. The same position was affirmed by the hon'ble Apex Court in the case of K.P. Varghese vs. ITO Ernakulam [ (1982) I SCR 629] wherein it was held that ' the meaning ascribed by the authority issuing the notification is a good guide of a contemporaneous exposition of the position of law". Applying this principle of interpretation to the facts of the present case, it be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vity undertaken by the appellant does not come under the purview of "Business Auxiliary Service", he has gone into the other issues raised by the appellants. Since I am disagreeing with the view of the ld. Member (Judicial) regarding the classification of the service, I need to examine the other contentions raised by the appellants regarding their liability or otherwise to service tax. Accordingly I proceed to examine these issues. 18. The next issue for consideration is whether the services rendered by the appellants can be considered as export of service during the relevant period and therefore, not liable to service tax., as contended by the appellants. The argument advanced is that the recipient of service, i.e. INTEL & MICROSOFT do not have ny establishment or office in India, the service should be treated exported, as recipient is located outside India and also benefit accrued to recipient located outside India. The argument advanced is that the recipient of service, i.e. INTEL & MICROSOFT do not have ny establishment or office in India, the service should be treated exported, as recipient is located outside India and also benefit accrued to recipient located outside India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Datamini and from July 03 to February 07 in respect of Zenith. The Export of Service Tax Rules, 2005 came into force on 15-3-05. Rule 3 of the said Rules deals with export of service, which reads as follows:- "3. Export of taxable service - The export of taxable service shall mean (1).......not relevant.......... (2)......not relevant.............. (3) in relation to taxable services other than- (i) the taxable services specified in sub-clauses (a), (f), (h),(i),(j),(l)......................(zza), (zzc),(zzd).........and (zzv); and (ii) ...........not relevant.................. (i) such taxable services which are provided and used in or in relation to commerce or industry and the recipient of such services is located outside India. (a) order for prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18.6 Thus the position which obtains for export of service is that the order for rendering the service should have originated from outside India. This conditions is satisfied since as per the agreement, the service recipient is Intel Corporation, USA. As regards the second condition, during 15-3-05 to 18-4-06, the service should have been delivered outside India and used in business outside India. Business auxiliary service which is undertaken in the present case is promoting/marketing the service recipient's products in India through advertisements placed in the Indian media. Service is delivered when the advertisement is placed. This placing of advertisement takes place in India and hence the delivery also takes place in India and not elsewhere. Secondly, can it be said that the use of the service is outside India? Business promotion is in relation to the Indian market and for the Indian consumers. If that be so, how can it be said that the use of the service is elsewhere than in India. The same position regarding delivery and use applies during the period from 19-4-06 to 21-5-07 and the said condition is not satisfied by the appellant. For the period from 22-5-07 onwards als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ants. Therefore, the decisions of those cases can not be applied to the facts of the present case. 18.10. The Export of Service Rules owes it origin to General Agreement on Trade and Tariff. In the 8 th round of the GATT (Uruguay Round), negotiations were carried out in the area of services which led to the General Agreement on Trade in Services (GATS). This Agreement recognized four modes of delivery of services in the case of exports. These are - 1. Cross Border - The service itself crosses the border 2. Consumption Abroad - The consumer travels across the border 3. Commercial Presence - Establishment of an office or industry 4. Movement of Natural Persons - The service supplier travels across the Border 18.11. These principles can be diagrammatically represented as follows:- USER In India Outside India USE In India 1 (Taxable) 2 (Taxable) Outside India 3 (Taxable) 4 (Export) 18.12. Thus only when the user and the use of the service are located outside India, the transaction amounts to export and not otherwise. In the case under consideration, in the case of MICROSOFT, bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court makes it abundantly clear that to make the service activity leviable to tax, the services should be rendered is promotion/marketing of the goods of the client in India by placing advertisements in the media. Such an activity is rendered in India and hence leviable to service tax. 18.15. The CBEC had clarified the position relating to applicability of the provisions of the Export of Service Rules, 2005 in certain situations vide circular No.141/10/2011-TRU dated 13-5-2011. The relevant portions of the said circular are extracted herein below:- "Circular No.111/05/2009-ST was issued on 24th February 2009 on the applicability of the provisions of Export of Service Rules, 2005 in certain situations. It had clarified on the expression "used outside India" in Rule 3(2)(a) of the Export of Service Tax Rules, 2005 as prevalent at that time ............ In the context of the stated circular, an issue has been raised, whether for the period prior to 28-2-2010 the requirement that the service should be "used outside India" invariably means the location of the recipient? 2. In the stated circular it was interalia clarified that the words, "used o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be outside India. In the case of promotion/marketing of goods/services in India, which promotes the business in India of the client (who is located outside India), can it be said that the effective use and enjoyment is outside India. In my considered view such an interpretation would be totally irrational and illogical. 18.17. The appellants have contended that the demands are barred by limitation of time in as much as the show cause notices have been issued by invoking the extended period of time. It is their contention that they have not suppressed any facts from the department and have claimed the benefit of bonafide belief and have relied on a few judgments in support of this contention. In the case of M/s Interscape [2006(198) ELT 275], it was held that "bonafide belief is not blind belief and a belief can be said to be bonafide only when it is formed after all the reasonable consideration are taken into account". 18.18. Clause 4.4 of the agreement with MICROSOFT clearly states as follows:- "4.4 Any payments from Microsoft to Participant under this Agreement shall be inclusive of all cost, expenses, charges and service taxes and other levies payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd I hold accordingly. 19. The last issue for consideration relates to imposition of penalty on the appellants. 19.1 The learned Commissioner has imposed a penalty under Section 75A of the Finance Act, for failure to obtain registration; under Section 76 for the default in payment of service tax; under Section 77 for non-filing of the service tax returns and a penalty equal to the service tax confirmed under Section 78 for non-payment of service tax on account of fraud, collusion, suppression of facts, etc. Imposition of penalty both under Sections75A, 76 and 77 of the Finance Act, 1994 cannot be faulted as they have been imposed for violation of the statutory provisions of the said Act. As regards the imposition of penalty under Section 78, the same is for suppression of facts and other elements specified therein. I have held that in the case under consideration the invocation of extended period is justified inasmuch as there was suppression of facts on the part of the appellants with regard to the transactions. However, as the issue involves classification of service i.e., whether it is classifiable under 'Business Auxiliary Service' or under 'Promotion of Brand Service' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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