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TMI Blog2016 (12) TMI 1535X X X X Extracts X X X X X X X X Extracts X X X X ..... cts 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. - ST/07/2010, 10/2010-MUM - A/94489- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for the period 1.7.2003 to February 2007 is barred by limitation, in the absence of suppression and conscious deliberate withholding of information; 4. It is submitted that- (A) That advertisement is only for promoting the Appellants' own product i.e. computers and inserting brands of Intel and Microsoft , (reputed brands) as a footnote in the said advertisements is only for boosting the image of their products in the market; (B) The entire premise of Show Cause Notice is that brand promotion of Intel and Microsoft is covered under Business Auxiliary Service' (i.e. promotion or marketing or sale of goods produced or provided by or belonging to the client. (C) Hon'ble Tribunal in a similar case, in the case of Jetlite (India) Ltd., reported in 2011 (21) STR 119 (Tri-Del), has held that promotion or marketing of logo or brand was not covered under Business Auxiliary Service' under Section 65(19) read with Section 65(105)(zzb) and the same has become taxable under Brand Promotion Service' w.e.f. 1.7.2010 under Section 65(105)(zzzzq) of Finance Act, 1994. The said judgment although has been appealed against by the Department bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside India based on the following Judgments/Circulars: 1. ABS India Ltd. 2009 (13) STR 65 (Tri-Bang) 2. Lenovo (India) P. Ltd, - 2010 (20) STR 66 (Tri-Bang) 3. Muthoot Fincorp, Ltd. 2010 (17) STR 303 (Tri-Ban) 4. Service Tax Circular No. 111/05/2009-ST dt. 24.2.2009 5. Circular No.141/10/2011 TRU dt. 13.5.2011 (J-2) Since the benefits of services are accruing outside to the owners of brand name Intel Inside and Microsoft Windows , the following provisions substantiate that service is export of service. Export of Services - Trace of Law/provisions till 1.3.2007: 1. For the period 28.2.1999 to 9.4.1999: Notfn. No.2/99 Service Tax dated 28.2.1999 1999 (106) ELT N-287 2.1 For the period 9.4.1999 to 1.3.2003: Notfn. No.6/99 S.T. dated 9.4.1999 1999 (107) ELT N-38 2.2 Notification No. 6/99-S.T. dt. 9.4.1999 rescinded through Notfn. No.2/2003-S.T. dt. 1.3.2003 3. For the period 1.3.2003to 19.11.2003: Clarification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther submitted that the revenue has claimed that demand is sustainable, based on submissions inter-alia: i) that the ratio of the judgment of Tribunal in the case of Jetlite [2011 (21) STR 119 (T)] would not apply to the present case, as the facts are not parallel to the case on hand. ii) that when allegations in SCN, advertisements and the agreements are read together, it is clear that Zenith are promoting the sale of Intel chips and Microsoft Windows software and hence, would be covered under Business Auxiliary Service; iii) that the activities for which consideration is received is for market development activity as substantiated under the agreement with MICROSOFT/INTEL and hence, would be covered under the Business Auxiliary Service . iv) that the services rendered are specifically covered at sub-clause (i) of Section 65(19) of Finance Act, 1994; v) that in support Ld. Commissioner (A.R.) relied upon various judgments and CBEC instructions. vi) that in support of the say that the services could not be treated as export, Ld. AR relies upon the Tribunal judgment in Microsoft Corpn. (I) (P) Ltd. [2009 (15) STR 680 (Tri)] Microsoft Corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherboard', SAS Controller' etc. and similarly Microsoft' brand name i9s also common to various software like Windows 95'. WSin-98', Win 2000', Win XP', Win 7', Win Professional' etc., hence, it cannot be treated as a brand name of single or independent product. 4.9 That all the arguments advanced by Ld. Commissioner (A.R.) are similar to the ones made in para 7, para 9 and para 13 before Tribunal in Jetlite India (supra), and the same were considered by the Hon'ble Tribunal and it was held that activity of promotion of brand/logo was covered under Brand Promotion Service' only w.e.f. 1.7.2010 and not chargeable to service tax under Business Auxiliary Service'. 5. On behalf of Datamini Shri. J.H. Motwani, learned Advocate appeared and submitted as under:- 1. Activities carried on only to promote the DATAMINI' brand - Purpose of advertisement(s) was to create demand for DATAMINI' computers. - Addresses for the inquiry, etc, in the advertisement(s) were of the Appellant and not of Intel and/or Microsoft and the same was for solely selling the Computer manufactured by the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to some other person(s) who shall be the recfipient of such service - Reliance is placed on Magus Construction Pvt. Ltd. vs. UOI 2008 (11) STR 225 (Guj) 5.2 Amounts received by the Appellant, if at all, can be subject to tax only w.e.f. 01.07.2010 under Brand Promotion Services' under Section 65(105(zzzq) Ratio Laid down in the case of Jetlite India Limited [2011-21-S.T.R.-119-Tri.Del.] - Mere display of logo could not bring the case within the parameters of business auxiliary service under the said Act during - Promotion of a brand by itself did not amount to promotion or marketing of services - Business Auxiliary Service did not include the activity in the form of promotion of brand - Appellants are justified in contending that the entry relating to brand promotion under Section 65(105)(zzzzq) was introduced w.e.f. 26.2.2010. This obviously shows that the brand promotion was not included in the category of business auxiliary services prior to the said date. - Settled law that the charge created by introducing a new entry and consequently taxability thereupon, the question of imposing the duty retrospectively does not aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the levy of Service tax notwithstanding withdrawal of Notification No.6/99, [Circular No.56/5/2003-ST dated 25 th April,2003] - 20th November, 2003 to 15th March,2005 Exemption for services for which the payments were received in convertible foreign exchange [Notification NO.21/2003-ST dated 20.11.2003] - W.e.f. 16 th March,2005 Taxing entry of Business Auxiliary Services' is categorized under Category III of the Export of Services Rules, 2005. Amounts received from Intel/ Microsoft exempt under Export of Services Rules, 2005 as: - The payment for services is received in convertible foreign exchange; - The services are provided to a recipient outside India and are in relation to commerce and industry; - The order for service is received from an entity situated outside India; - The beneficiary of the service in the present case is situated outside India and therefore the services are used outside India. In this reliance is placed on Circular No.111/5/2009 ST dated 24 th February, 2009 which clarifies that the phrase used outside India' is to be interpreted to mean that the benefit of the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. - In view of the aforesaid suppression of facts with an intention evade payment of duty cannot be alleged in view of the judgment passed by this Hon'ble Tribunal in the case of Singh Brothers v. Commissioner 2009 (14) S.T.R. 552 (Tribunal) 5.7 Penalty not imposable - There was no intention to evade payment of Service tax nor has there been any findings as regards the levy of penalty that here was any intent on the part of the present Appellant to evade any duty. - For there to be levy of penalty, the person alleged to have evaded payment of a tax must be proved to be aware of the taxability of the transaction and must deliberately have avoided payment of the tax - Intent to evade payment 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. r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e MDFs. (g) The Contract talks in detail the following - Payment requests from one Intel Marketing program. - Advertising through Intel Inside Program - Fixes tough advertising standards - Placing Labels on licensing 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 complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not blind belief and it can be only bonafide when it is formed after all reasonable considerations. 6.10 Therefore, he submitted that the impugned orders are to be upheld and the appeals filed by 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. promo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 printing logo of Sahara Corporation on the air tickets, boarding pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 advertisements placed before us that the advertisements show the features ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the account of Datamini; that when it (Datamini) advertised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany 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. (ii) Service pack support related to DATAMINI prominently messaging on support page of DATAMINI'S website, viz., COMPANY provides service pack support for all PCs that ship with Windows XP and visit www.mic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 notice was that the noticee was promoting the marketing/sale of Qualifying Intel Processors for INTEL and Windows XP software of MICROSOFT. Technologies by putting the logo/brand name of the aforesaid companies in the advertisements of their product, namely, Datamini computer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erating 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 Central Excise Intelligence had issued a summon dated 28 th June 1006 in reply to which the Noticee had submitted certain documents and has also vide their letter dated 3 rd July, 2006 stated that the product being promoted and sold through the Market Development activities were the Datamini brand of computers and the Intel and Microsoft logos only indicated that the CPU and the Operating System of such companies was used as one of the compo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 discount. A trade discount is given for sale/purchase of goods. By alluding to the consideration received as a trade discount, the notice makes it absolutely clear that they have understood the allegation in the notice as promoting the goods of the brand owners, that is, Intel brand computer processors and Microsoft brand Windows XP software. 15.14 Now let us see, how the adjudicating authority understood the issues in contention. Part 4 of the order deals with the discussion and findings of the adjudicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived 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 the present case; and 7. No levy of interest/penalty for failure to register and file returns. 15.17 There is not even a mention nor a whisper in the grounds of appeal about the scope of show cause notice or the adjudicating authority traversing beyond the scope of the show cause notice. This fact clearly exposes the hollowness of the proposition that there was no allegation that the appellants were promoting or marketing or selling the goods of Intel Inside /Microsoft and therefore, the activities undertaken by the appellants will not come under the purview of Business Auxiliary Service . 15.18 If th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 be update by Intel from time to time. 1.8 Licensed Materials shall mean any advertising, promotional, and/or merchandising materials and artwork prepared and provided by Intel. Licensed Materials may or may not display Intel Trademarks, and may or may not be provided to Integrator subject to the Intel Inside Program Terms Conditions. 1.11 Platform Compliant Qualifying Licensee Product or Platform-compliant QLP shall mean Qualifying Licensee Products that meet the Intel criteria for an extended ingredient brand and that meets the requirements set forth in the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Advertise and sell QLPs to end users or resellers under the Licensee's system brand name. .. Purchase a minimum dollar amount of Qualifying Intel Processors (QIPs) from an Intel authorized source. For the minimum purchase amount, customers can refer to www.intel.com.intel/inside/track2/minpurchase 2.2 Market Development Fund (MDF) The Licensee is eligible to accrue 5% of its monthly Net shipments on tray and boxed purchases of Qualifying Intel Processors from Intel authorized sources into the Program Market Development Fund. The Licensee must integrate the purchased Qualifying Intel Processor into a QLP in accordance with the processor integration guidelines. Fund Availability . The Market Development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Licenced Logos which by definition is Processor Logos and Platform Logos. In other words, the program envisages the promotion of Intel's products, that is, processors, in India. 16.7 Now let us see what the agreement with MICROSOFT entails. The Agreement is titled MICROSOFT STARY SYSTEM UILDER PROGRAM FOR MARKET DEVELOPMENT 2005-06 (For India Only ). It has been entered into by MICROSOFT CORPORATION (INDIA) PRIVATE LIMITED. 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 milestone activities, Microsoft will offer Company an agreed amount for market development activities as stipulated in terms of this Agreement. 16.8 Some of the relevant definitions from the agreement are reproduced below: MDA means the market development allocation proposed by Microsoft to be distributed to a Participant in terms of the Agreement and as stipulated in Exhibit D hereof; Star System Builder means an original equipment ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 150 100 4 Recommendation Tagline COMPANY must append the tagline COMPANY recommends Windows XP (Professional, Home or Media Center Edition) for Home/Business in all end user channel advertisements (all print web based advertisements) releaded during MDA period. In addition, COMPANY must also display this tagline on the main/home page of the COMPANY website. Even a single COMPANY run advertisement, without this tagline during the MDF period will render this milestone invalid and negate payout against this milestone activity. 100 50 5 Starter Pack COMPANY must include a Starter Pack as part of the Bill of Material with every Desktop PC System Laptop/Notebook PC manufactured and shipped out of COMPANY factory premises. This Starter Pack may include upto a maximum of two demo CDs and/or one printed literature (minimum A4 size) For this quarter it includes a leaflet on windows Genuine Advantage 25 25 6 WGA St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 record. The said advertisement said to have been published on 9/9/06 in the Times of India, Mysore (as stated by the Advocate for the Appellant) reads as follows:- Intel Pentium Processor based Laptops Desk Tops at Intel Celeron Processor Prices . The advertisement contains the Intel Centrino Logo as specified in Annexure A to the agreement. The advertisement in respect of Topper Director model of the PC, interalia, mentions the following: Intel Pentium M Processor 725 (2MB cache, 1.6 GHZ, 400 MHz FSB) . The advertisement also mentions Zenith recommends Windows XP Professional . Another advertisement in respect of Zenith Computer which appeared in July, 2007 (as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 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 facts on record and the terms and conditions of the agreements involved in these transactions. Therefore, the judgment of this Tribunal in the Jet Lite case has no relevance or application to the facts of the present case. 17.4 An argument has been advanced by the counsel for the appellant that when a new entry is introduced covering a particular activity without amending the earlier entry, it can not be said the earlier entry covered the subsequently introduced entry based on the decisions in the case of Indian National Shipowners' Association, Cameo Corporation Services Ltd., Trumac Engg, Co Ltd. and IBM India. These judgments would be relevant only when a new activity is brought under the tax net. 17.5 The competing classification in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral 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 becomes evident that the activities undertaken by the appellant in the instant case falls under BAS and not under Brand Promotion. 17.7 Section 65A of the Finance Act lays down the principles of classification of taxable services and reads as follows:- 65A. Classification of taxable services - (1) For the purposes of this chapter, classification of taxable services shall be determined according to the terms of the sub-clauses (105) of section 65. (2) When for any reason a taxable service is prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, classification shall be effected as follows:- (a) The sub-clause which provides the most specific description shall be preferred to sub-clauses providi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia 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. This is a complete mis-representation of facts. A visit to the website of both these companies show that MICROSOFT has offices at Bangalore, Gurgaon, Hyderabad and Mumbai in India. Similarly, INTEL has offices in Secunderabad, Bangalore and Chandigarh apart from field sales offices at Cochin, Ahmedabad, Bangalore, Pune, Chennai, Kolkata, Mumbai and Delhi. The addresses of these offices are also available at these websites . 18.1 As regards services to MICROSOFT is concerned, the agreement for rendering of service has been entered into wi9th MICROSOFT CORPORATION (INDIA) PRIVATE LIMITED, which is a company located in India. Thus, the service recipient is located in India. The service of promoting/marketing of the product of the appellant has been undertaken through advertisements placed in India. Such advertisements are directed towards Indian Customers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the recipient of such service form any of his commercial or industrial establishment or any office located outside India. (b) service so ordered is delivered outside India and used in business outside India: and (c) payment for such service provided is received by the service provider in convertible foreign exchange; (ii) .not relevant . 4. Export without payment of service tax- Any service which is taxable under clause(105) of section 65 of the Act, may be exported without payment of service tax. 18.3 Though the service tax rules were amended vide notification 28/2005-ST dated 7-6-05, the amendment did not affect the conditions of export as far the present case is concerned and this positions continued till 18-4-06. Thus three conditions were required to be satisfied to be considered as export of service. In the case of service recipient who has offices in India (which is the case before us) the order for provision of service should have originated from an office located outside India, delivery of service and use of service should be outside India and the payment for the service rendered should be received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not constitute exports and hence they are not eligible for exemption from service tax during the said period. 18.7 Now let us see what is the position for the period from July 03 to 14-3-2005, that is, before the Export of Service Rules,2005 came into force. 18.8 The appellant's contention is that vide notification No.21/2003-ST dated 20-11-2003 which was in force till 14-3-05, exemption was available in respect of taxable services provided to any person in respect of which payment is received in India in convertible foreign exchange. Since it is an exemption notification, the onus is on the appellant to prove that that they have received the payments in convertible foreign exchange and hence eligible for the aforesaid exemption. What is available on record is only cheques issued by Citibank and The Hongkong and Shanghai Banking Corporation Ltd. for sums mentioned in Indian Rupees. It is mentioned in these cheques that the cheques are issued on the order of Intel Semiconductor Ltd. There is no indication whatsoever about the location of the remitter and on whose behalf the payments have been made. There is also no other evidence available in the records by way of bill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the table above. In the case of INTEL, the user was outside India but the use of the service was in India situation 2 of the table above. In both these situations, the transactions do not amount to export and hence taxable in India. 18.13. The hon'ble apex court in the case of All India Federation of Tax Practitioners [2007 (7) STR 625 (SC)] = (2007-TIOL-149-SC-ST) considered the nature of levy of service tax and elucidated the concept as follows:- 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. 8. As stated above, service tax is VAT. Just as excise duty is a tax on value addition on go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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 or incurred by Participant. All payments under this Agreement from Microsoft to a Participant shall be subject to deduction of withholding taxes. 18.19. Similarly in the agreement entered into with INTEL, there is a clause relating to reimbursable costs under para 7.2.4 of the Advertising Guidelines. The relevant portion is reproduced below: Excluded from reimbursement (regardless of who has paid them) are, but not limited to: creative development costs, production costs, labour costs of any kind, Agency or Media Company fees and commissions, talent charges, royalties, finance charges, freight charges, distribution, shipping and similar charges, inventory and any applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 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' penalty under Section 78 is not warranted. It is a settled position of law in matters involving classification mandatory penalty need not be imposed. In view of this, I am of the view that penalty under Section 78 is not warranted in the instant case. Accordingly, I set aside the penalty under Section 78 of the Finance Act, 1994 on the appellants. 20. In sum, I conclude as follows: (a) The services rendered by the appellants merit classification as Business Auxiliary Service' under clause (zzb) of Section 65 (105) of the Finance Act,1994. (b) The appellants are liable to service tax on the said activity for the impugned periods and, therefore, demands for service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder my decision has been framed by the regular Bench thus: Whether the Member (Judicial) is correct in holding that the appellants are engaged in the activity of promoting the brand of Intel/Microsoft consequently, the activity of promotion or marketing of logo or brand does not cover under the category of Business Auxiliary Service by relying on the judgment of Jetlite (India) Ltd. (supra) Or Whether the Member (Technical) is correct in holding that the appellants are engaged in the activity of promoting the branded goods of Intel/Microsoft, therefore, the judgment of Jetlite (India) Ltd., (supra) is not applicable to the facts of this case and the demands are rightly confirmed under the category of Business Auxiliary Service and the extended period of limitation has rightly been invoked. 23. I do not propose to narrate the facts leading to the appeal as these have been adequately covered by Hon ble Member (J) and, to the extent felt necessary in recording distinguishment, by Hon ble Member (T). Briefly, the appellants are manufacturers of personal computers and use the products of M/s Intel Corporation and M/s Microsoft Corporation for such manufacture. A s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid Act and Special Economic Zones Rules, 2006 is not in congruence with the descriptive entries relating to taxable services in section 65 of Finance Act, 1994. Special Economic Zones Act, 2005 is a self-contained, comprehensive statute with provisions for exemption and taxation that do not need to resort to any other taxing statute except where limited and specific references are found in provisions of the Special Economic Zones Act, 2005 itself. While section 30 of Special Economic Zones Act, 2005 is the charging provision for goods removed from special economic zones (SEZ) to the domestic tariff area (DTA), there is no corresponding provision for charging tax on services. It would appear that provision of taxable services to the domestic tariff area (DTA) is not envisaged under Special Economic Zones Act, 2005 which is not surprising considering that the there is no congruity of definition of services in the two laws. Export of service, if any, rendered by a unit in a special economic zone has, necessarily, to be ascertained within the scope and meaning of services in the Special Economic Zones Act, 2005. I do not dilate further on this claim of the appellant that has been disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considerations are taken into account. Therefore, the Noticees can not contend at this stage that they had not suppressed any information from the department and had acted in a bonafide manner. rendered a finding on the ingredients applicable to penalty under section 78 of Finance Act, 1994 and proviso to section 73(1) of Finance Act, 1994, approved the finding on the latter. 27. Proviso to section 73(1) of Finance Act, 1994 and section 78 are predicated on the same ingredients and recourse to the proviso, while acknowledging that circumstances do not justify penalty under section 78, does not appear to bear the hallmark of consistency. I am, therefore, unable to concur with the finding of Hon ble Member (T) that the extended period has been correctly invoked. 28. Learned Counsel for appellants reiterate the submissions made before the regular Bench, viz., that that the impugned order had travelled beyond the notice in rendering a finding that the appellants were promoting the sale of goods of client, that appellants are in the business of manufacture using inputs obtained from M/s Intel Corporation and M/s Microsoft Corporation which, as per the decision of the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f particular service as part of the activity under the said category. The letter therefore rather then lending any support to the defence by the department, it conveys the meaning of the existing entry to be contrary to the arguments advanced on behalf of the department. 97. In Board of Control for Cricket Control in India, the Tribunal while dealing with the entry sale of space or time for advertisement and sponsorship services which was introduced in the said Act w.e.f. 1-5-2005 had observed that we find that a subsequent entry having been enacted covering the activity without any change of the existing entry, has to be interpreted as if the earlier existing entry did not cover the subsequently created entry. If the subsequent entry was covered by the earlier entry, there is no reason or scope to create the present entry specially when the rate of tax in respect of both the entries remains unchanged. Certainly, creation of new entries was not by way of bifurcation of earlier entry inasmuch as the earlier entry relating to advertisement remains unchanged without any change in the tax rate. As such, the introduction of new tariff entry would imply that the coverage in the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment which it failed to discharge. 31. Tax under section 65 (105) (zzb) of Finance Act, 1994 is liable upon rendering of service provided or to be provided to a client by any person in relation to business auxiliary service and section 65 (19) of Finance Act, 1994 defines the activity thus Business Auxiliary Service means any service in relation to, - (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or xxxxx (vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), . From the above, it is clear that the recipient of any of the specified activities has to be a client for the tax to crystallize. In relation to the publicity material carrying the logo of M/s Microsoft Corporation, Hon ble Member (T) has come to the conclusion that the activity may fall either under the head of service or goods without altering taxability for rendering business auxiliary service. With the decision of the Hon ble Supreme Court in Tata Consultancy Services v. State of Andhra Pradesh [2004 (178) ELT 22 (SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... products that, if at all, may be alleged to be the object of such promotion. Promotion of brand as a taxable service was, as yet, an unheard of activity in the realm of taxable services and rigorous delineation of brand and product is received wisdom which certainly could not have weighed with the authority issuing the notice or the adjudicating authority. 35. Appellants are manufacturers of branded products and, by no stretch of imagination, can it be inferred that, in the process of promoting their own products, the components in the personal computers were also marketed for a consideration paid by M/s Intel Corporation and M/s Microsoft Corporation. Obviously, the allegation of having promoted the products of these two entities can only be with reference to future releases from the two entities. The terms of the agreements have been adverted in sufficient detail by Hon ble Member (J) and does not bear repetition. Suffice it to say that appellants are reimbursed some portion of the cost of advertising and publicity conducted upon inclusion of the logos of the two entities in the advertising and publicity material of the appellants. The reimbursements are drawn from a fund c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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