9911796707
TMI Blog2009 (7) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Rules, 1994; (ii) Education Cess and Secondary and Higher Education Cess amounting to Rs. 3,04,18,968 /- (Rupees three crore, four lakh, eighteen thousand, nine hundred sixty-eight only) out of Rs. 3,06,42,746/- was confirmed against the appellant under the proviso to Section 73(1) read with Section 66 of the Finance Act, 1994, Section 95 of Finance Act, 2004 and Section 136 of Finance Act, 2007; (iii) Penalty of Rs. 1,000/- (Rupees One Thousand only) was imposed upon the appellant under Section 77 of the Finance Act, 1994 for contravention of the provision of the Act ibid and the Rules framed thereunder; and (iv) Penalty of Rs. 128,03,68,313/- (Rupees one hundred twenty-eight crore, three lakh, sixty-eight thousand, three hundred and thirteen only) equivalent to the amount of service tax including both type of cess was imposed upon the Appellant under Section 78 of the Finance Act, 1994 for suppressing the value of the taxable services provided by the appellant with an intent to evade payment of service tax. 2. Aforesaid adjudication was made against the appellant relating to the period 19-4-2006 to 31-12-2006, denying exemption claimed by the appellant on the ground of exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Subsidiary shall not solicit orders or agreements from outside the Territory. In soliciting orders, Subsidiary shall only be authorized to inform customers of price, payment, delivery and other terms offered by MO in accordance with information received from MO or its affiliates, as appropriate. Unless otherwise authorized herein or otherwise agreed by the parties, Subsidiary shall not enter into any agreements with customers regarding Microsoft Products, but shall instead promptly submit written customer orders to MO or its affiliates, as appropriate, for its acceptance or rejection. 3.2.2 Subsidiary shall assist MO as requested in collection past due accounts and performing other activities reasonably related to MO's business. 3.3 MO's Duties. 3.3.1 MO will use its best efforts to fill, or procure the fulfilment of, orders as scheduled and assist Subsidiary with technical matters in connection with the marketing of Microsoft Products and Services. 3.3.2 MO shall permit Subsidiary to operate a service on MO's or its affiliate's web sides for the support of MO's or its affiliate's customers in the Territory, without charge by MO. 4. RGE SERVICES MO shall reimburse Subsidiary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses are not already covered by another section of this Agreement or covered in another agreement between Subsidiary and MSFT or any MSFT affiliate. Taxes, insurance, duties, freight and other charges not attributable to the Microsoft Product itself paid by the customer shall not be considered in calculating the amount of commission. The commission payments shall be exclusive of any applicable consumption tax such as a Goods and Services Tax or a Value Added Tax which consumption tax shall be the responsibility of MO. 6.3 RGE Services. For RGE Services rendered pursuant to Article 4, MO shall pay subsidiary an amount equal to one hundred and ten percent (110%) of Subsidiary's actual expenses, less revenues, incurred in connection with its duties, provided such expenses comply with Subsidiary's budget, as adjusted from time to time, and provided, further, such expenses are not already covered by another section of this Agreement or covered in another agreement between Subsidiary and MO or any other MSFT affiliate. The reimbursement and additional compensation shall be exclusive of any applicable consumption tax such as a Value Added Tax or a Goods and Services Tax, which consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice has tried to make out a case that under the Market Development Agreement with M/s. M.O. Singapore they were providing Marketing support services. Even though with regard to Marketing Support Services, MCIPL creates services awareness of Microsoft products in India, they were delivered and used abroad in as much as in respect of these services with regard to the condition of services delivered outside India and used outside India, they submitted that the service recipient i.e. Microsoft Singapore did not have any office in India, the provision of marketing support services by MCIPL increased the sales turnover of Microsoft Singapore and impacted the following aspects of business operations of Microsoft Singapore in Singapore, i.e. Production operations, Sales operations, Finance operations, Recruitment plans etc. Therefore, the services were deemed to be delivered and used outside India. In other words, Noticee feels that the place of use of service will also be the place where the intended beneficiary is located. I am afraid to say that if this interpretation were to be accepted it would load to the redundancy of the legal provisions. The Rules clearly specify two separate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rstanding in some parts of the world. Particularly Europe, where the tax is levied at the place where the services are finally destined or used. The Indian Law, however, has clearly laid down that both the test of customer's location and use should be satisfied. This will be clear from the following diagram: USER USED In India Outside India In India 1 (Taxable) 2 (Taxable) Outside India 3 (Taxable) 4 (Export) It is only in situation 4 (subject to meeting other conditions) that the conditions of export are satisfied. It is inconceivable to imagine how maximizing the markets for Microsoft products including all local advertising, performing other activities including dissemination of information to potential customers, commenting, on any developments in the Indian territory affecting the software industry, investigating feasibility of new markets for Microsoft retail products and providing other services of marketing nature rendered in India, can be used elsewhere. Each of these services involves considerable physical execution that can not be provided outside India or used outside. These are not mere advisory services, whereby an opinion or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y or precedential value for the determination of this case. Likewise, comparison made under Foreign Trade Development & Regulation Act, 1992 in respect of export of goods are of no avail as the export of goods is an entirely different matter governed by the lay specified elsewhere. 229. Moreover, during the period from 19-4-2006 to 28-2-2007, there was an added requirement that the service should have been delivered outside India and during the period of SCN from 19-4-06 to 31-5-07 there was one more requirement that service should have been provided outside India. The Noticee while interpreting the criterion for any service to qualify as exports has during the periods i.e. 19-4-06 to 28-2-07 and 1-3-07 to 31-6-07 represented that for any service to qualify as export in terms of Export of Service Rules, 2005, as amended, only the condition of delivery and use outside India is required to be fulfilled. They have completely ignored the condition which states that "payment for such service provided outside India is to be received by the service provider in convertible foreign exchange" and the fact that all these conditions are required to be satisfied together for Business Auxiliary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement. But he did not have copy of such agreement on that day for which he requested to grant time for production of copy thereof. Accordingly the matter was adjourned to 16-3-2009. There was no Bench on 16-3-2009 for which the matter was called on 20-4-2009. On that day the appellant sought adjournment on the ground that Learned Sr. Counsel was unwell to travel from Chennai. Matter was allowed to be called on 24-4-2009 noticing that wholesale distribution agreement agreed to be furnished on 16-2-2009 was not furnished by Appellant to examine stand of the Appellant. 7. When the matter was called on 24-4-2009, the appellant submitted that soon after hearing of the stay matter on 16-2-09, there was a Board Circular issued on 24-2-2009 vide No. 111/05/2009-ST. C.B.E. & C. in terms of Para 1 (iii) of the Circular has conveyed its decision that Indian agents who undertake marketing in India of goods of a foreign seller, the agent undertakes all activities within India and receives commission for his services from foreign seller in convertible foreign exchange and such services which would generally include knowledge or technique based services, which are not linked to an identifiable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pares a design sitting in India for a property located in U.K. and hands it over to the owner of such property having his business and residence in India, it would have to be presumed that service has been used outside India. Similarly, if an Indian event manager (a Category II service [Rule 3(1)(ii)]) arranges a seminar for an Indian company in U.K. the service has to be treated to have been used outside India because the place of performance is U.K. even though the benefit of such a seminar may flow back to the employees serving the company in India. For the services that fall under Category III [Rule 3(1)(iii)], the relevant factor is the location of the service receiver and not the place of performance. In this context, the phrase 'used outside India' is to be interpreted to mean that the benefit of the service should accrue outside India. Thus, for Category III services as per Rule 3(1)(iii) of Export of Services Rules, 2005, it is possible that export of service may take place even when all the relevant activities take place in India so long as the benefits of these services accrue outside India. In all the illustrations mentioned in the opening paragraph, what is accruing ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e benefit of export of services. (g) Even recently, the New Delhi Bench of CESTAT in Gap International Sourcing India Pvt. Ltd. v. Commissioner of Service Tax - 2009 (15) S.T.R. 270 (Tri.-Del.) = 2009-TIOL-249-CESTAT-Del had granted absolute stay of tax demands on an identical issue on the ground that service recipient is located outside India. (h) The ld. Commissioner in the impugned order had clearly conceded that the service recipient is located outside India and does not have an office in India and the appellants have received the payment only in foreign exchange. In view of the above, the entire demands relating to export of service needs to be set aside. (i) The appellants reserve their liberty to place its arguments on invocation of extended period of limitation if so required at the appropriate juncture. Major portion of the tax demands are cleared barred by limitation in view of the fact department has been periodically accepting refund claims, claiming export rebate on these services and had also sanctioned the refunds for the period December 2006 and January, 2007. (j) The appellants also reserve the right to pursue arguments on cum-tax deduction and input credit ava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id contentions and prayed that no pre-deposit may be insisted during pendancy of appeal, while decisions pressed into service in the course of hearing are dealt by this order hereinafter:- (1) 2009 (13) S.T.R.65 (Tri.-Bang.) - ABS India Ltd. v. CST, Bangalore (2) 2008 (11) S.T.R. 23 (Tri.-Bang.) - Blue Star Ltd. v. CCE, Bangalore. (3) 2006 (4) S.T.R. 565 (Tri.-Bang.) - Shilpa Colour Lab v. CCE, Calkut. (4) 2008 (9) S.T.R. 186 (Tri.-Bang.) - Excel Fin Cap Ltd. v. CCE, Hyderabad (5) 1999 (114) E.L.T. 783 (S.C.) - Polar Industries Ltd. v. CCE, Meerut. 14. Ld. JCDR appeared on the first date of hearing on 16-2-2009 and argued that the Appellant performed entire service in India and clients/customers availing such services were in India for which liability to service tax arose in India. Further, Microsoft USA, products were sold in India with the help of the appellant. There was no export of service at all made-for the appellant as held by ld. Commissioner. 15. On 24-4-2009, Revenue was represented by its counsel Sri Prabhat Kumar and assisted by ld. JCDR. Ld. Counsel Shri Prabhat Kumar placed that the manner of examination of the entire transactions of the appellant in adjudicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Such service is provided from India and used outside India, and From 1-6-2007 to 31-12-2007 The words "provided outside India" were omitted from the condition mentioned at (iii) above." 18. In essence, there is no ambiguity that legislature intended that service is said to have been exported if the same is consumed outside India. Definition of the term "export" is nothing new to the fiscal legislation. The well tested and experienced Customs Act, 1962 has defined such term by Section 2(18) thereof to mean "taking out of India to a place outside India". Therefore, in no uncertain terms "export of service" shall mean that out come of service should have been consumed outside India. But the present case of the appellant does not seem to be so when the consumers of services provided were in India only and even the contents of sample agreement dated 1-7-2005 establishes in substance that ultimate consumption of service was in India and the appellant was an intermediary to connect its foreign principal to the end user of service who are consumers in India. 19. Hon'ble Supreme Court in the case of All India Fedn. of Tax Practitioners v. UOI - 2007 (7) S.T.R. 625 (S.C.) noticed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Collector of Central Excise, Ahmedabad - 1995 (76) E.LT. 241 (S.C.) we get a clue of an important principle, namely, "principle of equivalence". In that judgment, this Court was required to explain the words excisable" goods" and "produced or manufactured". It was held by this Court that the expression "excisable goods" has been defined in Section 2 of the Central Excise Act, 1944 to mean goods specified in the Schedule. It was held that the object for having a schedule in the Act was to fix rates under different entries including residuary entry. At this stage, we may say that the object of the Finance Act is also to fix rates of duty under different entries. However, the question which arose before this Court in Moti Laminates (supra) was the meaning of the word "goods" in Central Excise Act, 1944. This Court noticed that Section 3 of the 1944 Act levied duty on all excisable goods mentioned in the schedule provided they are produced and manufactured, therefore, this Court laid down the test that where goods are specified in the schedule they are excisable goods but whether such goods can be subjected to duty would depend on whether they were produced or manufactured by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es an activity, namely, of organizing shows. He belongs to the profession of Event Manager. As long as he is in the business or calling or profession of an Event Manager, he is liable to pay the tax on profession, calling or trade under Entry 60 of List II. However, that tax under Entry 60 of List II will not cover his activity of organizing shows for consideration which provide entertainment to the connoisseurs. For each show he plans and creates based on his skill, experience and training. In each show he undertakes an activity which is commercial and which he places before his audience for its consumption. The tax on service is levied for each show. This situation is very similar to a situation where goods are manufacture or produced with the intention of being cleared for home consumption under the Central Excise Act, 1944. This is how the principle of equivalence equates consumption of goods with consumption of services as both satisfy the human needs. In the case of Internet Service Provider, service tax is le viable for on-line information and database provided by web sites. But no service tax is leviable on E-commerce as there is no Database Access. 20. On the basis of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stination of service to be India. 23. When the matter was heard on 16-2-2009, the appellant submitted that it shall file whole sale distribution agreement on 16-3-2009. But no such document was filed on subsequent dates of hearing. Prima facie, it appears that the ultimate outcome of provision of services reached to the consumers in India and that were ultimately meant to be consumed in India. Accordingly destination based consumption of service ended with performance of service in India and that satisfies the performance based service tax concept as held by Apex Court in All India Fedn. of Tax Practitioners - 2007 (7) S.T.R. 625 (S.C.). In Para 7 of the judgment it has been held that service fall into two categories, namely, property based services and performance based services. Such fundamental concept brings the service performed in India to the fold of law relating to service tax under Finance Act, 1994. Therefore place of performance of service is decisive for determining event of taxability as well as incidence of tax. The appellant appears to have performed service in India for ultimate consumption thereof in India by its clients/customers in India. The service is destined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inbefore and also reading of the sample agreement throws light that the appellant was acting on behalf of the foreign principals in India as subsidiary of the foreign holding company. It had acted as agent of the foreign principals to result with provision of services in India out of the endeavour of the appellant with the technical assistance of the holding company and subsidiary company abroad. The service provided in India was consumed without reverting back to foreign principals for consumption abroad. Ultimate outcome of service having been exhausted in India, there appears to be no export of such services since efforts in India generated service recipients in India only. The foreign principals discharged post service contractual obligations. Even the Appellant's plea that Board Circular dated 24-2-2009 clarified that the benefits of the service accrue outside India, does not appear to be of any help to the appellant since benefit of the services has accrued to the consumers in India for the service provided to the consumers thereat to fulfil contractual obligation of the foreign holding company as well as subsidiary company of Singapore. The benefit of service terminated in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt as well as Singapore concern are subsidiaries of the holding company in USA being centrally governed. Service tax law does not appear to have brought any anomalous situation to the concept of service provided in India for its ultimate consumption thereat. 28. In the course of hearing, learned Counsel placed reliance on the decisions of Tribunal in case of ABS (India) Ltd. - 2009 (13) S.T.R. 65 and Blue Star - 2001 (11) S.T.R. 23. Such reliance was placed to advance argument that when recipient of services is located outside India, it cannot be said that the services were delivered in India or used in India. Services are utilized only outside India and such services shall be eligible to benefit of export of services. Subsequent to hearing of the matter, learned Counsel also submitted a copy of the decision of the Tribunal in the case of Lenovo (India) Pvt. Ltd. - 2009 -TIOL-911-CESTAT- BANG, wherein it was held that the said case was similar to case of ABC (India) Ltd. and Blue Star (supra). But these decisions, prima facie, do not come to rescue of the appellant for the law laid down by Apex Court in All India Fedn. of Tax Practitioners - 2007 (7) S.T.R. 625 (S.C.). 29. Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Empire Industries case - 1985 (20) E.L.T. 179 (S.C.). 32. Prima facie, the appellant has not brought out its case for total waiver of pre-deposit during pendancy of appeal since appeal is a conditional right granted by law as held in the case of Vijay D. Mehta - 1989 (39) E.L.T. 178 (S.C.) = 1988 (4) SCC 402. Balance of convenience does not tilt in favour of the appellant. There was no case made out to show that irreparable injury or undue hardship shall be caused to the appellant if no full waiver is granted. So also, neither materials were produced nor was financial hardship pleaded in the course of hearing. Rather, Revenue appears to be prejudiced if realisation of demand is stayed following decision of Apex Court in Benara Valves case - 2008 (12) S.T.R. 104 (S.C.) = 2006 (204) E.L.T. 513 (S.C.). The applicable principles have also been set out succinctly in SilliguriMunicipality and Ors. v. Amalendu Das and Ors. (AIR 1984 SC 653), M/s. Samarias Trading Co. Pvt. Ltd. v. S. Samuel and Ors. (AIR 1985 SC 61) and Assistant Collector of Central Excise v. Dunlop India Ltd. (1985 (19) E.L.T. 22 (S.C.) = AIR 1985 SC 330).While arriving at the above conclusion, we were conscious of d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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