Microsoft Corporation (I) (P) Ltd. Commissioner of Service Tax, New Delhi

Transcription

1 [2012] 52 VST 9 (CESTAT) [CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL] (NEW DELHI BENCH) Microsoft Corporation (I) (P) Ltd. Commissioner of Service Tax, New Delhi V. PANDA D.N., JUDICIAL MEMBER AND MATHEW JOHN, TECHNICAL MEMBER November 9, 2011 HF SERVICE TAX BUSINESS AUXILIARY SERVICE BUSINESS SUPPORT TO PRINCIPAL IN SINGAPORE FOR MARKETING MICROSOFT PRODUCTS IN INDIA AND TO PROVIDE TECHNICAL SUPPORT TO MAINTAIN THE SAME WHETHER EXPORT OF SERVICES TWO DIFFERENT VIEWS TAKEN BY MEMBERS OF BENCH TO BE DECIDED BY A THIRD MEMBER FINANCE ACT (32 OF 1994), S. 65(19), (105)(ZZB) EXPORT OF SERVICES RULES, SERVICE TAX BUSINESS AUXILIARY SERVICE ON FACTS EXTENDED PERIOD OF LIMITATION NOT INVOCABLE FINANCE ACT (32 OF 1994), S. 73, PROVISO. WORDS AND PHRASES SUPPRESSION OF FACTS MEANING OF. CONSTRUCTION OF TAXING STATUTES CIRCULAR NOT LAW BY ITSELF TO BIND A COURT. CONSTRUCTION OF TAXING STATUTES RULES INTERPRETATION CONSISTENT WITH EVOLUTION OF LAW TO BE ADOPTED. D.N. Panda (Judicial Member). When marketing support services were provided by the assessee, a wholly owned subsidiary of M/s. Microsoft Corporation of Washington, for marketing of Microsoft products in India for the period from April 19, 2006 to December, 2007 to principal in Singapore, also a wholly owned subsidiary thereof, ultimate consumption of service was made in India and the assessee as an agent of the foreign principal acted on its behalf in India. Material facts, agreements and recorded statement as well as modus operandi of the assessee suggest that element of agency was implicit in the contract between the parties as was reduced in writing by agreement dated July 1, Article 286(1)(b) of the Constitution explains what export means. The activity of taking out of India to a place outside India is a recognized test to hold an activity to be export. Activity relating to goods being equal to the activity relating to service, following principles of equivalence, meaning of the term export recognized by Constitutional provision and tested by law relating to Central ales tax, Customs, Central excise and export and import policy of the Government leaves no doubt to construe meaning of that term in the context of export of service under the provisions of the Finance Act, 1994 read with the Export of Service Rules, The circulars issued by the CBE & C subscribe to the concept of export as is stated in the Constitution. There should be two termini for export of service and service generated in one termini if travels outside that termini for ending thereat, export can be said to have been made. In the case of the assessee the activity of promotion of market ended in India upon identification of customers and nothing travelled abroad to end there. Dominant object of contract between the parties was to promote market in the territory of India to cater to the needs of the targeted consumers in the said territory and nothing to export. The test that the goods must have a foreign destination ought to have been satisfied by the assessee demonstrating that market promotion was done abroad but not in the territory of India. Crucial fact in this case is finding of market by the assessee in India for the foreign principal which brought it to the incidence of tax under the Finance Act, 1994 as a business auxiliary service provider. There is no ambiguity that the Legislature in terms of the Export of Service Rules, 2005 intended that service consumed outside India shall be

2 export. Service extincting in India and failing to move out of India does not occasion export. Identification of customers in India brings an end to the promotion of market handicapping such promotion to travel abroad. Circulars do not appear to have made any approach contrary to such proposition. Therefore, the plea of export raised by the assessee does not sustain and service tax liability under the Finance Act, 1994 arises on such count. Burmah Shell Oil Storage and Distributing Co. of India Ltd. v. Commercial Tax Officer [1960] 11 STC 764 (SC), State of Kerala v. Cochin Coal Company Ltd. [1961] 12 STC 1 (SC), Moti Laminates Pvt. Ltd. v. Collector of Central Excise [1995] 76 ELT 241 (SC), Godfrey Phillips India Ltd. v. State of U. P. [2005] 139 STC 537 (SC) and All India Federation of Tax Practitioners v. Union of India [2007] 9 VST 126 (SC); [2007] 293 ITR 406 (SC) relied on. A circular is not law by itself to bind a court. Courts have to declare what particular provision of statute says and not the executive circular contrary to statutory provisions and law laid down by apex court. Further, circular contrary to statutory provisions has no existence in law. Commissioner of C. Ex. v. Ratan Melting & Wire Industries [2008] 12 STR 416 (SC) followed. To invoke the proviso to section 73 of the Finance Act, 1994 a mere misstatement is not enough but such mis-statement or suppression of facts must be wilful to evade tax. Pleadings by the assessee suggested that investigating authorities had scope to examine records of the appellant and collect necessary information as well as relevant details from the appellant. The authorities were aware of the facts of the case of the appellant when intimation of export was filed by the assessee before the authorities on October 4, 2005 and when registration was sought on October 17, Relevant facts appear to be within the knowledge of the Departmental authorities. The Department did not lead any evidence to demonstrate that there was wilful mis-statement or suppression of facts with intent to evade payment of service tax by the assessee. Therefore the assessee is liable to service tax for the normal period in respect of business auxiliary service provided without being liable for the extended period. Suppression of facts is made when information was not disclosed deliberately to evade payment of duty but when facts were known to both the parties, omission by one to do what he might have done not that he must have done would not render it suppression. It is settled law that mere failure to declare does not amount to wilful suppression. There must be some positive act from the side of the assessee to find wilful suppression. Anand Nishikawa Co. Ltd. v. Commissioner of Central Excise [2005] 5 RC 506 and Continental Foundation Jt. Venture v. Commr. of C. Ex. [2007] 216 ELT 177 (SC) followed. Per Mathew John (Technical Member). Business auxiliary service is Category III service where the question whether the service is exported is decided with reference to location of the service receiver. In the case of the assessee the person availing of the service and paying for the service is located in Singapore. The service that is sought to be taxed is the service provided to the person paying for the service and not the service which is provided to a person in India who is not paying for the service though such person may also be a beneficiary of such service. The customer for the impugned service of sale promotion is Microsoft Singapore and not the person buying the software. The customer, with reference to whom issue is to be decided, is in Singapore in this case and if this logic is followed there is no doubt that the service is delivered outside India. The expression delivered outside India which existed in the Rules till February 28, 2007 cannot have the same connotation as performed outside India used in same Rules in respect of Category II services. The Legislature has used these two expressions in the same Rules and hence there is a presumption that both the expressions have different meanings. This presumption is strengthened by the fact that all the clarifications issued by CBE & C prior to May 13, 2011 are consistent with this view and anything contrary does not come out. An interpretation that delivery is to the person paying for the service and not any person who may incidentally benefit from the activity of the service provider, gives a harmonious interpretation. Since the promotion activity was of products belonging to a person resident abroad it is to be considered that the service was delivered outside India. The next issue is the effect of the expression used outside India which was in force till February 27, A harmonious construction considering the evolution of these Rules as also the circulars issued by CBE & C prior to May 13, 2011 like the Circular No. 111/05/2009-ST dated February 24, 2009 supports the interpretation that use outside India is to be judged with regard to the fact where the benefit accrues. The clarifications issued by CBE & C on February 24, 2009 and May 13, 2011 talk about an

3 interpretation with reference to accrual of benefit. This further strengthens the case of the appellant and not that of Revenue, if a person does market promotion for a manufacturer located outside India for selling the goods in India after its import, the goods will be considered to be imported but the marketing services will be considered to be exported. It may prima facie appear to be contradictory. But this is the outcome of the Rules as it exist now and this was the position clarified by CBE & C vide Circular No. 111/05/2009-ST dated February 24, Therefore business auxiliary services were exported as per the provisions of the Export of Service Rules, 2005 as in force during the relevant period. In the matter of interpreting Rules on a subject where the law is evolving, it is necessary that an interpretation consistent with the direction of evolution has to be adopted. [The Bench agreed to list out the points of difference to be decided by a Third Member.] Miscellaneous Order No. ST/188 of 2011, Service Tax Appeal Nos. 866 of 2008, Service Tax Appeal Nos. 828 of 2010 decided on November 9, 2011 N. Venkatraman, Senior Advocate, Muttu Venkatraman, Shafiq, Gajendra Maheshwari, Advocates, Nikhil Suri, Consultant, for the appellant Somesh Arora, Advocate and B. K. Singh, Joint Chief Departmental Representative, for the respondent Cases referred to : Burmah Shell Oil Storage and Distributing Co. of India Ltd. v. Commercial Tax Officer [1960] 11 STC 764 (SC) relied on State of Kerala v. Cochin Coal Company Ltd. [1961] 12 STC 1 (SC) relied on Moti Laminates Pvt. Ltd. v. Collector of Central Excise [1995] 76 ELT 241 (SC) relied on Godfrey Phillips India Ltd. v. State of U.P. [2005] 139 STC 537 (SC) relied on All India Federation of Tax Practitioners v. Union of India [2007] 9 VST 126 (SC) [2007] 293 ITR 406 (SC) relied on Commissioner of C. Ex. v. Ratan Melting & Wire Industries [2008] 12 STR 416 (SC) followed Anand Nishikawa Co. Ltd. v. Commissioner of Central Excise [2005] 5 RC 506 followed Continental Foundation Jt. Venture v. Commr. of C. Ex. [2007] 216 ELT 177 (SC) followed ABS India Ltd. v. Commissioner of Service Tax [2009] 13 STR 65 (Tri-Bang) referred to All India Federation of Tax Practitioners v. Union of India [2007] 9 VST 126 (SC) [2007] 293 ITR 406 (SC) referred to Anand Nishikawa Co. Ltd. v. Commissioner of Central Excise [2005] 5 RC 506 referred to Association of Leasing and Financial Services Companies v. Union of India [2010] 35 VST 549 (SC) [2010] 5 GSTR 326 (SC) referred to Blue Star Ltd. v. Commissioner of Central Excise [2008] 11 STR 23 (Tri-Bang) referred to Burmah Shell Oil Storage and Distributing Co. of India Ltd. v. Commercial Tax Officer [1960] 11 STC 764 (SC) referred to Commissioner of C. Ex. v. Ratan Melting & Wire Industries [2008] 12 STR 416 (SC) referred to Continental Foundation Jt. Venture v. Commr. of C. Ex. [2007] 216 ELT 177 (SC) referred to Dell International Services India P. Ltd v. CCE [2010] 17 STR 540 (Tri-Bang) referred to Em Jay Engineers v. Commissioner of Central Excise [2010] 34 VST 171 (CESTAT-Mum) referred to Godfrey Phillips India Ltd. v. State of U. P. [2005] 139 STC 537 (SC) referred to Indichem v. Union of India [1996] 88 ELT 35 (Guj) referred to Kissan Chemicals v. Union of India [1996] 88 ELT 648 (Delhi) referred to KSH International Pvt. Ltd. v. Commissioner of Central Excise [2010] 34 VST 167 (CESTAT-Mum) referred to Lenovo (India) Pvt. Ltd. v. Commissioner of Central Excise and Service Tax [2009] TIOL 911 (CESTAT-Bang) referred to Madras Marine and Co. v. State of Madras [1986] 63 STC 169 (SC) referred to Moti Laminates Pvt. Ltd. v. Collector of Central Excise [1995] 76 ELT 241 (SC) referred to Schott Glass India Pvt. Ltd. v. Commissioner of C. Ex. [2010] 18 STR 445 (Tri-Ahd) referred to State of Kerala v. Cochin Coal Company Ltd. [1961] 12 STC 1 (SC) referred to

4 ST/866/ ORDER D.N. PANDA (Judicial Member). Being aggrieved by the order of adjudication dated September 23, 2008, the appellant came in appeal to Tribunal raising the principal grievance that the service provided by the appellant in terms of agreement dated July 1, 2005 to the foreign principal is not "business auxiliary service" and not taxable under section 65(105)(zzb) read with section 65(19) of the Finance Act, 1994 (hereinafter referred to as "the Act") since such services were exported under the provisions of the Export of Service Rules, 2005 and immune from service tax. Further grievance was that the activity of repair and maintenance of software was not taxable prior to October 7, So also the adjudication was time-barred and the appellant was entitled to cum-tax benefit and Cenvat credit. It was also agitated that the appellant was not liable to penalty. With all these grievances prayer of the appellant was to set aside the order of adjudication while Revenue opposes the same. Allegations made in show-cause notice (SCN) Show-cause notice (SCN) dated April 24, 2008 was issued to the appellant covering the period July 9, 2004 to October 6, 2005 making various Page No: 14 allegations resulting in contravention of provisions of section 67 and section 69(1) read with section 68 and section 73 of the Act made by the appellant. It was alleged that there was failure of the appellant to seek registration as well as gross value of taxable service provided was incorrectly stated and the appellant failed to deposit service tax into the Government account as required by section 66 of the said Act. It was further alleged that there was failure to remit the service tax leviable within the stipulated time of the service rendered as required by section 68 of the Act read with rule 6 of the Service Tax Rules, 1994 and service tax at applicable rates as stipulated under the provisions of the aforesaid Act remained unpaid. It was further alleged that there was failure to pay the cess as was leviable under respective law and the appellant had deliberately suppressed material facts from the Department to intentionally evade payment of service tax and has intentionally and wilfully suppressed the facts of receiving value of taxable service rendered and did not pay service tax and also did not file the required return under law. The show-cause notice further pointed out that the appellant's claim of export of service was baseless and without sanction of law when the market development agreement dated July 1, 2005 entered into by the subsidiary appellant with the Microsoft Operations Pvt. Ltd. of Singapore required the appellant to identify the consumers in Indian territory to provide marketing and technical support services on behalf of the foreign principal while making sale of microsoft products in India and maintaining the same. Market promotion in India was essence of the contract

5 In terms of a market development agreement dated July 1, 2005 (Ref: pages of the appeal folder), Microsoft Operation Pvt. Ltd. of Singapore (hereinafter referred to as "the MO") appointed the appellant to provide various technical support services including marketing of Microsoft products in the "territory" defined by the agreement and to identify the services to be provided by the appellant in that territory. In the said agreement, the appellant was referred to as the "subsidiary" and the term "territory" was defined to include India. Both "the MO", i.e., Singapore concern and the "subsidiary", i.e., appellant were wholly owned subsidiaries of the holding company, M/s. Microsoft Corporation of Washington (hereinafter referred to as "the MSFT"). Services intended to be provided in terms of the above agreement were principally as follows: "2. Product support services and consulting services 2.1 Product support services and consulting services. Subsidiary shall have a non-exclusive right to provide product support services and consulting services for Microsoft products in the territory. Page No: Subsidiary's duties Subsidiary will use its best efforts to further the interests of M.O. and to maximize the markets for product support services and consulting services in the territory Subsidiary shall not solicit orders of agreements from outside the territory Subsidiary may provide product support services, which may include standard microsoft product support services for products which are generally made available to end-users and may include requests for support originating from the territory. 2.3 MO's duties. MO will use its best efforts to assist subsidiary with technical matters in connection with the marketing of microsoft products and services. 3. Marketing of Microsoft products 3.1 Marketing Subsidiary shall have a non-exclusive right to market Microsoft Products in the territory. 3.2 Subsidiary's duties. Subsidiary will use its best efforts to further the interests of MO and to maximize the markets for Microsoft products in the territory 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.

6 3.2.2 Subsidiary shall assist MO as requested in collection of past due accounts and performing other activities reasonably related to MO's business. 3.3 MO's duties 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 MO shall permit subsidiary to operate a service on MO's or its affiliate's web sites for the support of MO's or its affiliate's customers in the territory, without charge by MO. Page No: RGE services MO shall reimburse subsidiary for expenses arising from resident guest employee services ("RGE services"). RGE services include but are not limited to human resource expenses, legal expenses and internal information technology expenses. 5. Other intercompany services 5.1 Services between MO and MSFT and affiliates. Subsidiary acknowledges that MO provides services to MSFT and its other affiliates from time to time. Subsidiary acknowledges that MO may from time to time provide as a service the physical payment to subsidiary of amounts owed by MSFT or its other affiliates to subsidiary. MO shall clearly identify for subsidiary which portion of funds are paid on its own behalf and which are paid on behalf of MSFT. Subsidiary shall not hold MO liable for any disputed amounts owed by MSFT to subsidiary that are not provided by MSFT to MO for payment to subsidiary. 5.2 Services between MO and subsidiary. MO and subsidiary acknowledge that MO and/or its affiliates may from time to time provide services to subsidiary and subsidiary may from time to time provide services to MO and/or its affiliates." Consideration payable to the appellant for providing aforesaid services was prescribed by clauses 6.1, 6.2, 6.3 and 6.4 of the agreement which reads as under: "6.1 Product support services and consulting services. For product support services and consulting services rendered pursuant to article 2, MO shall pay subsidiary an amount equal to one hundred and ten per cent (110 per cent) 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 MO 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 consumption tax shall be the responsibility of MO.

7 6.2 Marketing of Microsoft products. For assistance in the marketing of Microsoft products under article 3, MO shall pay subsidiary one hundred and fifteen per cent (115 per cent) of subsidiary's actual expenses, less revenues, incurred in connection with its duties as Page No: 17 defined in article 3, 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 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 per cent (110 per cent) 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 consumption tax shall be the responsibility of MO. 6.4 Other inter-company services. For other services and/or sales provided pursuant to article 5, MO or subsidiary shall invoice the recipient of the sales and/or services for such sales and/or services at a price as may be agreed between the parties from time to time, provided, however, that any amount so invoiced shall be consistent with the arm's length standard (as defined in the OECD transfer pricing guidelines and relevant national legislation). The invoice shall contain a general description of the sales or services and the cost of the sales and/or services to be paid." It may be appreciated that in terms of the agreements, the appellant promoted market in the territory of India for providing MICROSOFT products and technical support service by the foreign principal in India. Adjudication observations and conclusion On the basis of materials on record, evidence led and pleadings made by the appellant, learned adjudicating authority found that as per agreement dated July 1, 2005 business support was provided by the appellant to the foreign principal situated in Singapore for marketing MICROSOFT products available in India and also to provide technical support to maintain the same. Such services were provided by the appellant in India and were not Page No: 18 provided elsewhere for which there was no export of services made within the meaning of rule 3(1)(iii) of the Export of Services Rules, 2005 for the period April 19, 2006 to May 31, Further, for the period June 1, 2007

8 onwards the criterion of providing of service outside India being omitted from the law, the condition of service provided from India and used outside India still remained in force and the appellant had not made any export of service. Such finding brought the appellant to the ambit of tax as "business auxiliary service" provider. The plea of export of service was discarded in adjudication elaborately discussing the same in paras 224 to 226 of the order which reads as under: "224. The 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 asmuch 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 lead to the redundancy of the legal provisions. The rules clearly specify two separate set of conditions, i.e., the user should be located outside India and the use should also be outside India. These conditions have to be satisfied independently of each other. If the noticee's explanation were to be accepted, a mere change in location of the recipient will also lead to change in the place of use of service. For example, if in the case the recipient were to be relocated from Singapore to say Japan, in terms of the noticee's logic, the place of use of service will stand automatically shifted from Singapore to Japan. There is no effort made in the submissions to draw the distinction and establish independently where the services are being provided and/or used. If the mere location of the recipient was to determine the place of use, it will open Page No: 19 innumerable loopholes of misuse whereby services meant to be used in India would be merely routed through a foreign recipient I, therefore, proceed to examine the case on pure merits as to whether the services rendered in this case have actually been used in India. The services involved in this case are marketing support services for the marketing of Microsoft products in India. This comprises a host of services, viz., maximising the markets for Microsoft products including all local advertising, and performing other activities including dissemination of information to potential customers, commenting on any developments in the territory affecting the software industry, investigating feasibility of new markets for Microsoft retail products and providing other services of marketing nature, etc. Much of this is accomplished by way of identifying the customers regarding marketing of Microsoft products, local advertising, performing other activities including dissemination of information to potential customers, commenting on any developments in the territory affecting the soft-

9 ware industry. These services once provided, are not capable of being used in a territory other than where they have been provided. In fact most of the time provision, delivery and use is happening simultaneously. It will be naive to even conceive that the abovesaid services provided in India can even be delivered or used in a territory other than where these have been provided It has been stated in a number of circulars issued by the Board that service tax levy is a destination-based tax. This understanding follows similar understanding 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: Use USER 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 Page No: 20 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 cannot be provided outside India or used outside. These are not mere advisory services, whereby an opinion or a report is sent abroad MCIPL is in the business of sourcing clients from India for Microsoft products. It is an important pre-requisite for the business to source information that meets comprehensive marketing campaign/strategies to promote and market their products and to achieve the results as targeted by the company. The services are required to be provided continuously in order to keep pace with the changing technological advancements and to meet local the requirements of the customers. Merely, because the payments are being received from overseas does not mean that the services have been used in a place outside India. If MCIPL were to even try using these services for a customer located in a place other than India, it will not yield the desired results." The learned adjudicating authority attributed reasons for his decision to deny plea of export of service in paras 227, 228, 229 and 230 which read as under: "227. The services in this case were to be of no use if they were not put to use in the place where they originated. The word 'use' in its widest connotations also means 'non-use'. The use of a service does not mean that the service provided must be liked or appreciated or acted upon. There can be a variety of reasons that may compel the beneficiary not to act upon the service received exactly in the manner

10 service provided proposes to. But non-action or taking an action other than what naturally seems to flow from the service provided does not take away the fact that service has been used. I consider relevant to mention that a distinction must be drawn amongst the words 'user', 'beneficiary' and 'buyer' of a service. While many a times they are same, they may not be so in all the cases. The benefits in this case would definitely flow to Microsoft, Singapore but that does not mean that services have been used outside India The noticee has also given example of call centres/b.p.os. where, according to the noticee, the services are being considered as export on the ground that these are being provided to the recipients located abroad. The noticee has, however, failed to cite any decided case law or adduce any other evidence, which could form the basis of coming to the conclusion that either the services of call centres/b.p.o.s Page No: 21 are comparable to the services rendered by them or whether, if such a practice at all exists at some level, it has attained legal finality 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 law specified elsewhere Moreover, during the period from April 19, 2006 to February 28, 2007, there was an added requirement that the service should have been delivered outside India and during the period of showcause notice from April 19, 2006 to May 31, 2007 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., April 19, 2006 to February 28, 2007 and March 1, 2007 to June 31, 2007 represented that for any service to qualify as export in terms of Export of Services 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 services to qualify as export of service The word 'and' as conjunction had been inserted at the end of condition (a) clearly mandates that both the conditions have to be satisfied together. The moment both the conditions are read together the confusion regarding delivery and use disappears, as the words provided outside India clearly do not lend themselves to any confusion inasmuch as the intention of the law makers becomes immediately clear that the services to qualify as exports have necessarily to be provided outside India and not provided in India. The word 'provided' is the equivalent of the word 'manufacture' in the case of goods. It means 'creation' or 'origin'. Undoubtedly, the service has been provided in India. Thus the service was never provided outside India. For this additional reason also I feel that the services in this case do not constitute export within the meaning of rule 3(1)(iii) of the Export of Services Rules, 2005 for the period from April 19, 2006 to May 31, Further for the period June 1, 2007 onwards the

11 criterion provided outside India was omitted but the condition of Page No: 22 services provided from India and used outside India still remained in force." On the aforesaid background, learned adjudicating authority discarded plea of export of services made by the appellant and held that "business auxiliary service" was provided by it for which it was to be liable to pay service tax under the Finance Act, 1994, for the impugned period. Also the plea relating to repair and maintenance of software not liable to service tax for the period July 9, 2004 to October 6, 2005 was decided by the adjudicating authority against the appellant with the reason of his decision appearing in para 237 of the impugned order. The point of limitation raised by the appellant was negatived by the learned adjudicating authority holding that the proceeding was not time-barred for the reasons stated in paras 254 and 255 of the impugned order. The service tax liability was thereby determined by the learned Commissioner with consequences of law to follow. Submissions on behalf of the appellant The learned senior counsel appearing for the appellant submitted that services provided by the appellant in terms of agreement dated July 1, 2005 were export services. The Board Circular issued on February 24, 2009 vide No. 111/05/2009-ST in terms of para 1(iii) stated 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 immovable property or whose location of performance cannot be readily identifiable (such as, banking and other financial services, business auxiliary services and telecom services) shall be export service. Interpreting rule 3(1)(iii) of the Export of Services Rules, 2005, he submitted that the Board clarified that above types of services shall be "export": (a) If they are provided in relation to business or commerce to a recipient located outside India; and (b) If they are provided in relation to activities other than business or commerce to a recipient located outside India at the time when such services are provided. According to the appellant, as per Board Circular location of the receiver but not the place of performance is relevant to decide export service. The phrase "used outside India" appearing in the Export of Services Rules, 2005 is to be interpreted to mean that the benefit of the service should accrue outside India and it is possible that export of service may take place even Page No: 23 when the relevant activities take place in India so long as the benefits of these services accrue outside India. Accordingly the benefit of promotion of business of a foreign company accrues outside India, for which the appellant is not liable to tax under the Act.

12 It was further submission on behalf of the appellant that it is an accepted legal principle that the law has to be read harmoniously so as to avoid contradictions within the legislation. Keeping this principle in view, the meaning of the term "used outside India" has to be understood in the context of the characteristics of a particular category of service as mentioned in subrule (1) of rule 3. For example, under architect service (a category I service (rule 3(1)(i))), even if an Indian architect prepares 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 the 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 outside India is the benefit in terms of promotion of business of a foreign company. Similar would be the treatment for other category III (rule 3(1)(iii)) services as well. The learned senior counsel argued that service recipient being located outside India and that is not being disputed by Revenue; there was export of service which shall enjoy exemption under rule 3 of the Export of Services Rules, Notwithstanding the place of performance of services if the service recipient is located outside India, the phrase "used outside India" has to be interpreted to mean that the services are used outside India. But such contention was rejected in adjudication holding that it is not sufficient, if the user of service is located outside India. According to Revenue, not only the use of service should be outside India but also the recipient should be outside India and these two conditions being cumulative have to be satisfied independently. Page No: 24 It was also argued by learned senior counsel that Board Circular No. 111/05/2009-ST dated February 24, 2009 clarifies that the relevant factor for category III (rule 3(1)(iii) is the "the location of the services recipient" and not the "place of performance"). The phrase "used outside India" is to be interpreted to mean that the benefit of the services should accrue outside India. The Board Circular while referring to illustrations has vide para 1(iii) refer to marketing support services explained that "Indian agents to undertake marketing in India of the goods of a foreign seller. In this case, the agent undertakes the activities within India and receives commission for his services from the foreign seller in convertible foreign exchange." It was further argued on behalf of the appellant that in para 3 of the circular it has been clarified that in all the illustrations mentioned in the opening paragraph of the circular says that what is accruing outside India is the benefit in terms of promotion of business of a foreign company. Hence the issue is no longer resintegra and has been set at rest through the Ministry's clarification dated February 24, 2009 and latest Circular No. 141/10/ 2011-TRU dated May 13, 2011 has no significance in law since earlier Cir-

13 cular is binding on adjudicating authority following the ratio laid down by the honourable High Court of Gujarat in the case of Indichem v. Union of India [1996] 88 ELT 35 (Guj) holding that Board cannot issue circular to make the order of the Tribunal nugatory and also following the decision in Kissan Chemicals v. Union of India [1996] 88 ELT 648 (Delhi) for the same proposition. It was further pleaded that latest circulars should not guide the decision of the Tribunal in the present appeal. According to the appellant, the Tribunal in the case of ABS India Ltd. v. Commissioner of Service Tax [2009] 13 STR 65 (Tri.-Bang) and Blue Star Ltd. v. Commissioner of Central Excise, Bangalore [2008] 11 STR 23 (Tri.-Bang) has held that as long as the recipient of service is located outside India, it cannot be said that the service is delivered in India or used in India. The services are utilized only outside India and therefore would be eligible for the benefit of export of services. It was also submitted on behalf of the appellant that the learned Commissioner in the impugned order had clearly noticed 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 such finding, the entire demands relating to export of service need to be set aside. Demand relating to repair and maintenance service was pleaded to be hit by limitation for the reason that show-cause notice was issued on April 24, Page No: seeking differential tax for the period July 9, 2004 to October 6, 2005 on the following grounds: (a) The Central Board of Excise and Customs vide Circular No. 70/19/ 03-ST dated December 17, 2003 was pleased to clarify that maintenance/ repair service of computer software was not liable to tax since softwares are not goods. (b) The Ministry changed its stand vide Circular No. 81/2/05-ST dated October 7, 2005 communicating that maintenance or repair or servicing of computer software is liable to service tax under section 65(105)(zzg) read with section 65(64) of the Finance Act, (c) Consequently, for the period July 9, 2004 to October 6, 2005, the appellants were guided by the Ministry's own circular dated December 17, 2003 which was withdrawn only with effect from October 7, It was also pleaded on behalf of the appellant that both input credit and Cum-tax benefit are available to it. It was further submitted on behalf of the appellant that show cause notice was issued on April 24, 2008 for which entire demand was timebarred because the Department was aware of the facts of the case of the appellant when registration application was filed on October 17, 2005 (page 73 of paper book) and export intimation filed on October 4, So also refund of Cenvat credit relating to the input services was granted by the Department. Periodical refund claim of export rebate was entertained and refunds for the period December, 2006 and January, 2007 were sanctioned. Submissions of Revenue

14 The learned counsel appearing on behalf of the Revenue supporting entire adjudication order submitted that the same was speaking and well reasoned. The appellant rendered market promotion service to its foreign principal in terms of agreement dated July 1, 2005 identifying potential consumers in India and thereby invited liability to service tax under section 65(105)(zzb) of the Act. Market was explored in India on behalf of foreign principal to serve the target group of customers in this defined territory. The appellant was under an obligation to achieve object of the agreement without frustrating the same for which it was remunerated by the principal. Adjudication was never time-barred for the intentional evasion made by the appellant suppressing material facts. Therefore tax and penalty was rightly imposed with interest to follow. Microsoft USA, products came to India due to promotion of market by the appellant for its foreign principal situated abroad. There was no export of service at all made by the appellant Page No: 26 as has been rightly held by learned Commissioner. Following principles of equivalence as has been laid down by the apex court in All India Federation of Tax Practitioners v. Union of India [2007] 9 VST 126 (SC); [2007] 293 ITR 406 (SC); [2007] 7 STR 625 (SC) and constitutional provision in article 286(1)(b), export plea of the appellant was discarded when the appellant promoted market for its foreign principal situated in Singapore. The activity of the appellant occasioned entry of Microsoft products into the territory of India and technical support was provided to the customers in Indian territory as concomitant to the supply of above products. Therefore by no innovative argument, the service provided in India can be converted into export of service. It was further submitted by the learned counsel for the Revenue that the Export of Services Rules, 2005 do not approve plea of export made by the appellant in view of Circular No. 141/10/2011-TRU dated May 13, All circulars issued prior to May 13, 2011 do not alter law laid down by the apex court in the case of Madras Marine and Co. v. State of Madras [1986] 63 STC 169 (SC); [1992] 61 ELT 161 (SC) and also the law laid down in All India Federation of Tax Practitioners [2007] 9 VST 126 (SC); [2007] 293 ITR 406 (SC); [2007] 7 STR 625 (SC). Reliance placed on the citations by learned senior counsel for the appellant did not deal meaning of export under the Constitutional provisions of article 286 and ratio laid down in Madras Marine and Co. [1986] 63 STC 169 (SC); [1992] 61 ELT 161 (SC). So also none of the decisions of the Tribunal dealt with the principles of equivalence as has been laid down in All India Federation of Tax Practitioners [2007] 9 VST 126 (SC); [2007] 293 ITR 406 (SC); [2007] 7 STR 625 (SC). Therefore those citations are not profitable to the appellant. The Board's Circulars nowhere stated that it had nullified orders of the Tribunal. It is misconstruction of Board Circular by the appellant. Law declared by apex court governs the field. The Board circular is not binding on courts. Therefore decision in each case shall flow on the basis of material facts thereof and according to the law applicable to such facts. The appellant has misconceived meaning of "export". Meaning of this term is well known to this country from Constitutional provision and various fiscal legislations like Customs law, Excise law and Export and Import Policy dealing with "export". Similar analogy of the term "export" being applicable to the Finance Act, 1994, the Board has not intended to interpret the concepts of "export" otherwise while issuing circulars. It is only misconstruction of the circulars by the appellant that has brought it to the jaws of taxation.

15 Page No: 27 It was further urged on behalf of Revenue that there is wide latitude given to Legislature to pick and choose the objects and subjects in the matters of taxation. Neither the law nor the circular has caused any bias. The latest circular reinforces that what is not an "export" cannot be imagined to be so. When promotion of market was intended in respect of territory of India that cannot be construed to be a service provided abroad. The service of market promotion resulted in identifying consumers in Indian territory only. Such identification service brought that to an end as soon as customers were identified. Nothing goes abroad to identify the customers. Therefore origin and termination of market promotion is territory of India only. There was no export of service at all made by the appellant. According to the Revenue, the territory of service was defined to be India only in terms of agreement dated July 1, 2005 and no market promotion was to be done beyond such territory. When no service was provided outside the defined territory, there was no export of service. The appellant received remuneration for promoting market in the territory of India only and nothing was taxed in adjudication beyond this. Further submission of learned counsel for the Revenue was that when no service has gone out of India for consumption abroad, the Export of Services Rules, 2005 by no means approves export of service plea of the appellant. The Rules envisaged that services have to flow abroad for consumption thereat to uphold the same to be export of service. That is not the case of the appellant. Neither the Rules nor the circulars permit the appellant to plead that there was export of services made by it. Latest circular dated May 13, 2011 removed the anomaly barring the plea of "export" in absence of real export of service made by the appellant. Therefore plea of export made by the appellant has no basis under law. It was further argument on behalf of the Revenue that entire adjudication was proper and nothing was time-barred. The appellant was liable to service tax, interest and penalty as has been levied in adjudication. It is neither entitled to cum-tax benefit nor Cenvat credit and refunds if any granted shall not be basis to plead export of service. If refund was granted under error of law it is open to the Department to always pass appropriate order and direct the appellant to pay back the same to the treasury. Accordingly appeal of the appellant may be dismissed in limine. Finding and decision of Tribunal In order to redress grievance of both sides, the law relating to levy of service tax following principle of equivalence and meaning of export is necessary to be dealt. Page No: 28 Principle of equivalence applicable to levy of service tax Law relating to service tax has been laid down by apex court in All India Federation of Tax Practitioners [2007] 9 VST 126 (SC); [2007] 293 ITR 406 (SC); [2007] 7 STR 625 (SC). In para 22 of the judgment in Association of Leasing and Financial Services Companies v. Union of India [2010] 35 VST 549 (SC); [2010] 5 GSTR 326 (SC) [2010] 20 STR 417 (SC), the apex court reiterated service tax jurisprudence in following terms (page 564 in 35 VST):