Services Rendered By Microsoft India To Overseas Entity Qualify To Be Exports, No Service Tax Payable: CESTAT
Mariya Paliwala
7 May 2024 12:45 PM IST
The Chandigarh Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that services rendered by Microsoft India to overseas entities qualify to be 'exports'.The bench of S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) has observed that services provided to M/s. Microsoft Operations Singapore amount to the export of services and hence are not liable...
The Chandigarh Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that services rendered by Microsoft India to overseas entities qualify to be 'exports'.
The bench of S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) has observed that services provided to M/s. Microsoft Operations Singapore amount to the export of services and hence are not liable to service tax.
The assessees and appellants are engaged in providing marketing support services under an agreement entered into with Microsoft Operations PTE Ltd., Singapore. The appellant is not engaged in direct selling of the products belonging to Microsoft Singapore, which are dealt by Microsoft Singapore through independent third-party distributors in India. The appellants are paid on a cost-plus basis for the services rendered to the foreign entity. The appellants, claiming that the services are exports, filed a refund claim of Rs. 1,77,01,623/- under Rule 5 of the CENVAT Credit Rules. 80 percent of the eligible refund was sanctioned to the appellants via two orders dated 12.12.2017. A show cause notice dated June 9, 2008 was issued to the appellants to reject the refund and to recover the refund already granted to them. It was also sought to impose penalties under Sections 76 and 77.
The commissioner rejected the refund and confirmed that the demand for a refund already been granted. For the subsequent period, the Commissioner (Appeals) sanctioned the credit, and the Department is in appeal against such an order. In Appeal No. ST/54991/2014, the Revenue is in appeal that the marketing support services rendered by the appellant to M/s Microsoft, Singapore, should not be treated as exports of services for the purpose of Rule 5. The appeal was filed by the appellants, questioning the order of the Commissioner (Appeals) in rejecting the claim of interest.
The department was in appeal against the order of the Commissioner (Appeals) in sanctioning interest on the refund, and the appellants are in appeal against the order of the Commissioner (Appeals) on the point that the Commissioner (Appeals) erred in rejecting the interest, claiming that the same was required to be agitated before the Original Authority.
The assessee contended that for services to qualify as exports as per the Export Rules existing during the relevant period, three conditions were required to be satisfied. Firstly, the recipient should be located outside India. Secondly, service should be delivered outside India and used outside India. Thirdly, payment for services provided outside India is received by the service provider in convertible foreign exchange. The conditions with respect to the recipient being located outside India and the receipt of consideration in foreign exchange are not disputed. The only dispute is with respect to being used outside India, delivered outside India, and provided outside India.
The assessee argued that the benefits of the services rendered by the appellant accrued to Microsoft Singapore through an increase in their sales volumes or market penetration. Therefore, in terms of Circular No. 111/05/2009-ST dated February 24, 2009, the services rendered by the appellant would qualify as exports. It is not free for the department to take a view contrary to their own circular, which, as per the settled principles of law, is binding on them.
The department contended that though the issue has been decided in favor of the appellants in their own case, the issue has not attained finality as an appeal has been filed by the department before the apex court and the same is pending.
The tribunal, while allowing the appeal of the assessee, held that the services rendered by the appellant to the overseas entity, i.e., M/s Microsoft, Singapore, qualify as exports, and for that reason, the issue stands in favor of the appellants. As far as the grant of interest is concerned, the provisions of interest are automatic, and the appellants are entitled to payment of interest at the rate prescribed statutorily from time to time on the refunds that are delayed beyond the statutory period of three months.
Counsel For Appellant: Prasad Paranjape
Counsel For Respondent: Ajay Jain
Case Title: M/s Microsoft Corporation (India) Pvt. Ltd. Versus The Commissioner of Service Tax, Delhi
Case No.: Service Tax Appeal No.828 Of 2010
