2014TIOL1964CESTATDEL

INTHECUSTOMS,EXCISEANDSERVICETAXAPPELLATETRIBUNAL
WESTBLOCKNOII,RKPURAM,NEWDELHI110066
BENCHDB

CaseTracker
MICROSOFTCORPORATIONINDIAPVTLTDVsCST[CESTAT]
MICROSOFTCORPORATIONINDIAPVTLTDVsCST[HighCourt]
MICROSOFTCORPORATIONINDIAPVTLTDVsCST[CESTAT]

ServiceTaxAppealNo.ST/866/2008
ArisingoutofOrderinAppealNo.77/VKG/CST/2008,Dated:23.9.2008
PassedbytheCommissionerofServiceTax,NewDelhi
ServiceTaxAppealNo.ST/828/2010
ArisingoutofOrderinAppealNo.10/JM/2010,Dated:9.3.2010
PassedbytheCommissioner(Adjudication),ServiceTax,NewDelhi
DateofHearing:19.5.2011
DateofDecision:23.9.2014
M/sMICROSOFTCORPORATION(I)(P)LTD
Vs
COMMISSIONEROFSERVICE,NEWDELHI
AppellantsRepby: Shri N Venkatraman Sr.Adv., Shri Muttu Venkatraman, Shri Shafiq, Shri Gajendra
Maheshwari,&ShriNikhilSuri,Consultant
RespondentsRepby:ShriSomeshAroraAdv.&ShriBKSingh,Jt.CDR
CORAM:DNPanda,Member(J)
MathewJohn,Member(T)
STMicrosoftcaseServiceprovidedtoPrincipalsituatedinSingaporeto market products in
IndiaisanExportofServiceandnotliabletoServiceTax:CESTATbyMajority
ObservationsofMember(J)thirdMemberonReference
++ In view of the Majority decision in Paul Merchants Ltd. 2012TIOL1877CESTATDEL it has to be held
thatserviceswerebeingexportedintermsofExportofServicesRules,2005andnotliabletoService
Tax.
++Evenotherwisealso,Ifindthatthedisputedserviceistheservicebeing provided by the appellant
tohisprincipallocatedinSingapore.ThemarketingoperationsdonebytheappellantinIndiacannotbe
said to be at the behest of any Indian customer. The service being provided may or may not result in
any sales of the product on Indian soil. The transactions and activities between the appellant and
Singapore principal company are the disputed activities. As such, the services are being provided by
the appellant to Singapore recipient company and to be used by them at Singapore, may be for the
purposeofthesaleoftheirproductinIndia,havetobeheldasexportofservices.
++InthecaseofLarsen&Toubro 2013TIOL1458CESTATDELitisheldthatamajoritydecisionisLarger
Bench decision having the same binding criteria as that of Larger Bench and, therefore, the majority
decisioninthecaseofPaulMerchantscase 2012TIOL1877CESTATDELisrequiredtobefollowed.

++ Similar stand also taken in Gap International Sourcing (India) Pvt. Ltd. 2014TIOL465CESTATDEL,
Vodafone Essar Cellular Ltd. 2013TIOL566CESTATMUM, Bayer Material Science Pvt. Ltd. 2014TIOL1084
CESTATMUMandnocontrarydecisionhasbeenbroughttonoticebytheRevenuerepresentative.
++thedecisionsinState of Kerala and Others vs. The Cochin Coal Company Ltd. [1961 (12) STC 1
(SC) as also Burmah Shell Oil Storage and Distributing Co. of India Ltd. vs. Commercial Tax Officers
2002TIOL966SCCTCB explainingthemeaningofexportisnotrelevantinasmuchasthesamedeals with
theexportofgoodsandnotexportofservices.
++ the Business Auxiliary services provided by the assessee to their Singapore parent company was
delivered outside India as such was used there and is covered by the provisions of Export of Service
RulesandarenotliabletoServiceTax.
++ The principal of equivalence between the taxation of goods and taxation of services, as laid down
bytheSupremeCourtinthecaseofAllIndiaFederationofTaxPractitioners[2007TIOL149SCSTas also
the principals of destination based consumption Tax were in the context of Constitutional Authority of
levyofServiceTaxoncertainservicesandtheissueofExportofServiceintermsofExportofService
Ruleswasnotthesubjectmatterofsaiddecision.TheExportofServiceRules,2005,beingdestination
basedconsumptiontaxareinaccordancewiththedeclarationoflawbytheSupremeCourt.
++InasmuchastheappealNo.ST828/2010wasnotarguedbyboththesides,the same can be listed
forfinaldisposaleventhoughissueinvolvedisidentical.
++Havingheldthatservicesinvolvedwereexportofservices,thedemandofServiceTaxisnotliable
tobesustainedagainsttheappellants.
Majoritydecision:
++ Inasmuch as the services provided by the appellant are covered by the Export of Services Rules,
2005andarenotliabletoservicetax.
++ Service Tax Appeal No.ST/866/2008 is allowed and Service Tax Appeal No.ST/828/2010 is to be
listedforhearing.
Caselawscited:
SateofKeralaandOthersvs.TheCochinCoalCompanyLtd.[1961(12)STC1(SC)]...Para39
BurmahShellOilStorageandDistributingCo.ofIndiaLtd.andothervs.CommercialTaxofficers
andothers2002TIOL966SCCTCB...Para39,54
AllIndiaFederationofTaxPractitioners2007TIOL149SCST...Para39,54
AssociationofLeasingandFinancialServicesCompaniesvs.UOI2010TIOL87SCSTLB...Para39
GapInternationalSourcing(India)Pvt.Ltd.2014TIOL465CESTATDEL...Para52
VodafoneEssarCellularLtd.vs.CCEPune2013TIOL566CESTATMUM...Para52
CESTAT,Mumbaivs.BayerMaterialSciencePvt.Ltd.vs.CSTMumbai2014TIOL1084CESTATMUM...
Para52
KeralaandOthersvs.TheCochinCoalCompanyLtd.[1961(12)STC1(SC)...Para54
MAJORITYORDER55
FINALORDERNO.53737/2014
Per:DNPanda:
ST/866/2008
1.1 Being aggrieved by the order of adjudication dated 23/09/2008, the appellant came in Appeal to
Tribunal raising the principal grievance that the service provided by the Appellant in terms of
Agreementdated01.07.2005totheforeignprincipalisnot'BusinessAuxiliaryService'and not taxable
u/s 65(105) (zzb) read with section 65 (19) of Finance Act, 1994 (hereinafter referred to as "the Act")
since such services were exported under the provisions of Export of Service Rules 2005 and immune
fromservicetax.Furthergrievancewasthattheactivityofrepairandmaintenanceofsoftwarewasnot

taxablepriorto07.10.2005.SoalsotheAdjudicationwastimebarredandtheAppellantwasentitledto
Cumtax 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
Revenueopposesthesame.
ALLEGATIONSMADEINSHOWCAUSENOTICE(SCN)
2.1 Show Cause Notice (SCN) dated 24.04.2008 was issued to the appellant covering the period
09.07.2004to06.10.2005makingvariousallegationsresultingincontraventionofprovisionsofsection
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 were 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 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 willfully suppressed the facts of receiving value of taxable service
renderedanddidnotpayservicetaxandalsodidnotfiletherequiredreturnunderlaw.
2.2TheSCNfurtherpointedoutthattheappellant'sclaimofexportofservicewasbaselessandwithout
sanction of law when the Market Development Agreement dated 01.07.2005 entered into by the
subsidiary appellant with the Microsoft Operations Pvt. Ltd. of Singapore required the appellant to
identifytheconsumersinIndianTerritorytoprovidemarketingandtechnicalsupportservicesonbehalf
oftheforeignprincipalwhilemakingsaleofMicrosoftProductsinIndiaandmaintainingthesame.
MARKETPROMOTIONININDIAWASESSENCEOFTHECONTRACT
3.1 In terms of a market Development Agreement dated 01/07/2005 (Ref: pages 4146 of the Appeal
folder), Microsoft Operation Pvt. Ltd. of Singapore (hereinafter referred to as "MO") appointed the
appellanttoprovidevarioustechnicalsupportservicesincludingmarketingofMicrosoftproductsinthe
"territory"definedbytheagreementandtoidentifytheservicestobeprovidedbytheAppellantinthat
territory. In the said agreement, the Appellant was referred to as the "subsidiary" and the term
"territory" was defined to include India. Both "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(hereinafterreferredtoas"MSFT").Servicesintendedtobeprovidedintermsoftheabove
Agreementwereprincipallyasfollows:
"2.PRODUCTSUPPORTSERVICES&CONSULTINGSERVICES
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
ProductsintheTerritory.
2.2Subsidiary'sDuties
2.2.1 Subsidiary will use its best efforts to further the interests of M.O. and to maximize
themarketsforproductsupportservicesandconsultingservicesintheTerritory.
2.2.2SubsidiaryshallnotsolicitordersofagreementsfromoutsidetheTerritory.
2.2.3 Subsidiary may provide product support services, which may include standard
Microsoftproductsupportservicesforproductswhicharegenerallymadeavailabletoend
usersandmayincluderequestsforsupportoriginatingfromtheTerritory.
2.3 MO's Duties. MO will use its best efforts to assist Subsidiary with technical matters in
connectionwiththemarketingofMicrosoftProductsandServices.
3.MARKETINGOFMICROSOFTPRODUCTS
3.1 Marketing. Subsidiary shall have a nonexclusive right to market Microsoft Products in
theTerritory.

3.2 Subsidiary's Duties. Subsidiary will use its best efforts to further the interests of MO
andtomaximizethemarketsforMicrosoftProductsintheTerritory.
3.2.1 Subsidiary shall not solicit orders or agreements from outside the Territory. In
solicitingorders,Subsidiaryshallonlybeauthorizedtoinformcustomersofprice,payment,
delivery and other terms offered by MO in accordance with information received from MO
oritsaffiliates,asappropriate. 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,asappropriate,foritsacceptanceorrejection.
3.2.2 Subsidiary shall assist MO as requested in collection past due accounts and
performingotheractivitiesreasonablyrelatedtoMO'sbusiness.
3.3MO'sDuties.
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
ProductsandServices.
3.3.2MOshallpermitSubsidiarytooperateaserviceonMO'soritsaffiliate'swebsidesfor
thesupportofMO'soritsaffiliate'scustomersintheTerritory,withoutchargebyMO.
4.RGESERVICES
MOshallreimburseSubsidiaryforexpensesarisingfromResidentGuestEmployee Services
("RGE Services"). RGE Services include but are not limited to human resource expenses,
legalexpensesandinternalinformationtechnologyexpenses.
5.OTHERINTERCOMPANYSERVICES
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
acknowledgesthatMOmayfromtimetotimeprovideasaservicethephysicalpaymentto
Subsidiary of amounts owed by MSFT or its other affiliates to Subsidiary. MO shall clearly
identifyforSubsidiarywhichportionoffundsarepaidonitsownbehalfandwhicharepaid
on behalf of MSFT. Subsidiary shall not hold MO liable for any disputed amounts owed by
MSFTtoSubsidiarythatarenotprovidedbyMSFTtoMOforpaymenttoSubsidiary.
5.2 Services between MO and Subsidiary. MO and Subsidiary acknowledge that MO and/or
itsaffiliatesmayfromtimetotimeprovideservicestoSubsidiaryandSubsidiarymayfrom
timetotimeprovideservicestoMOand/oritsaffiliates."
3.2 Consideration payable to appellant for providing aforesaid services was prescribed by clauses 6.1,
6.2,6.3and6.4oftheagreementwhichreadsasunder:
"6.1 Product Support Services and Consulting Services. For product support services and
consultingservicesrenderedpursuanttoArticle2,MOshallpaySubsidiaryanamountequal
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 MO affiliate. The reimbursement and additional
compensation shall be exclusive of any applicable consumption tax such as a Value Added
TaxoraGoodsandServicesTax,whichconsumptiontaxshallbetheresponsibilityofMO.
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 percent (115%) of
Subsidiary's actual expenses, less revenues, incurred in connection with its duties as
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
anothersectionofthisAgreementorcoveredinanotheragreementbetweenSubsidiaryand
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
calculatingtheamountofcommission.Thecommissionpaymentsshallbeexclusive of any

applicable consumption tax such as a Goods and Services Tax or a Value Added Tax which
consumptiontaxshallbetheresponsibilityofMO.
6.3RGEServices.ForRGEServicesrenderedpursuanttoArticle4,MOshallpay 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
agreementbetweenSubsidiaryandMOoranyotherMSFTaffiliate.Thereimbursementand
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
responsibilityofMO.
6.4 Other Intercompany Services. For other services and/or sales provided pursuant to
Article5,MOorSubsidiaryshallinvoicetherecipientofthe 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).Theinvoiceshallcontainageneraldescriptionofthesalesorservicesandthe
costofthesalesand/orservicestobepaid."
3.3 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
principalinIndia.
ADJUDICATIONOBSERVATIONSANDCONCLUSION
4.1 On the basis of materials on record, evidence led and pleadings made by the appellant, learned
Adjudicating Authority found that as per agreement dated 172005 business support was provided by
theappellanttotheforeignprincipalsituatedinSingaporeformarketingMICROSOFTproducts available
inIndiaandalsotoprovidetechnicalsupporttomaintainthesame.Suchserviceswereprovidedbythe
Appellant in India and were not provided elsewhere for which there was no export of services made
withinthemeaningofRule3(1)(iii)ofExportofServices Rule 2005 for the period 1942006 to 315
2007.Further,fortheperiod162007onwardsthecriterionofprovidingofserviceoutsideIndiabeing
omittedfromthelaw,theconditionofserviceprovidedfromIndiaandusedoutsideIndiastillremained
inforceandtheAppellanthadnotmadeanyexportofservice.Suchfindingbroughttheappellanttothe
ambitoftaxas'BusinessAuxiliaryservice'provider.
4.2ThepleaofexportofservicewasdiscardedinadjudicationelaboratelydiscussingthesameinPara
224to226oftheorderwhichreadsasunder:
"224. The notice has tried to make out a case that under the Market Development
AgreementwithM/s.M.O.SingaporetheywereprovidingMarketingsupportservices.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
outsideIndia,theysubmittedthattheservicerecipienti.e.MicrosoftSingaporedidnothave
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
deemedtobedeliveredandusedoutsideIndia.Inotherwords,Noticeefeelsthattheplace
of use of service will also be the place where the intended beneficiary is located. I am
afraidtosaythatifthisinterpretationweretobeaccepteditwouldloadtotheredundancy
ofthelegalprovisions.TheRulesclearlyspecifytwoseparatesetofconditionsi.e.theuser
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,amerechangeinlocationoftherecipientwillalsoleadtochangeintheplaceof
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
beingprovidedand/orused.Ifthemerelocationoftherecipientwastodeterminetheplace

ofuse,itwillopeninnumerableloopholesofmisusewherebyservicesmeanttobeusedin
Indiawouldbemerelyroutedthroughaforeignrecipient.
225. 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
softwareindustry,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 software 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 above said services provided in
India can even be delivered or used in a territory other than where these have been
provided.
226.It has been stated in a number of circulars issued by the Board that Service Tax levy
is a destinationbased 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
testofcustomer'slocationanduseshouldbesatisfied.Thiswillbeclearfromthefollowing
diagram:

USE

USER
InIndia

OutsideIndia

InIndia

1(Taxable)

2(Taxable)

OutsideIndia

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
advisoryservices,wherebyanopinionorareportissentabroadMCIPLisinthebusinessof
sourcing clients from India for Microsoft products. It is an important prerequisite for the
businesstosourceinformationthatmeetscomprehensivemarketingcampaign/strategies to
promoteandmarkettheirproductsandtoachievetheresultsastargetedbythecompany.
The services are required to be provided continuously in order to keep pace with the
changingtechnologicaladvancementsandtomeetlocaltherequirementsofthecustomers.
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."
4.3 Ld. Adjudicating Authority attributed reasons for his decision to deny plea of export of service in
Para227,228,229and230whichreadasunder:
"227.Theservicesinthiscaseweretobeofnouseiftheywerenotputtouseintheplace
wheretheyoriginated.Theword"use'initswidestconnotationsalsomeans"nonuse".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 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
notmeanthatserviceshavebeenusedoutsideIndia.
"228. 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 are comparable to the
servicesrenderedbythemorwhether,ifsuchapractice 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
governedbythelayspecifiedelsewhere.
229. Moreover, during the period from 1942006 to 2822007, there was an added
requirementthattheserviceshouldhavebeendeliveredoutsideIndiaandduringtheperiod
ofSCNfrom19406to31507therewasonemorerequirementthatserviceshouldhave
been provided outside India. The Noticee while interpreting the criterion for any service to
qualify as exports has during the periods i.e. 19406 to 28207 and 1307 to 31607
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
foreignexchange"andthefactthatalltheseconditionsarerequiredtobesatisfiedtogether
forBusinessAuxiliaryServicestoqualifyasexportofservice.
230. 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
wordsprovidedoutsideIndiaclearlydonotlendthemselvestoanyconfusioninasmuchas
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(i) (iii) of the
ExportofServiceRules2005fortheperiodfrom19406to31507.Furtherfortheperiod
162007 onwards the criterion provided outside India was omitted but the condition of
servicesprovidedfromIndiaandusedoutsideIndiastillremainedinforce."
4.4 On the aforesaid background, Ld. 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 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 9704 to 61005 was
decidedbytheAdjudicatingAuthorityagainsttheappellantwiththereasonofhisdecision appearing in
Para237oftheimpugnedorder.Pointoflimitationraisedbytheappellantwasnegativedbythelearned
adjudicating authority holding that the proceeding was not time barred for the reasons stated in Para
254 and 255 of the impugned order. Service tax liability was thereby determined by the ld.
Commissionerwithconsequencesoflawtofollow.
SUBMISSIONSONBEHALFOFAPPELLANT
5.1 Ld. Sr. Counsel appearing for the appellant submitted that services provided by the Appellant in
termsofagreementdated172005wereexportservices.BoardCircularissuedon2422009videNo.
111/05/2009STintermsofPara1(iii)ofstatedthatIndianagentswhoundertakemarketinginIndiaof
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
immovablepropertyorwhoselocation of performance cannot be readily identifiable (such as, Banking
andOtherFinancialservices,BusinessAuxiliaryservicesandTelecomservices)shallbeexportservice.

InterpretingRule3(1)(iii)ofExportofServicesRules2005,hesubmittedthatBoardclarifiedthatabove
typesofservicesshallbe"export":
(a) If they are provided in relation to business or commerce to a recipient located outside
Indiaand
(b) If they are provided in relation to activities other than business or commerce to a
recipientlocatedoutsideIndiaatthetimewhensuchservicesareprovided.
5.2 According to the Appellant, as per Board Circular location of the receiver but not the place of
performanceisrelevanttodecideexportservice.Thephrase"usedoutsideIndia'appearinginExportof
Service 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 when the relevant activities take
place in India so long as the benefits of these services accrue outside India. Accordingly benefit of
promotionofbusinessofaforeigncompanyaccruesoutsideIndia,forwhichtheappellantisnotliable
totaxundertheAct.
5.3 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
preparesadesignsittinginIndiaforapropertylocatedinU.K.andhandsitovertotheownerofsuch
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
outsideIndiabecausetheplaceofperformanceisU.K.eventhoughthebenefitofsuchaseminarmay
flowbacktotheemployeesservingthecompany 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
benefitoftheserviceshouldaccrueoutsideIndia.Thus,forCategoryIIIservicesasperRule3(1)(iii)of
Export of Services Rules, 2005, it is possible that export of service may take place even when all the
relevantactivitiestakeplaceinIndiasolongasthebenefitsoftheseservicesaccrue outside India. In
alltheillustrationsmentionedintheopeningparagraph,whatisaccruingoutsideIndiaisthebenefitin
terms of promotion of business of a foreign company. Similar would be the treatment for other
CategoryIII[Rule3(1)(iii)]servicesaswell.
5.4 Ld. Sr. 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 Export
Service Rules, 2005. 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
areusedoutsideIndia.ButsuchcontentionwasrejectedinAdjudicationholdingthatitisnotsufficient,
iftheuserofserviceislocatedoutsideIndia.AccordingtoRevenue,notonlytheuseofserviceshould
be outside India but also the recipient should be out side India and these two conditions being
cumulativehavetobesatisfiedindependently.
5.5 It was also argued by ld. Sr. Counsel that Board CircularNo.111/05/2009STdated240209
clarifies that the relevant factor for categoryIII (Rule 3 (i) (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
meanthatthebenefitoftheservicesshouldaccrueoutsideIndia.TheBoardCircularwhilereferringto
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
foreignexchange."
5.6 It was further argued on behalf of the Appellant that in Para 3 of the circular it has been clarified
thatinalltheillustrationsmentionedintheopeningparagraphoftheCircularsaysthatwhatisaccruing
outsideIndiaisthebenefitintermsofpromotionofbusinessofaforeigncompany.Hencetheissueis
no longer res integra and has been set at rest through the Ministry's clarification dated 2422009 and
latest Circular No. 141/10/2011TRU dated 13.5.2011 has no significance in law since earlier
Circular is binding on Adjudicating Authority following the ratio laid down by the Hon'ble High Court of
GujaratinthecaseofIndichemV.UOI1996(88)ELT35(Guj)holdingthatBoardcannotissuecircular
tomaketheorderoftheTribunalnugatoryandalsofollowingthedecisioninKishanChemicalsV.UOI

1996(88)ELT648(Del)forthesameproposition.ItwasfurtherpleadedthatlatestCircularsshouldnot
guidethedecisionoftheTribunalinthepresentappeal.AccordingtoAppellant,Tribunalinthecaseof
ABSIndiaLtd.v.CST,Bangalore,2009(13)S.T.R.65(T)=(2008TIOL2102CESTATBANG)and Blue Star
v. CCE, Bangalore 2008 (11) S.T.R. 23 = (2008TIOL716CESTATBANG) 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
usedinIndia.TheservicesareutilizedonlyoutsideIndiaandthereforewouldbeeligibleforthebenefit
ofexportofservices.
5.7 It was also submitted on behalf of the Appellant that the ld. 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,
theentiredemandsrelatingtoexportofserviceneedstobesetaside.
5.8 Demand relating to repair and maintenance service was pleaded to be hit by limitation for the
reasonthatShowCauseNoticewasissuedon24April2008seekingdifferentialtaxfortheperiod97
2004to6102005onthefollowinggrounds:
(a) The Central Board of Excise & Customs vide circular No.70/19/03ST dated 17122003
waspleasedtoclarifythatmaintenance/repairserviceofcomputersoftwarewasnotliable
totaxsincesoftwarearenotgoods.
(b) The Ministry changed its stand vide circular No.81/2/05ST dated 7102005
communicating that maintenance or repair or servicing of computer software is liable to
servicetaxundersection65(105)(zzg)readwithsec.65(64)oftheFinanceAct1994.
(c) Consequently, for the period 972004 to 6102005 the appellants were guided by the
Ministry'sowncirculardated17122003whichwaswithdrawnonlywitheffectfrom710
2005.
5.9Itwasalsopleadedonbehalfoftheappellantthatbothinputcreditandcumtaxbenefitisavailable
toit.
5.10 It was further submitted on behalf of the appellant that Show Cause Notice was issued on 244
2008forwhichentiredemandwastimebarredbecauseDepartmentwasawareofthefactsofthecase
of the appellant when registration application was filed on 17102005 (Page 73 of Paper Book) and
exportintimationfiledon4102005.SoalsorefundofCENVATcreditrelatingtotheinputserviceswas
granted by the Department. Periodical refund claim of export rebate was entertained and refunds for
theperiodDecember2006andJanuary,2007weresanctioned.
SUBMISSIONSOFREVENUE
6.1Ld.CounselappearingonbehalfofRevenuesupportingentireadjudicationordersubmittedthatthe
samewasspeakingandwellreasoned.TheAppellantrenderedmarketpromotionservicetoitsforeign
principalintermsofagreementdated01/07/2005identifyingpotentialconsumers in India and thereby
invited liability to service tax under section 65(105)(zzb) of the act. Market was explored in India on
behalfofforeignprincipaltoservethetargetgroupofcustomersinthisdefinedterritory.Theappellant
was under an obligation to achieve object of the agreement without frustrating the same for which it
wasremuneratedbytheprincipal.
6.2 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 as has been rightly held by ld.
Commissioner. Following principles of equivalence as has been laid down by Apex Court in All India
Federation of Tax Practitioners' case 2007 (7) STR 625 (SC) = (2007TIOL149SCST) and constitutional
provisioninArticle286(1)(b),exportpleaoftheappellantwasdiscardedwhentheappellantpromoted
market for its foreign principal situated in Singapore. Activity of the Appellant occasioned entry of
MICROSOFTproductsintotheterritoryofIndiaandtechnicalsupportwasprovidedtothecustomersin
IndianTerritoryasconcomitanttothesupplyofaboveproducts.Thereforebynoinnovativeargument,
theserviceprovidedinIndiacanbeconvertedintoexportofservice.
6.3It was further submitted by ld. Counsel for Revenue that the Export of Services Rules 2005 do not
approve plea of export made by the Appellant in view of Circular No.141/10/2011TRU dated
13.05.2011.Allcircularsissuedpriorto13.5.2011donotalterlawlaiddownbyApexCourtinthecase

ofMadrasMarine & Co. v. State of Madras 1992 (61) ELT 161 (SC) and also the law laid down in All
IndiafederationoftaxPractitioners2007(7)STR625(SC)=(2007TIOL149SCST).Relianceplacedon
the citations by ld. Sr. counsel for the Appellant did not deal meaning of export under Constitutional
provisions of Art. 286 and ratio laid down in Madras marine Judgment (supra). 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 (supra). Therefore those citations are not profitable to the appellant.
Board's Circulars no where 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. Board circular is not
bindingonCourts.Thereforedecisionineachcaseshallflowonthebasisofmaterialfactsthereofand
accordingtothelawapplicabletosuchfacts.Appellanthasmisconceivedmeaningof'export'.Meaning
of this term is well known to this country from Constitutional provision and various fiscal legislations
likeCustomslaw,ExciselawandExportandImportPolicydealingwith'export'.Similaranalogyofthe
term'export'beingapplicabletoFinanceAct,1994,Boardhasnotintendedtointerprettheconceptsof
"export" otherwise while issuing circulars. It is only misconstruction of the Circulars by appellant that
hasbroughtittothejawsoftaxation.
6.4ItwasfurtherurgedonbehalfofRevenuethatthereiswidelatitudegiventolegislaturetopickand
choosetheobjectsandsubjectsinthemattersoftaxation.NeitherthelawnortheCircularhascaused
anybias.ThelatestCircularreinforcesthatwhatisnotan'export'cannotbeimaginedtobeso.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
Territoryonly.Suchidentificationservicebroughtthattoanendassoonascustomerswereidentified.
Nothinggoesabroadtoidentifythecustomers.Thereforeoriginandterminationofmarketpromotionis
TerritoryofIndiaonly.TherewasnoexportofserviceatallmadebytheAppellant.
6.5 According to Revenue, the territory of service was defined to be India only in terms of agreement
dated01.07.2005andnomarketpromotionwastobedonebeyondsuchterritory.Whennoservicewas
provided out side the defined territory, there was no export of service. The Appellant received
remunerationforpromotingmarketintheterritoryofIndiaonlyandnothingwastaxedinAdjudication
beyondthis.
6.6 Further submission of ld. Counsel for revenue was that when no service has gone out of India for
consumptionabroad,theExportofServiceRules,2005bynomeansapprovesexportofservicepleaof
appellant.TheRulesenvisagedthatserviceshavetoflowabroadforconsumptionthereattoupholdthe
sametobeexportofservice.ThatisnotthecaseoftheAppellant.NeithertheRulesnorthecirculars
permit the appellant to plead that there was export of services made by it. Latest circular dated
13.05.2001removedtheanomalybarringthepleaof'export'inabsenceofrealexportofservicemade
bytheappellant.Thereforepleaofexportmadebytheappellanthasnobasisunderlaw.
6.7It was further argument on behalf of 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.ItisneitherentitledtocumtaxbenefitnorCenvatcreditandrefundsifanygrantedshall
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.Accordinglyappealoftheappellantmaybedismissedinliminie.
FINDINGANDDECISIONOFTRIBUNAL
7.Inordertoredressgrievanceofbothsides,thelawrelatingtolevyofservicetaxfollowingprinciple
ofEquivalenceandmeaningofexportisnecessarytobedealt.
PRINCIPLEOFEQUIVALENCEAPPLICABLETOLEVYOFSERVICETAX
8.1 Law relating to service tax has been laid down by Apex Court in All India Federation of Tax
Practitioners2007(7)STR625(SC)=(2007TIOL149SCST).InPara22ofthejudgmentinAssociation
of Leasing & Financial Service Companies Vs. Union of India 2010 (20) STR. 417 (S.C.) = (2010TIOL
87SCSTLB),ApexCourtreiteratedservicetaxjurisprudenceinfollowingterms:
"In All India Federation of Tax Practitioners' case (supra), this Court explained the concept
ofservicetaxandheldthatservicetaxisaValueAddedTax('VAT'forshort)whichinturn
isadestinationbasedconsumptiontaxinthesensethatitisleviedoncommercialactivities
and it is not a charge on the business but on the consumer. That, service tax is an
economic concept based on the principle of equivalence in a sense that consumption of

goods and consumption of services are similar as they both satisfy human needs. Today
with the technological advancement there is a very thin line which divides a "sale" from
"service". That, applying the principle of equivalence, there is no difference between
production or manufacture of saleable goods and production of marketable/saleable
services in the form of an activity undertaken by the service provider for consideration,
which correspondingly stands consumed by the service receiver. It is this principle of
equivalence which is inbuilt into the concept of service tax under the Finance Act, 1994.
That service tax is, therefore, a tax on an activity. That, service tax is a value added tax.
Thevalueadditionisonaccountoftheactivitywhichprovidesvalueaddition,for example,
an activity undertaken by a chartered accountant or a broker is an activity undertaken by
himbasedonhisperformanceandskill. This is from the point of view of the professional.
However,fromthepointofviewofhisclient,thecharteredaccountant/brokerishisservice
provider. The value addition comes in on account of the activity undertaken by the
professional like tax planning, advising, consultation etc. It gives value addition to the
goodsmanufacturedorproducedorsold.Thus,servicetaxisimposedeverytimeserviceis
renderedtothecustomer/client.ThisisclearfromtheprovisionsofSection65(105)(zm)of
the Finance Act, 1994 (as amended). Thus, the taxable event is each exercise/activity
undertaken by the service provider and each time service tax gets attracted. The same
viewisreiteratedbroadlyintheearlierjudgmentofthisCourtinGodfreyPhillips India Ltd.
v.StateofU.P.[(2005(2)SCC515]=(2005TIOL10SCLTCB)in which a Constitution Bench
observedthatintheclassicalsenseatax is composed of two elements : the person, thing
or activity on which tax is imposed. Thus, every tax may be levied on an object or on the
eventoftaxation.Servicetaxis,thus,ataxonactivitywhereassalestax is a tax on sale
ofathingorgoods".
[Emphasissupplied].
8.2WhiledeliveringjudgmentinthecaseofAll India Fedn. of Tax Practitioners v. UOI 2007 (7) STR
625(S.C.)==(2007TIOL149SCST),ApexCourtnoticedthatEconomicsholdstheviewthatthereisno
distinction between the consumption of goods and consumption of services as both satisfy the human
needs(para4oftheJudgment).InPara6and7theHon'bleCourtheldasunder:
"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
goodsandprovisionofservices.VATisaconsumptiontaxasitisbornebytheconsumer.
7.Inthelightofwhatisstatedabove,itisclearthatServiceTaxisaVATwhichinturnis
destinationbasedconsumptiontaxinthesensethatitisoncommercialactivitiesandisnot
a charge on the business but on the consumer and it would, logically, be leviable only on
servicesprovidedwithinthecountry.Servicetaxisavalueaddedtax".
[Emphasissupplied]
8.3Whiledealingwithmeaningof"servicetax"Hon'bleCourtinPara17to20heldasunder:
"17. As stated above, the source of the concept of service tax lies in economics. It is an
economic concept. It has evolved on account of Service Industry becoming a major
contributor to the GDP of an economy, particularly knowledgebased economy. With the
enactment of Finance Act, 1994, the Central Government derived its authority from the
residuary Entry 97 of the Union List for levying tax on services. The legal backup was
further provided by the introduction of Article 268A in the Constitution vide Constitution
(Eightyeighth Amendment) Act, 2003 which stated that taxes on services shall be charged
by the Central Government and appropriated between the Union Government and the
States.Simultaneously, a new Entry 92C was also introduced in the Union List for the levy
ofservicetax.Asstatedabove,asaneconomicconcept,thereisnodistinctionbetweenthe
consumption of goods and consumption of services as both satisfy human needs. It is this
economic concept based on the legal principle of equivalence which now stands
incorporated in the Constitution vide Constitution (Eightyeighth Amendment) Act, 2003.
Further, it is important to note, that "service tax" is a value added tax which in turn is a
general tax which applies to all commercial activities involving production of goods and
provisionofservices.Moreover,VATisaconsumptiontaxasitisbornebytheclient.

18.InMotiLaminatesPvt.Ltd.v.CollectorofCentralExcise,Ahmedabad1995(76)E.L.T.
241(S.C.)= (2002TIOL24SCCX)wegetaclueofanimportantprinciple,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
goodsspecifiedintheSchedule.ItwasheldthattheobjectforhavingascheduleintheAct
wastofixratesunderdifferententriesincludingresiduaryentry.Atthisstage,wemaysay
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
meaningoftheword "goods" in Central Excise Act, 1944. This Court noticed that Section 3
ofthe1944Actlevieddutyonallexcisablegoodsmentionedinthescheduleprovidedthey
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
assessee. This Court further explained that the expression "produced or manufactured"
wouldmeanthatthegoodsproducedmustsatisfythetestofsaleability/'marketability.The
reason being that the duty under the 1944 Act is on manufacture/production but the
manufacture/production is intended for taking such goods to the market for sale. It was
observed that the obvious reason for levying excise duty linked with production or
manufacture is that the goods so produced must be a distinct commodity known in the
market.Wequotehereinbelowpara7ofthesaidjudgment,whichisasfollows:
"The duty of excise being on production and manufacture which means bringing out a new
commodity, it is implicit that such goods must be useable, moveable, saleable and
marketable.Thedutyisonmanufactureorproductionbuttheproductionormanufactureis
carried on for taking such goods to the market for sale. The obvious rationale for levying
excisedutylinkingitwithproductionormanufactureisthatthegoodssoproducedmustbe
a distinct commodity known as such in common parlance or to the commercial community
forpurposesofbuyingandselling. Since the solution that was produced could not be used
as such without any further processing or application of heat or pressure, it could not be
consideredasgoodsonwhichanyexcisedutycouldbelevied."
Therefore, even if an item is manufactured or produced, it will not fall in the concept of
goods till the test of marketability is satisfied. In the case of Moti Laminates (supra) the
"solution"wasanintermediateproductproducedinthecourseofmanufactureoflaminated
sheets.Ithad a short shelf life. It was not marketable, therefore, this Court took the view
thatthesolutionwasnot"goods"and,therefore,notdutiable.
19. The importance of the above judgment of this Court is two fold. Firstly, applying the
principle of equivalence, there is no difference between production or manufacture of
saleable goods and production of marketable/saleable services in the form of an activity
undertaken by the service provider for consideration, which correspondingly stands
consumed by the service receiver. It is this principle of equivalence which is inbuilt into
the concept of service tax, which has received legal support in the form of Finance Act,
1994. To give an illustration, an Event Manager (professional) undertakes an activity,
namely,oforganizingshows.HebelongstotheprofessionofEventManager.Aslongas he
isinthebusinessorcallingorprofessionofanEventManager,heisliabletopaythetaxon
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
producedwiththeintentionofbeingclearedforhomeconsumptionundertheCentralExcise
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,servicetaxisleviableforonlineinformationanddatabaseprovidedbyweb sites.
Butnoservice'taxisleviableonEcommerceasthereisnoDatabaseAccess.
20.Onthebasisoftheabovediscussion,itisclearthatservicetaxisVATwhichinturnis
both a general tax as well as destination based consumption tax leviable on services
providedwithinthecountry".

(Emphasissupplied)
8.4ApplyingtheprincipleofequivalenceashasbeenlaiddownbyApexCourt,whichisinbuiltintothe
concept of service tax under the Finance Act, 1994, there is no difference between manufacture of
marketable excisable goods and providing of marketable/saleable services in the form of an activity
undertaken by the service provider for consideration, which correspondingly stands consumed by the
service receiver. It follows that service tax being a tax on an activity is also destination based value
addedtax.ThereisnoambiguitythattaxableserviceprovidedinIndiaismeanttobetaxedunderthe
provisions of Finance Act, 1994. Through different clauses, number of taxable service entries are
spread over section 65(105) of the said Act. Terms and expressions used in these clauses are defined
byvarioussubsectionsofsection65ofthatAct.
MEANINGOF"EXPORT"PRESUPPOSESTAKINGOUTOFINDIATOAPLACEOUTSIDEINDIA
9.1 Material facts, Agreements and recorded statement as well as modus operandi of the appellant
suggest that element of agency was implicit in the contract between the parties as was reduced in
writing by agreement dated 01.07.2005. Foreign principal of the Appellant situated in Singapore
intended the Appellant to be provider of market promotion service. Para 2.1, 2.2.1, and 3.2 of the
Agreementdated01.07.2005obligedtheAppellantforthesame.Targetedconsumerswererequiredto
beidentifiedandservedaccordingtothetermsofcontract.EntryofMICROSOFTproductsandtechnical
supportformaintenancethereoftotheterritoryofIndiawasoutcomeofmarketpromotionandforeign
principalwasunderanobligationtocatertosuchneed.
9.2Article286(1)(b)oftheConstitutionexplainswhat"export"means.Suchconceptwasincorporated
into Customs Act, 1962 in term of section 2(18) thereof. The activity of "taking out of India to a place
outsideIndia"isrecognizedtesttoholdanactivitytobeexport.Activityrelating to goods being equal
to the activity relating to service, following "Principles of Equivalence", meaning of the term "export"
recognizedbyConstitutionalprovisionandtestedbylawrelatingtoCentralSalesTax,Customs,Central
ExciseandExportandImportPolicyofthegovernmentleavesnodoubttoconstruemeaningofthesaid
term in the context of export of service under the provisions of Finance Act, 1994 read with Export of
Service Rules, 2005. There should be two termini for export of service. Service generated in one
termini if travels outside that termini for ending thereat, export can be said to have been made. The
activity of promotion of market ended in India upon identification of customers and nothing travelled
abroadtoendthere.
9.3InthecaseofTheStateofKeralaandOthersv.TheCochinCoalCompanyLtd.(1961)12STC1 it
has been held that concept of "export" in Article 286(1)(b) of the Constitution postulated the existence
of two termini as those between which the goods were intended to move or between which they were
intendedtobetransportedandnotameremovementofgoodsoutofthecountrywithoutanyintention
of their being landed in specie in some foreign port. It therefore follows that there should be two
termini for export. 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.Accordinglypleaofexportofservicebyappellantisinconceivable.
9.4 In the present cases, market promotion was done by Appellant in the territory of India for sale of
MICROSOFTproductsandrenderingoftechnical support in that territory. Law laid down by Apex Court
in the decision of Burmah Shell Oil Storage and Distributing Co. of India Ltd. and Another v.
CommercialTaxOfficerandOthers(1960)11STC764(SC)isthatinrespectof"export"ofgoodsall
exports involve a taking out of the country. The test that the goods must have a foreign destination
ought to have been satisfied by the appellant demonstrating that market promotion was done abroad
but not in the territory of India. Foreign destination where service would be received as imports is
totallyabsentinthepresentcase.CrucialfactinthiscaseisfindingofmarketbytheappellantinIndia
fortheforeignprincipalwhichbroughtittotheincidenceoftaxunderFinanceAct,1994 as a Business
AuxiliaryServiceprovider.
9.5 Export of Services Rules, 2005 was made in exercise of power conferred on the Central
Government. That came into force w.e.f. 10.09.2004. Rule 3(2) of the said Rules defines the event
occasioningexport.ThathasundergoneamendmentfromtimetotimeasisapparentfromPara218of
theorderofadjudicationreadingasunder:
"During the relevant period the law relating to export was "218 specified in the Export of
ServiceRules,2005.Thespecifiedservice(BAS)wascoveredunderRule3(1)(iii).Thelaw

has undergone changes from timetotime. The said subrule together with subrule 3(2)
providesthefollowingconditionsforthisserviceinordertoconstituteasexport:
From19406to2822007:
(i)RecipientshouldbelocatedoutsideIndia.
(ii)SuchserviceisdeliveredoutsideIndiaandusedoutsideIndiaand
(iii)Paymentforsuchservices,providedoutsideIndiaisreceivedbytheserviceproviderin
convertibleforeignexchange.
From132007to3152007
While condition number (i) and (iii), as mentioned above, remained same, the condition
number(ii)wasrevisedasfollows:
SuchserviceisprovidedfromIndiaandusedoutsideIndia,and
From162007to31122007
The words "provided outside India" were omitted from the condition mentioned at (iii)
above."
9.6ThereisnoambiguitythatlegislatureintermsofExportofServiceRules2005intendedthatservice
consumed outside India shall be export. In the present case when market was promoted by the
Appellant to bring MICROSOFT products and technical support into India in terms of the Agreement
dated 172005, ultimate consumption of service was made in India and the appellant as agent of the
foreignprincipalactedonitsbehalfinIndia.ThecircularsissuedbyCBE&Csubscribetotheconcept of
"export"asisstatedintheConstitutionandfindssupportfromaforesaiddecisionsofApexCourtonthe
subject of export. It appears that Board has clear perception of such term having gained vast
experience from law of Customs and Central Excise as well as Export & Import Policy. Service
extincting in India when fails to move out of India that does not occasion export. Identification of
customers in India brings an end to the promotion of market handicapping such promotion to travel
abroad.Circularsdonotappeartohavemadeanyapproachcontrarytosuchproposition.
9.7 It may also be stated that a Circular is not law by itself to bind a Court as has been held by five
judges Bench of Apex Court in the case of CCE, Bolpur V. Ratan Melting & Wire Industries 2008 (12)
STR 416 (SC) = (2008TIOL194SCCXCB). 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,Circularcontrarytostatutoryprovisionshasnoexistenceinlaw.ThisisthereasonwhyCBE&C
vide CircularNo.141/10/2011TRUdated13.5.2011removedtheanomalyof CircularNo.111/05/2009dated2402
09andthereisnoelementofbias.
9.8Inthecourseofhearing,learnedCounselplacedrelianceonthedecisionsofTribunalincaseofABS
(India)Ltd.v.2009(13)S.T.R.65=(2008TIOL2102CESTATBANG)andBlueStar2001(11)S.T.R.23
= (2008TIOL716CESTATBANG). to advance argument that when recipient of services is located outside
India,itcannotbesaidthattheservicesweredeliveredinIndiaorusedinIndia.Servicesareutilized
only outside India and such services shall be eligible to benefit of export of services. Decision of the
Tribunal in the case of Lenovo (India) Pvt. Ltd. 2009TIOL911CESTATBANG was also relied to submit
that that the said case was similar to case of ABC (India) Ltd. and Blue Star (supra). So also reliance
wasplacedonDellInternationalserviceIndiaPrivateLtdVs.CCE2010(17)STR540(T)= (2009TIOL
1957CESTATBANG), Schott Glass India Private ltd. V. CCE 2010 (18) STR 445 (T) = (2009TIOL1556
CESTATAHM),KSHInternationalPrivateLtd.V.CCE2010(18)STR404(T)= (2010TIOL805CESTATMUM)
and M/s Em Jay engineers V. CCE 2010TIOL1200CESTATMUM. But all these decisions do not lend
support to 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.)=(2007TIOL149SCST) and meaning of export having been explained in the
ConstitutionalprovisionanddecisionsofApexCourtasaforesaid.
9.9 Learned Sr. Counsel relied on the judgments in Indichem (supra) and Kisan Chemicals (supra) to
submit that the Circulars cannot negate the orders of Tribunal. There was nothing specific brought out
how the circular of 13.05.2011 negated orders of Tribunal. When neither the statutory provisions nor
judicial pronouncements made by Apex court enable market promotion by appellant in India on behalf
ofitsforeignprincipaltobeexportofservice,theappealfailsonthecountofclaimofexport.

9.10 On the aforesaid premises of law discussed, plea of export raised by the Appellant does not
sustainandservicetaxliabilityunderFinanceAct,1994arisesonsuchcount.
SOFTWAREMAINTENANCECONTRACT
10.Inrespectofmaintenancecontract,appellantreliedonvariouscircularsi.e.70/19/03/STdated17
122003 and 81/02/05 dated 7102005. According to appellant, these circulars clarified that software
was not considered to be goods for which maintenance thereof was not repair and maintenance for
taxability. Such view survived for limited period from 17122003 to 6102005 when Circular No.
81/02/05 was issued to the contrary. By circular 81/02/05 software was made liable to service tax.
Appellant's plea was that it was eligible to the benefit of circulars during relevant period before
issuance of show cause notice is not assailable and there shall not be liability to service tax on such
servicefortheperiodpriorto7.10.2005.
TIMEBAR
11.1 So far as pleading of bar of limitation is concerned, it may be stated that imitation is counted in
reverse order from the date of noticing of the fact of willful evasion, by the Taxing Authority. Facts of
eachcasearetestedonthetouchstoneoflawandmaterialfactsofthecase.
11.2ItwaspleadedbylearnedSr.Counselthatintermsofletterdated4102005(Ref:page47ofthe
PaperBook)theappellantinformedlearnedAsst.Commissioner,Gurgaonaboutprovidingofmarketing
of services to Microsoft Corporation USA located outside India and as per Rule 3 of Export Services
Rules, 2005 the marketing services provided by the Microsoft, USA was export of service. Refund was
claimedunderRule5ofCENVATCreditRules,2005inrespectofinputservices.Similarsuchletterwas
alsoissuedbytheAppellanton30112005(Ref:page54of Paper Book), on 3112006 (Ref: page 56
ofPaperBook)andon3132006(Ref:page65ofPaperBook).
11.3Record reveals that for the first time by letter dated 722007 acknowledged by Revenue on 92
2007 (Ref: page 79 of Paper Book), the appellant informed the Department as above and stating
recipient of marketing services provided by the appellant was the Singapore subsidiary of Microsoft
USA While appellant was also a subsidiary company of Microsoft USA. It was also informed that the
USA concern has no EOU and not required to submit quarterly return to the licensing authority as
required by an EOU. The appellant was sanctioned Cenvat credit refunds relating to inputs in terms of
pages82to95ofPaperBook.
11.4UltimateexerciseoftheAppellantresultedinprovisionofBusinessAuxiliaryServicesinIndiaand
outcome thereof resulted in import of MICROSOFT products and technical support into India for
consumption. Nothing occasioned movement of market promotion out of India since both the foreign
principal and the appellant were obliged to fulfill their obligation in terms of Article 2.1, 2.2.1, 2.2.3,
2.3, 3.1, 3.2.1, 3.2.2, 3.3.1 and 3.3.1 of the agreement dated 01/07/2005. Reading of the letters filed
by the Appellant as stated in this order hereinbefore and also reading of the agreement throws light
thattheappellanthadincurredliabilityunderFinanceAct,1994.
11.5InAnandNishikawaCo.Ltd.v.CommissionerofCentralExcise,Meerut,(2005)7SCC749=2005
(188) E.L.T. 149 (S.C.) = (2005TIOL118SCCX) it has been held by the Apex Court that "suppression of
facts" is made when information was not disclosed deliberately to evade payment of duty but when
factswereknowntoboththeparties,omissionbyonetodowhathemighthavedonenotthathemust
have done would not render it suppression. It is settled law that mere failure to declare does not
amount to willful suppression. There must be some positive act from the side of the assessee to find
willfulsuppression.
11.6InContinental Foundation Jt. Venture v. Commissioner of Central Excise, 2007 (216) E.L.T. 177 =
(2007TIOL152SCCX). In Paragraphs 10 and 12 of the judgment it has been held that the expression
"suppression"hasbeenusedintheprovisotoSection11AoftheActaccompaniedbyverystrongwords
as 'fraud' or "collusion" and, therefore, has to be construed strictly. Mere omission to give correct
information is not suppression of facts unless it was deliberate to stop the payment of duty.
Suppressionmeansfailuretodisclosefullinformation with the intent to evade payment of duty. When
the facts are known to both the parties, omission by one party to do what he might have done would
notrenderitsuppression.
11.7 When Revenue invokes extended period of limitation under Section 73 of the Finance Act, 1994,
theburdenisonittoprovesuppressionoffact.Anincorrectstatementcannotbeequatedwithawillful
misstatement. The latter implies making of an incorrect statement with the knowledge that the

statement was not correct. As far as fraud and collusion are concerned, it is evident that the intent to
evade duty is built into these very words. So far as misstatement or suppression of facts are
concerned, they are clearly qualified by the word 'willful', preceding the words "misstatement or
suppressionoffacts"whichmeanswithintent to evade duty. The next set of words "contraventions of
anyoftheprovisionsofthisActorRules'areagainqualifiedbytheimmediatelyfollowingwords"with
intent to evade payment of duty.' Therefore, there cannot be suppression or misstatement of fact,
whichisnotwillfulandyetconstituteapermissiblegroundforthepurposeoftheprovisotoSection73.
A misstatement of fact must be willful to hold evasion of tax and adjudication for the extended period
shallnotbetimebarredinsuchevent.
11.8 In the circumstances where it is difficult to hold that there has been conscious or deliberate
withholding of information by the assessee it can be said that there has been no willful misstatement
much less any deliberate and willful suppression of facts. To invoke the proviso to Section 73 of the
Finance Act, 1994 a mere misstatement is not enough but such misstatement or suppression of facts
mustbewillfultoevadetax.
11.9 Pleadings by the ld. Sr. Counsel 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 Appellant before the Authorities on 04.10.2005 and when registration was
sought on 17.10.2005 as pleaded by the ld. Sr. Counsel. Relevant facts appear to be within the
knowledge of the Departmental Authorities. The Department did not lead any evidence to demonstrate
thattherewaswillfulmisstatementorsuppressionoffactswithintenttoevadepaymentofservicetax
by the Appellant. Therefore extended period cannot be invoked in the present case while adjudication
forthenormalperiodifany,ispermissible.
12.TheAppellantisentitledtocumtaxbenefitandcenvatcreditinaccordancewithlaw.
13.Ontheaforesaidbackdropoflawandfacts,therewasnoexportofservicemadebytheAppellant
for which immunity from service tax claimed is deniable. The appellant is liable to service tax for the
normal period in respect of 'Business auxiliary service' provided without being liable for the extended
period and no penalty is imposable for no intention to evade being patent from the conduct of the
Appellant.Interestasperlawonservicetaxdemandshallfollow.
14. In the result, Appeal is partly allowed and remanded to the learned adjudicating Authority to
recompute the tax liability as well as interest for the normal period granting cumtax benefit and
Cenvatcreditinaccordancewithlaw.
ST/828/2010
15.Thiscasewasnotarguedbybothsides.Hencenotdisposedbyaboveorder.Registryisrequiredto
list the matter for hearing if stay order dated 12.10.2010 is complied by the Appellant by the date
stipulatedbytheorder.
(PronouncedintheOpenCourton//2011)
(MathewJohn)
TechnicalMember
(DNPanda)
JudicialMember
15. I have gone through the views recorded by my Ld. Brother. The basic issue at hand is what
constitutes export of services, in particular with reference to Business Auxiliary Service taxable under
section65(105)(zzb)ofFinanceAct,1994andMaintenanceandRepairServicetaxableundersection65
(105)(zzg)oftheFinanceAct,1994.ThismatterinrelationtoBusinessAuxiliaryServicehascomeup
before the same bench earlier in the appeal filed by Paul Merchants Ltd = (2011TIOL1448CESTATDEL)
and there was difference between my views and the views of my Ld. Brother. The matter is not yet
finally decided. There is some difference between the facts of that case and facts of this case. In that
case part of the activities constituting the service was taking place outside India. In this case all the
activities were taking place in India. But in my view, this difference cannot lead to a different
conclusion when the matter is examined with reference to the relevant rules. So I am recording my
viewsanditsreasons.

16. The relevant period is 19042006 to Dec 07 for Business Auxiliary Service and 09072004 to 06
102005forMaintenanceandRepairService.A Show Cause Notice dated 240408, was issued for tax
which was not paid by the appellants on the ground that the services were actually exported. I agree
withthefindingsofmyLd.Brotheronthefollowingissues,namely,
(i)thatnoliabilityforservicetaxonaccountofMaintenanceofRepairofsoftwarepriorto
07102005canbeenforcedagainsttheappellants
(ii)thatinthecaseofMaintenanceandRepairServices,theservicescannot be considered
tobeexported(ThisissueisnotdisputedbyAppellantseither)
(iii)thattheextendedperiodoflimitationfordemandingtaxcannotbeinvokedinthiscase.
17.Itispossiblethatnodemandmaysurviveifnormalperiodoflimitationforissueofnoticeistaken
into account but the matter has to be decided by verifying the relevant date. However the issue
whether the impugned Business Auxiliary service was actually exported has to be decided on merits
becausetheissuehastobedecidedfordecidingappealnumberST828/2010whichwasalsolistedfor
hearingtogetherwiththisappealonthesamedaybutisnotbeingdecidedbythisorder.Itwillnotbe
intheinterestofjusticeifthismatterwhichwasthemainpointarguedduringthehearingistobere
arguedfordecidingthatappeal.
18.Whatconstitutesexportofservicesisanissuewheretherearereasonsfor different understanding
inthematter.Thisisanissuewherethegovernmenthasbeenchangingthecriteriafromtimetotime
outside the period relevant for this case and during the period relevant for this case. This is an area
whereCBEChasissuedafewcircularswithchangingperspectives.Thisisanissuewhichhascomeup
before the Tribunal in a few other cases in the past. This issue is of a recurring nature. So it is
extremelynecessarytoachieveaharmonious,predictable,easilyunderstandablelegalpositiononthis
issue which should preferably be available to the public in condensed legal Act or Rules. It will be
desirable to avoid a situation where the public has to read too many decisions of the courts and
clarifications issued by CBEC for understanding the matter. So I would like to first examine this issue
withreferencetoExportofServicesRules,2005andfindwhethertheissuecanbeansweredbasedon
theseRules.HerealsothereisthecomplicationthattheseRulesitselfwerechangedonfewoccasions
duringtherelevantperiod.
19. It is seen that the officers of the department and the public get confused about these Rules quite
oftenandgivinganoutlineoftheconceptoftheRuleswillhelpineasyunderstandingoftheRules.As
pertheseRulesthetaxableserviceshavebeengroupedintothreecategoriesbyspecificallymentioning
theclausesofsection65(105)oftheFinanceAct,1994underwhicheachsuchserviceisbroughtunder
service tax net. The CategoryI is of services is for services relating to properties, like service of an
architect. For this category the rule stipulates that if the property is situated outside India the service
willbeconsideredasexported.
That is to say even if the architect and the person availing the service are situated in India but the
propertyisoutsideIndia,theservicewillclearlybeconsideredtobeexportedasperRulesinexistence
after27022010.TheCategoryIIisofservicesinrespectofwhichperformanceisgivenemphasisand
the question whether service is exported, is decided with reference to place of performance. For
example Business Exhibition will fall under this category. In this category also even if the person
providing service and the person availing the service are situated in India but the exhibition is
performedoutsideIndia, it will clearly be considered as export of service after 27022010. Category
III is for the rest of the services and here the emphasis is on the location of the person receiving the
service. In this category the the question whether service is exported, is decided with reference to
residence of the person availing the service. For example let us take the case of Medical Records
Maintenance Service (65 (105) (zzzzp)). Here all activities relating to maintenance of records may be
doneinIndia.Butifthepersonrequestingfortheserviceandpayingfortheserviceislocatedoutside
Indiaitisconsideredasexportofservice.Furtheritappearsthatevenifsuchpersonisundertakingthe
businessofmaintainingtherecordsofaHospitalinIndiafortheuseofdoctorsinthehospitalthenalso
theservicewillbecoveredasexportsolongasthehospitalinIndiahasnotpaidfortheservice.Itis
thistypeofsituationthatisathand.ThisisaworrytheLdAdjudicatingauthorityhadinmindwhenhe
wastalkingaboutachievingexportjustbyroutingoftheserviceasmaybeseenfrompara224ofthe
impugned order. I would like to clarify that the above exposition is a very simple explanation for
understanding of the scheme and the Rules and there are some other conditions applicable to each of
thethreecategoriesandtheconditionshavechangedfromtimetotime.Thisparagraph should not be
readasaninterpretationoftheRules.

20. Maintenance and Repair service is CategoryII service where export is decided with reference to
place of performance. Business Auxiliary service is CategoryIII service where export is decided with
reference to location of the service receiver. This is the reason why I come to different conclusions in
respectofthesetwoservices.
21. The impugned Business Auxiliary Service is that of promotion of sales in India of products of
Microsoft Operations PTE Ltd, a Singapore corporation. The person availing the service and paying for
the service is located in Singapore. The activities for promotion and the sales consequent to the
promotion take place substantially in India, though there is a marginal issue that there may be some
activities relating to promotion of business in Bhutan, Nepal, Maladives and British Indian Ocean
TerritoryapartfromIndia.Thatmarginalissueisnotcentraltothedispute.Thusactivityissubjectedto
tax under section 65 (105) (zzb) and this is covered by CategoryIII discussed above. On these facts
andlegalpositionthereisnodispute.
22.The criteria applicable for deciding export of services of CategoryIII during the period 19042006
to28022007wasasunder:
"3. Export of taxable service. (1) The export of taxable service shall in relation to
taxableservices,

(iii)Specifiedinclause(105)ofsection65oftheAct,butexcluding,
(a)subclauses(zzzo)and(zzzv)
(b) those specified in clause (i) of this rule except when the
provisionoftaxableservicesspecifiedinsubclauses(d),(zzzc)and
(zzzr)doesnotrelatetoimmovablepropertyand
(c)thosespecifiedinclause(ii)ofthisrule.
When provided in relation to business or commerce, be provision of such
services to a recipient located outside India and when provided otherwise, be
provision of such services to a recipient located outside India at the time of
provisionofsuchservice
Provided that where such recipient has commercial establishment or any office
relating therein, in India, such taxable services provided shall be treated as
export of service only when order for provision of such service is made from
anyofhiscommercialestablishmentorofficelocatedoutsideIndia.
(2) The provision of any taxable service shall be treated as export of service when the
followingconditionsaresatisfied,namely:
(a)suchserviceisdeliveredoutsideIndiaandusedoutsideIndiaand
(b) payment for such service provided outside India is received by the service
providerinconvertibleforeignexchange."
Thewords"providedoutsideIndia"inRule2(b)abovewasomittedwitheffectfrom010607.
23. The whole dispute is about the expressions "delivered outside India and used outside India"
appearing in the above rules. The government found it necessary to omit these expressions. First the
expression"deliveredoutsideIndia"wasreplacedwith"isprovidedfromIndia"witheffectfrom 0103
2007.Itstandsomittedfromtherulesw.e.f.27022010whichdateisoutsidetheperiodrelevantfor
thiscase.Theexpression"usedoutsideIndia"continuedtill27022010whenitwasomitted.Theissue
before us has to be examined with reference to rules in existence during the relevant period. But the
fact that these got omitted later is indicative of the government's intentions. The first question to be
considered is when the service was performed in India but the service recipient was resident outside
India can the service be considered as "delivered outside India". This issue is complicated by the fact
the consumer benefiting from the products sold in India and the after sales services done in India are
locatedinIndia.Thisistheargumentthatisreflectedastheneedtotestlocationofthecustomer(see
para 226 of the impugned order). I am of the view that the service that is sought to be taxed is the

serviceprovidedtothepersonpayingfortheserviceandnottheservicewhichisprovidedtoaperson
inIndiawhoisnotpayingfortheservicethoughsuchpersonmayalsobeabeneficiaryofsuchservice.
Though the concept that taxable service and consideration paid for it flow in opposite directions is an
importantconceptIthinkthatthereisnoneedtodwellatgreatlengthonthisissueespeciallybecause
this issue has been dealt with in the case of Appeal No ST311/2009 filed by M/s Paul Merchants Ltd
whichmatterisnotyetfinallydecidedbecauseofdifferenceinopinionbetweenthetwomembers who
originally heard the case. I am of the view that the customer for the impugned service of sale
promotion is Microsoft Singapore and not the person buying the software. That is to say I am of the
viewthatthecustomer,withreferencetowhomissueistobedecided,isinSingaporeinthiscaseand
ifthislogicisfollowedthereisnodoubtthattheserviceisdeliveredoutsideIndia.
24. In my view the expression "delivered outside India" which existed in the rules till 28022007
cannot have the same connotation as "performed outside India" used in same Rules in respect of
CategoryIIservices.ThelegislaturehasusedthesetwoexpressionsinthesameRulesandhencethere
isapresumptionthatboththeexpressionshavedifferentmeanings.Nothingtorebutthispresumption
has come out from the legal arguments. This presumption is strengthened by the fact that all the
clarifications issued by CBEC prior to 13052011 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.Sincethepromotionactivitywasofproductsbelongingtoapersonresidentabroaditis
tobeconsideredthattheimpugnedservicewasdeliveredoutsideIndia.
25.AtthisstageInotethattheclarificationissuedon13052011givestheimpressionthatthematter
is to be decided with reference to "the accrual of benefit ". This expression is not used in the Rules
thoughitwasusedintheearliercirculardated24022009.Themeaningoftheexpressionitselfcanbe
disputed. For example in the case before us is the benefit accruing in Singapore or India? The circular
does not give any clarity to the issue. If the Rules are not giving the intent that the government
desires, the proper course in this sort of inherently complicated matter, is to amend the Rules rather
thanachieveitthroughcirculars.
26. I have also considered the issue whether the expression "delivered outside India" which was
presentintheRulesduringtheperiodtill28022007wouldberedundantiftheinterpretationasgiven
by me is accepted. It appears to be not the case. This condition in Rule 3(2) is applicable to services
CategoryI and CategoryII and could make a difference to a case where an architect is providing
servicetoapersoninIndiaforhispropertyoutsideIndia.
27.Ihavealsomulledovertheissuethattheconsequenceofthisinterpretationcanbethattheanswer
tothequestionwhetheranyservice is exported can be changed by a clever routing of service. I have
already mentioned the possibility of medical reports of a hospital in India for use in India being
maintained at the request of a company situated abroad and paid for by such company. If this
arrangementisafarcewiththespecialobjectiveofavoidingservicetaxitisamattertobechallenged
andifthelawisfoundtobeweaktopreventsuchleakageofrevenuelawitselfshouldbeamended.A
fearofsuchapossibilitycannotbeareasonforinterpretingtheruleasisbeforemenow.
28. The next issue is the effect of the expression "used outside India" which was in force till 2702
2010. This is a more contentious issue. It is argued by the Appellants that the use of the marketing
efforts in India is for a sale of products developed outside India and since the service results in
increased sale of such product the use is outside India. This is a debatable issue. A harmonious
construction considering the evolution of these Rules as also the circulars issued by CBEC prior to 13
052011 like the CircularNo.111/05/2009STdated240209 supports the interpretation that use
outsideIndiaistobejudgedwithregardtothefactwherethebenefitaccrues(para3oftheCircular).
The clarifications issued by CBEC on 24022009 and 13052011 talks about an interpretation with
reference to "accrual of benefit ". This further strengthens the case of the Appellant and not that of
Revenue.
29. I have difficulty in agreeing with the argument that export of service should be determined,
especially in the case of categoryIII services, by looking at the origin and termination of activities
constitutingaservicebecausethistestisnotlaiddownintheRules.Criterionwithreferencetoactivity
is the same as a criterion with reference to performance laid down for CategoryII. The new concept
being introduced is of the last of the activities. If there is a need for such a criterion it has to be
introduced specifically in the rules. That is to say CategoryIII should either be altogether abandoned
andservicesspecifiedinthiscategoryshouldbeshiftedtoCategoryIIoradditionalcriteriaspecifically
introducedintheRulesapplicableforCategoryIII.Suchacriterioncanalsoleadtocomplicationasto

what is the last of the activities in a service whether delivery of the outcome of service is part of the
activityornotisalsotobefactoredin.
30. The outcome of the above interpretation is that 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
consideredtobeimported but the marketing services will be considered to be exported. It may prima
facieappeartobecontradictory.ButthisistheoutcomeoftheRulesasitexistsnowandthiswasthe
positionclarifiedbyCBECvideCircularNo.111/05/2009STdated240209(seepara(iii)andpara
3oftheCircular).
31.In the matter of interpreting Rules on a subject like this where the law is evolving, it is necessary
that an interpretation consistent with the direction of evolution has to be adopted. Such an approach
willalsoleadtotheinterpretationIhavegivenabove.
32. There can be other possible arguments that in this case the company receiving services is located
in Singapore whereas the actual development of the software might have been elsewhere, even
possibly in India itself because Microsoft Corporation may have development centers in India (routing
issue). There can also be a concern that the company in India providing service and the company in
Singaporereceivingservicesareinterrelatedcompanies(seepara4CBECcirculardated13052011).
TherecanbeanotherconcernthatcategoryIIservices,performedinIndia,usedasinputservicesmay
also be getting the benefit of export because the output service gets classified as CategoryIII. These
are not issues contested at any stage in these proceedings but only mentioned to illustrate how
complicated things can become in the matter of deciding export of services. Obviously the matter
beforeuscannotbedecidedonthebasisofallwhatwedonotknow.
33. Now I wish to examine whether there is anything in Export of Services Rules, 2005, which is
contrary to meaning of export for interpreting Article 286 (1) (b) of the Constitution and definition of
theterminCustomsAct,1962andthedecisionsoftheApexCourtinthecaseofAssociationofLeasing
and Financial Service Companies 2010 (20) STR 417 (SC) = (2010TIOL87SCSTLB) and All India
Federation of Tax Practitioners Vs. UOI 2007 (7) STR 625 (SC) = (2007TIOL149SCST) relied upon by
my Ld. Brother. Though there is equivalence between goods and services in certain aspects for taxing
thetwo,thereisafundamentaldifferencebetweentheminthematterthattheformeristangiblewhile
the latter is not tangible in most cases though its effect or outcome may be tangible. It is difficult to
conceive of taking the service and crossing the border, be it the services of an architect residing in
India designing building located outside India (though the tangible outcome namely designs can be
carried outside) or be it the activity of a person organizing a business exhibition outside India or be it
maintenanceofmedicalrecords.
34.Theword"export"inArticle286intheConstitutionisusedwithreferencetogoods.Soisthecase
with definition of "export" in section 2 (18) of the Customs Act, 1962. It will obviously need some
dovetailing in the context of export of service which issue has come up only after 1994. It is this
dovetailing that is being achieved through Export of Service Rules, 2005 and the criteria laid down in
the Rules are neither arbitrary nor inconsistent with the any provision in the Constitution. The issue
beingdealtwithintheRulesisthatwhethertakingoutofIndiashouldbedecidedwithreferencetothe
situs of the property or the situs of the activity or the situs of the person receiving the service. The
Rules choose to deal differently with different services and this cannot be considered as arbitrary.
FurtherinaproceedingbeforethisTribunalthereisnoscopefordecidingonthevirusofRulesframed
byGovernmentofIndiaundersection94ofFinanceAct,1994.
35. The Honourable Supreme Court in the case of All India Federation of Tax Practitioners (Supra)
observed that service tax is a "destination based consumption tax ". The question at hand is how the
destination is to be decided whether it is to be decided with reference to the location of the person
who paid for the service or with reference to the last of the activities constituting the service. In para
19theordertheHonCourtobservesasunder:
"19. The importance of the above judgment of this Court is twofold. Firstly, applying the
principle of equivalence, there is no difference between production or manufacture of
saleable goods and production of marketable/saleable services in the form of an activity
undertaken by the service provider for consideration, which correspondingly stands
consumedbytheservicereceiver."
SoitisclearthattheHonCourtistalkingaboutthedestinationbasedof the consumer of the service.
So the actual issue in this case is to determine the consumer of the service. The consumer of the

serviceisthepersonpayingfortheserviceandnotanypersonwhomayalsobenefitfromtheactivity.
36. In the matter of theory of equivalence decided by the Apex Court first in the case of All India
Federation of Tax Practitioners (supra) and later referred to by the Court in the case of Association of
Leasing and Financial Service Companies (supra) what I find is that the observation is made while
answeringthequestionwhetherUnionofIndiahaspowertolevyservicetaxontheservicesinquestion
and the decision cannot be interpreted to mean that goods and services are exactly equivalent in all
mattersrelatingtotaxation.Alreadythereareafewdifferencesinpracticesfollowedforlevyofexcise
dutyandlevyofservicetaxasin the case of point of taxation, taxability of services rendered free of
cost,taxabilityofactivityforthebenefitofthepersondoingtheactivitywhichwouldhaveconstituted
service if another person did the activity for the benefit of the such person (corresponding to excise
duty levied on captive consumption), etc. It is not possible to achieve exact equivalence between
taxation on goods and services and especially so in the matter of criteria for deciding the question
whether service is exported. The Apex Court has not ruled in the above decisions that tax on services
anddutiesongoodsareonidenticalfootinginallrespects.
37. For the above reasons I am of the view that the impugned Business Auxiliary Services were
exported as per the provisions of Export of Service Rules, 2005 as in force during the relevant period
andinthisrespectIwouldliketodifferwithmylearnedBrotherforreasonsstatedabove.
38. In the matter of Appeal No.ST828/2010 also the basic issue is whether the output service is
exported,thatistheissuediscussedinthisorder.Therewerenosubmissionsinrespectofthatappeal
duringthehearing.Itmaybeproperthatthatappealisheardforanyotherrelevantissuethatmaybe
involvedinthatappeal,afterthisappealisfinallydecided.
MathewJohn
Member(T)
ConsideringthetwodifferentviewsoftheMembersofthebenchoftheTribunalwhichheardthematter
as coming out from the orders drafted by each Member as above, we have agreed to list out the
followingpointsofdifferencetobedecidedbyaThirdMemberoftheTribunal.
Pointsofdifference:
(i). Whether the impugned Business Auxiliary Service of promotion of market in India for
foreign principal made in terms of Article 2 and 3 of the Agreement dated 01/07/2005
amountstoexportofserviceconsideringArticle286(1)(b)oftheConstitutionofIndiaread
withApexdecisionsinthecaseofStateofKeralaandOthersVs.TheCochinCoalCompany
Ltd.(1961)12STC1(SC),BurmahShellOilStorageandDistributingCo,ofIndiaLtd.and
OtherVs.CommercialTaxOfficersandOthers(1960)11STC764(SC)andtheprovisions
of Export Service Rules, 2005 as well as Circular No. 141/10/2011 TRU dated
13.05.2011issuedbyCBE&C?
(ii). Whether the impugned Business Auxiliary Service of promotion of market in India for
foreignprincipalmadeintermsofArticle2and3oftheAgreement dated 01/07/2005 was
deliveredoutsideIndiaandusedthereatand is immune from levy of service tax as export
of service in terms of the provisions of Export Service Rules, 2005 read with circulars
issuedbyCBE&CexcludingCircularNo.141/10/2011TRUdated13.05.2011?
(iii). Whether the impugned Business Auxiliary Service provided in terms of Agreement
dated 01/07/2005 is governed by the principles of equivalence and destination based
consumption tax as well as law laid down by Apex Court in All India Federation of Tax
Practitioners2007(7)STR625(SC)=(2007TIOL149SCST)andAssociationofLeasingand
FinancialServicesCompaniesVs.UOI2010(20)STR417(SC)=(2010TIOL87SCSTLB).
(iv).TheAppealinAppealNo.ST828/2010withoutbeingarguedbybothsideswhether can
be said to have involved the issue that output service was exported or conclusion is to be
arrivedatuponhearingbothsides?
(v).Whetherdemandforthenormalperiodsustainssubjecttograntofcumtaxbenefitand
CENVATCredit?
(PronouncedintheopenCourton9.11.2011.)

MathewJohn
Member(T)
DNPanda
Member(J)
TheRegistryistoplacethematterbeforetheHon'blePresidentforappropriateorder.
MathewJohn
Member(T)
DNPanda
Member(J)
PerArchanaWadhwa:
39.Thedifferenceonthefollowingpoints,arrivedatintermsoftwoseparate orders recorded by two
MembersoftheoriginalBenchstandplacedbeforeme,asaThirdMember.
(i) Whether the impugned Business Auxiliary service of promotion of market in India for
foreign principal made in terms of Article 2 and 3 of the Agreement dated 01/07/2005
amountstoexportofserviceconsideringArticle286(1)(b)oftheConstitutionofIndiaread
withApexdecisionsinthecaseofSateofKeralaandOthersvs.TheCochinCoalCompany
Ltd.[1961(12)STC1(SC)],BurmahShellOilStorageandDistributingCo.ofIndiaLtd.and
other vs. Commercial Tax officers and others [(1960) 11 STC 764 (SC)= 2002TIOL966SC
CTCB andtheprovisionsofExportServiceRules,2005aswellasCircularNo.141/10/2011
TRUdated13.5.2011issuedbyCBE&C?
(ii) Whether the impugned Business Auxiliary Service of promotion of market in India for
foreignprincipalmadeintermsofArticle2and3oftheAgreement dated 01/07/2005 was
deliveredoutsideIndiaandusedthreatandisimmunefromlevyofservicetaxasexportof
serviceintermsofthe provisions of Export Service Rules, 2005 read with Circulars issued
byCBECexcludingCircularNo.141/10/2011TRUdated13.5.2011?
(iii) Whether the impugned Business Auxiliary Service provided in terms of Agreement
dated 01/07/2005 is governed by the principles of equivalence and destination based
consumption tax as well as law laid down by Apex Court in All India Federation of Tax
Practitioners [2007 (7) STR 625 (SC)] = 2007TIOL149SCST and Association of Leasing and
FinancialServicesCompaniesvs.UOI[2010(20)STR417(SC)]= 2010TIOL87SCSTLB.
(iv)TheappealinAppealNo.ST828/2010withoutbeingarguedbybothsideswhether can
be said to have involved the issue that output service was exported or conclusion is to be
arrivedatuponhearingbothsides?
(v)Whetherdemandforthenormalperiodsustainssubjecttograntofcumtaxbenefitand
CenvatCredit?
40.Inasmuchasthefactsalreadystanddetailedinthesaidordersrecordedbymybrothers,thesame
are not being repeated so as to avoid redundancy. In fact I find that there is no dispute on the factual
positionanditisonlythelegalissue,onwhichthereareseparateopinionsbyboththesides.Themain
issuerequiredtobedecidedisastowhethertheappellant,whoissubsidiarycompanyandhadentered
in the market development agreement with foreign principal located at Singapore is liable to Service
taxontheservicessorenderedbythemtoitsprincipalcompany.
41. The matter was heard at length on different dates when the representative of both the sides
appeared and made extensive arguments. Subsequent to the conclusion of the arguments, both the
sideshaveplacedonrecordthewrittensubmissions.
42. The appellants is admittedly covered under the definition of business auxiliary services. The said
services are being provided by the appellant to its principal company, which is located at Singapore.
The dispute required to be resolved is as to whether rendering of business auxiliary services to a
servicerecipient,whichislocatedoutsideIndia,wouldbecoveredbyExportServiceRules,2005soas
not to create any service tax liability against the appellant. The said Rules stand reproduced and
discussedbyboththeMembersandassucharenotbeingreproduced.

43. According to the Revenue inasmuch as the services involved in the matter are marketing support
servicesforthemarketingofMicrosoftproducts and services in India. This comprises host of services
such as maximizing the markets for Microsoft products including all local advertising and performing
the 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 software industry. These services once
providedarenotcapableofbeingusedinaterritoryotherthanwheretheyhavebeenprovided.Infact
most of the time provision, delivery and use is happening simultaneously. It will be inaccurate to
suggestthattheabovesaidservicesprovidedinIndiacanevenbedeliveredorusedinaterritoryother
thanwherethesehavebeen provided because the intended target group of the service provider is the
prospectivebuyerlocatedinIndia.
44.Theword'and'asaconjunctionhasbeeninsertedattheendofcondition(a)clearlymandatesthat
boththeconditionshavetobesatisfiedtogether.Themomentboththeconditionsarereadtogetherthe
confusion regarding delivery and use disappears, as the words provided outside India clearly do not
leadthemselvestoanyconfusionregardingdeliveryandusedisappears,asthewordsprovidedoutside
India clearly do not lead themselves to any confusion in as much as the intention of the law makers
becomes immediately clear that the services to qualify as exports have necessarily to be provided
outsideIndiaandnotprovidedin India. The word provided is the equivalent of the word manufacturer
inthecaseofgoods.Itmeanscreationororigin.Undoubtedly,theservicehasbeenprovidedinIndia.
Thus the service was never provided outside India. For this additional reason also the services in this
casedo not constitute export within the meaning of Rule 3(1)(iii) of the Export of Services Rules 2005
for the period from 19/4/2006 to 31/5/2007. Further for the period 01/06/2007 onwards the criterion
provided outside India was omitted but the condition of services provided from India and used outside
shallremainedinforce.
45. The Rules clearly specify two separate conditions i.e. the user should be located outside India and
theuseshouldalsobeoutsideIndia.Theseconditionshavetobesatisfiedindependentlyofeachother.
If the Noticees 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 this case, the recipient were to be
relocatedfromUSA to say Japan, in terms of the noticees logic, the place of use of service will stand
automatically shifted from USA to Japan. This legal position could have been obtained if the
Governmentgaveanexemptionfrompaymentoftaxesbasedoncountrytowhichthecontracteebuyer
in the service purchase agreement belongs. In Double Tax Avoidance Agreements (DTAA) under the
Income Tax Act which Government of India enters into with different taxing jurisdictions outside India,
this position does emerge because the Income Tax Act gives a facility to tax payers belonging to a
particular territory that has DTAA with India, to pay taxes according to that agreement and not
accordingtothemainprovisionsoftheIncomeTaxAct,providedthatthetaxpayerpaysIndian Income
Tax department withholding taxes on certain remittances made by them abroad. There is no legally
binding international treaty in respect of taxation of services which can free nonresident companies
frompaymentofservicetaxwheretheprovisionandexhaustionoftheserviceisonIndiansoil.
46.HehasalsoreferredtocertainprovisionsofIncomeTaxActandbaseduponthereasoningadopted
by learned Member Judicial, has pleaded that there is no ambiguity that legislature in the terms of
Export of Services Rules 2005 which clearly intended that service consumed outside India shall be
export. Inasmuch as in the present case the market was promoted by the appellant to bring Microsoft
productsandtechnicalsupportintoIndiaandtheultimateconsumptionofserviceswasmadeinIndia,it
hastobeheldthatserviceswasprovidedinIndiaandwouldbeliabletoServiceTax.
47. On the other hand, the appellants have strongly adopted the reasoning of the learned Member
(Technical) and have stated that in terms of Export of Services Rules, 2005, the service recipient i.e.
the Microsoft Operations Pvt. Ltd. is located in Singapore and as such is outside India. The services
providedbytheappellantsistotheparentcompanyandnottoanyIndiancustomers.Paymentforthe
servicesarebeingreceivedbytheappellantfromtheirparentcompanylocatedinaforeignlandandin
convertibleforeignexchange.Assuch,inasmuchastheservicerecipientisnotinIndiaandtheservices
being provided is to a foreign company located outside India, it has to be held that services being
provided by the appellant are export of services. It also stand argued that services are intangible as
againsttheexportoftangiblegoodsandassuch,definitionofexportasappearinginCustomsActbeing
in respect of goods is irrelevant and the entire issue has to be adjudged in accordance with the

provisionsofExportServiceRules,2005.Learnedadvocateappearingfortheappellanthasalsodrawn
myattentiontotheotherdecisions,insupportofhissubmissions.
48.Withoutgoingintothedetailedfactsinvolvedandthedetailedsubmissionsmadebyboththesides,
IfindthatanidenticaldisputewasthesubjectmatterofanotherdecisionoftheBenchconstitutingthe
same Members, in the case of M/s. Paul Merchants Ltd. vs. CCE Chandigarh . The said difference of
opinion referred to third Member stand resolved in favour of the assessee. It stand held by third
Member that the services provided by a subagent in India to a service recipient located outside are
exportofservicesandhencenotliabletobetaxed.
49. Inasmuch as the same issue is involved in the present matter also, by adopting the said majority
decision in the case of Paul Merchants Ltd. laying down that the services provided by the agents and
someagenciesbeingdeliveryofmoneytotheintendedbeneficiaryofthecustomerofthewesternunits
abroad, which may be located in India and the services provided being business auxiliary services is
also to the western unit who is recipient of services and consumers of services, it has to be held that
serviceswerebeingexportedintermsofExportofServicesRule2005andnotliabletoServiceTax.
50. In a recent decision the Tribunal in the case of Larsen & Toubro [Misc. order No. 5922559226/13
dated9.9.13]heldthatamajoritydecisionisLargerBenchdecisionhavingthesamebindingcriteriaas
thatofLargerBench.Ifthatbeso,themajoritydecisioninthecaseofPaulMerchantisrequiredtobe
followed.
51.Evenotherwisealso,Ifindthatthedisputedserviceistheservicebeing provided by the appellant
tohisprincipallocatedinSingapore.ThemarketingoperationsdonebytheappellantinIndiacannotbe
said to be at the behest of any Indian customer. The service being provided may or may not result in
any sales of the product in Indian soil. The transactions and activities between the appellant and
Singapore principal company are the disputed activities. As such, the services are being provided by
the appellant to Singapore Recipient company and to be used by them at Singapore, may be for the
purposeofthesaleoftheirproductinIndia,havetobeheldasexportofservices.
52.Apartfromtheabove,wenotethattherewasidenticalissuewasbeforetheBenchoftheTribunal
in the case of Gap International Sourcing (India) Pvt. Ltd. 2014TIOL465CESTATDEL. Vide its detailed
orderandafterconsideringthevariousdecisionsofthehigherCourtasalsovariouscircularsissuedby
the Board, it stand held that services of identifying the Indian customers, for procurement of various
goodsonbehestofforeignentityistheserviceprovidedbyaforeignentityandsuchserviceprovided
by a person in India is consumed and used by a person abroad. It has to be treated as export of
services. I also take note of the Tribunals decision in the case of Vodafone Essar Cellular Ltd. vs. CCE
Pune 2013TIOL566CESTATMUMwhereinitstandheldthatwhentheservicesisrenderedtothirdpartyat
the behest of the assessees customers, the service recipient is assessees customer and not the third
party i.e. his customers customer. As such, the services being provided at the behest of the foreign
telecommunication services provided to a person, roaming India were held to be constituting export
servicesundertheExportofServicesRules,2005.Thesaiddecisionstandsubsequentlyfollowedbythe
Tribunal in the case of CESTAT, Mumbai vs. Bayer Material Science Pvt. Ltd. vs. CST Mumbai [2014
TIOL1064CESTATMum](Itshouldbe2014TIOL1084CESTATMUM:Editor)Business Auxiliary services
provided by the assessee to their members located outside India by marketing their product in India
was held to be export of services inasmuch as the service was held to be provided to the foreign
locatedpersonwhowasalsopayingtotheassesseeonsuchservicesinconvertibleforeignexchange.
53. Learned DR appearing for the appellant has not been able to brought to my notice any other
decision of any other Court which is contrary to the law declared in the above referred decision.
Accordingly, I agree with the learned Member (Technical) that the services provided by the appellant
arecoveredbytheExportofServiceRules2005andarenotliabletoservicetax.
54.Inviewoftheabove,thedifferenceofopiniononvariouspointsisresolvedasunder:
(i)ThatthebusinessauxiliaryservicesofpromotionofmarketinIndiaforforeignprincipal
made in terms of agreement dated 1.7.2005 amount to Export of Services and the Honble
Supreme Court decision in the case of State of Kerala and Others vs. The Cochin Coal
CompanyLtd.[1961(12)STC1(SC)asalsoBurmahShellOilStorageandDistributingCo.
of India Ltd. vs. Commercial Tax Officers [1960 (11) STC 764] = 2002TIOL966SCCTCB
explaining the meaning of export is not relevant inasmuch as the same deals with the
exportofgoodsandnotexportofservices

(ii)ThattheBusinessAuxiliaryservicesprovidedbytheassesseetotheirSingapore parent
company was delivered outside India as such was used there and is covered by the
provisionsofExportofServiceRulesandarenotliabletoServiceTax.
(iii)Theprincipalofequivalencebetweenthetaxationofgoodsandtaxationofservices,as
laid down by the Honble Supreme Court in the case of All India Federation of Tax
Practitioners [2007 (7) STR 625 (SC) = 2007TIOL149SCST as also the principals of
destinationbasedconsumptionTaxwereinthecontextofConstitutionalAuthorityoflevyof
Service Tax on certain services and the issue of Export of Service in terms of Export of
Service Rules was not the subject matter of said decision. The Export of Service Rules,
2005, being destination based consumption tax are in accordance with the declaration of
lawbytheHonbleSupremeCourt.
(iv) Inasmuch as the appeal No.ST 828/2010 was not argued by both the sides, the same
canbelistedforfinaldisposaleventhoughissueinvolvedisidentical.
(v) Having held that services involved were export of services, the same are not liable to
besustainedagainsttheappellants.
FilestobeplacedbeforeoriginalBenchforrecordingoffinalmajorityorder.
(PronouncedintheopenCourton11.09.2014).
(ArchanaWadhwa)
Member,Judicial
MAJORITYORDER55
55. Service Tax Appeal No.ST/866/2008 is allowed and Service Tax Appeal No.ST/828/2010 is to be
listedforhearing.RegistrytolisttheAppealNo.ST/828/2010induecourse.
(PronouncedintheopenCourton23.09.2014)
(RakeshKumar)
TechnicalMember
(D.N.Panda)
JudicialMember
(DISCLAIMER: Though all efforts have been made to reproduce the order correctly
but the access and circulation is subject to the condition that Taxindiaonline are not
responsible/liable for any loss or damage caused to anyone due to any
mistake/error/omissions.)