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TMI Blog2009 (10) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... territory. For the services provided by the petitioner to the MS under the aforesaid agreement, the petitioner is receiving commission. The respondent herein has taken the view that the commission received on these services is amenable to service tax. After issuing show-cause notice, the first respondent passed the order-in-original dated 23.9.2008 raising demand of more than Rs.255 crores, which included service tax amounting to Rs.124.99 crores and penalty of Rs.128.03 crores. After adding interest thereupon, the total demand is in the neighborhood of Rs.400 crores. 2. The petitioner has filed appeal against this order before the Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to as the 'Tribunal'). This appeal is pending consideration. Along with this appeal, the petitioner also moved an application for stay under Section 35F of the Act, which is made applicable also to service tax vide Section 83 of the Finance Act, 1994. The case of the petitioner is that commission received by the petitioner under the agreement is not liable to service tax on the ground that the same is export of service, which is exempt from payment of cess tax. On this stay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , for its acceptance or rejection. 3.2.2 Subsidiary shall assist MO as requested in collection past due accounts and performing other activities reasonably related to MO's business. 3.3 MO's Duties. 3.3.1 MO will use its best efforts to fill, or procure the fulfillment of, orders as scheduled and assist Subsidiary with technical matters in connection with the marketing of Microsoft Products and Services. 3.3.2 MO shall permit Subsidiary to operate a service on MO's or its affiliate's web sides for the support of MO's or its affiliate's customers in the Territory, without charge by MO. 4. RGE SERVICES MO shall reimburse Subsidiary for expenses arising from Resident Guest Employee Services ("RGE Services"). RGE Services include but are not limited to human resource expenses, legal expenses and internal information technology expenses. 5. OTHER INTERCOMPANY SERVICES 5.1 Services between MO and MSFT and Affiliates. Subsidiary acknowledges that MO provides services to MSFT and its other affiliates from time to time. Subsidiary acknowledges that Mo may from time to time provide as a service the physical payment to Subsidiary of amounts owed by MSFT or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sibility of MO. 6.3 RGE Services. For RGE Services rendered pursuant to Article 4, MO shall pay subsidiary an amount equal to one hundred and ten percent (110%) of Subsidiary's actual expenses, less revenues, incurred in connection with its duties, provided such expenses comply with Subsidiary's budget, as adjusted from time to time, and provided, further, such expenses are not already covered by another section of the Agreement or covered in another agreement between Subsidiary and MO or any other MSFT affiliate. The reimbursement and additional compensation shall be exclusive of any applicable consumption tax such as a Value Added Tax or a Goods and Services Tax, which consumption tax shall be the responsibility of MO. 6.4 Other Intercompany Services. For other services and/or sales provided pursuant to Article 5, MO or Subsidiary shall invoice the recipient of the sales and/or services for such sales and/or services at a price as may be agreed between the parties from time to time, provided however, that any amount so invoiced shall be consistent with the arm's length standard (as defined in the OECD transfer pricing guidelines and relevant national legislation). T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt out that the Supreme Court in the aforesaid case had specified two categories of the services in the following manner :- "7. In the light of what is stated above, it is clear that Service Tax is a VAT which in turn is destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on services provided within the country. Service tax is a value added tax. 8. As stated above, service tax is VAT. Just as excise duty is a tax on value addition on goods, service tax is on value addition by rendition of services. Therefore, for our understanding, broadly 'services' fall into two categories, namely, property based services and performance based services. Property based services cover service providers such as architects, interior designers, real estate agents, construction services, mandapwalas etc. Performance based services are services provided by service providers like stock-brokers, practising chartered accountants, practising cost accountants, security agencies, tour operators, event managers, travel agents etc." 8. Contesting the approach of the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... located outside India at the time of provision of such service: Provided that where such recipient has commercial establishment or any office relating thereto, in India, such taxable services provided shall be treated as export of service only when order for provision of such service is made from any of his commercial establishment or office located outside India: Provided further that where the taxable service referred to in sub-clause (zzzj) of clause (105) of section 65 of the Act is provided to a recipient located outside India, then such taxable service shall be treated as export of taxable service subject to the condition that the tangible goods supplied for use are located outside India during the period of use of such tangible goods by such recipient. (2) The provision of any taxable service specified in sub-rule (1) shall be treated as export of service when the following conditions are satisfied, namely :- (a) such service is provided from India and used outside India; and (b) payment for such service is received by the service provider in convertible foreign exchange. Explanation - For the purposes of this rule "India" includes the designated areas in the Continent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the parent company and the same may constitute the actual rendering of services. The fact that the India based company has received payment in foreign exchange, prima facie, supports the claim of the applicant that they have exported the services. The other issues raised by the learned Jt. CDR have to be gone into at the time of final hearing." (ii) M/s. Bitachi Home & Life Solution (I) Ltd. v. Commissioner of Central Excise, Ahmedabad-III - "3. Ld. Advocate submits that prior to 15.3.2005, such services were fully exempted under Notification No. 2/2003 dated 20.11.2003. The benefit stands denied by Original Adjudicating Authority only on the ground that the commission received by the appellants in foreign currency was not repatriated and no evidence stand produced by the appellant to that effect. The appellants have contended that if the amount is not repatriated, the production of positive evidence is not possible. There is no evidence produced by the Revenue to the contrary. The appellants have sworn on affidavit that the amount was not repatriated. As regards the period after 15.3.2005, Ld. Advocate submits that such services would fall under the category of Export Service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conclusion that service tax liability does not arise in such cases. Learned Counsel for the petitioners is right in contending that the petitioners have a prima facie case. We may usefully refer to the observation of the Supreme Court in lndu Nissan Oxo Chemicals Industries Ltd.'s case (supra), wherein the Supreme Court has observed that: "It is true that on merely establishing a prima facie case, interim order of protection should not be passed. But if on a cursory glance it appears that the demand raised has no leg to stand, it would be undesirable to require the assessee to pay full or substantive part of the demand...." 9. Viewed in the light of above observations, we are of the opinion that the impugned order deserves to be set aside and is set aside accordingly. Once the Tribunal has granted full waiver atleast in two similarly situated cases, it would not be proper to take a different view and deny full waiver of pre-deposit. Accordingly, we direct waiver of pre-deposit of the amounts in question and stay recovery thereof pending appeal." He also referred to the judgment of the Supreme Court in Polar Industries Ltd. v. CCE, Meerut, 1999 (114) ELT 783, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to pay the amount would not by itself be a determinative factor. In this behalf, he submitted that this Court in the case of Sri Krishna v. Union of India, 1998 (104) ELT 325 had unambiguously observed that if the appellant has such a prima facie strong case and as is most likely to exonerate him from payment and the Tribunal still insisted on deposit, the same would amount to undue hardship. The relevant portion is as under :- "7. In view of the above said submissions in which we find substance, a case for waiver of pre-deposit was made out clearly and the Tribunal could not have insisted on pre-deposit of the amount of the impugned penalty either wholly or in part. 8. Mr. M.L. Bhargava, the learned Counsel for the respondent submitted that the impugned order being a discretionary order is not liable to be interfered with in exercise of writ jurisdiction of this Court. He relied on the decision of the Supreme Court in S.I. Coir Mills v. Addl. Collector, Customs, AIR 1976 SC 1527 and Oswal Weaving Factory v. State of Punjab, AIR 1966 Punjab 532. Suffice it to observe that while disposing of an application under Section 129 of the Customs Act, 1962 the Tribunal is obliged to adh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y submission was that the Tribunal had exercised its discretion and granted interim relief directing deposit of only 17% of the total demand. Section 35F of the Act, which has been made applicable under Section 83 of the Finance Act, 1994 mandates conditional right to appeal having regard to securing interest of revenue and undue hardship. Undue hardship has not even been pleaded. Therefore, the interim order of stay does not warrant interference in exercise of discretionary writ jurisdiction of this Court. He referred to the judgment in the case of Vijay Prakash Mehta v. Collector of Customs, (1988) 4 SCC 402. He, thus, pleaded that discretion exercised by the Tribunal in granting conditional reply to appeal be not interfered with, more so when it was based upon proper appreciation of the case. (ii) His further submission was that the prima facie case and undue hardship were held earlier to be mutually inclusive concepts. Gradually, this position has undergone some change, as is clear from the following three cases where the courts have held that prima case alone is not sufficient to grant an interim stay :- (i) Benera Valves (supra) (ii) Ravi Gupta (supra) (iii) Wardha Coal T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the All India Federation of Tax Practitioners (supra). (vi) As regards the judgment of the Supreme Court in All India Federation of Tax Practitioners (supra), he argued that two categories of services were carved out by the Hon'ble Supreme Court. This is binding on all Courts and Tribunals. The said judgment carves out property based services ad performance based services. Admittedly, the agreement dated 01.07.2005 (subject matter of litigation) is performance based services. Both these categories can have trans-border implication. Such trans-border implication would be sub set of these board categories and by itself cannot be termed as a third category. Interpretation of Service Tax Rules and arguments cannot be pressed to dilute the binding judgment of Hon'ble Supreme Court in All India Federation of Tax Practitioners (supra). Therefore, destination based consumption of service ends with the performance of service in India and this satisfies performance based service tax concept as held by the Hon'ble Supreme Court in All India Federation of Tax Practitioner case. (vii) He further pleaded that this Court should not be influenced by the stay orders granted by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipal was not the beneficiary. A service provider acting directly or indirectly through its agent is not the beneficiary of service so provided while providing of service is its contractual obligation under terms of contract with clients/customers. Therefore in the present case of the appellant no service has occasioned to move out of India to a place out side India following well tested meaning of the term "export" under Section 2(18) of the Customs Act, 1962. Such a view is also very clear when object 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 sample agreement dated 01.07.2005, which has been extracted hereinbefore, is read. Remuneration for the service provided by the appellant was linked with expenses incurred in terms of Article 6.1 and 6.2 of the sample agreement dated 01.07.2005. It may be appreciated that to provide service, expenses were incurred in India in terms of the sample agreement for which the appellant got reimbursement of such expenses and a percentage thereof is paid to it as its remuneration. Thus expenditure met in India has generated service potentiality in India. 25. Reading of the letters filed by the Appellant as stated i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marketing support provided to the foreign principal as agent thereof also results with either ultimate supply of goods or provision of services to the consumers of India only and service reaches its destination in India to the intended consumer of the goods or services. Therefore whether service is directly provided by a foreign Principal in India or foreign principal providing service in India through its agents in India makes no difference under service tax law when service tax is a VAT and that too destination based consumption tax as per Apex Court Judgment in All India Fedn. of Tax Practitioners (supra). Had the service been provided to the foreign principal not resulting with ultimate supply of goods or provision of service to the consumer in India, such services might have assumed the character or nature of export of service following tested principles of customs law in India. But present case is a departure to that principle. The appellant is an intermediary meant to provide well defined services to clients/customers in India with the technical assistance of foreign principal. To provide service in India, the appellant was supported by technical assistance by the foreign pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay High Court in Wardha Coal Transport Pvt. Ltd. (supra), as is clear from the following discussion in the impugned order :- "31. Learned Adjudicating Authority appears to have thread bare examined the issue by a reasoned and speaking order in different paragraphs depicted aforesaid. There were no materials brought out by the appellant to distinguish its case as export. The Appellant relied on the decision of Hon'ble High Court of Bombay in the case of Wrdha Coal Transprot Pvt. Ltd, Chandrapur v. UOI 2009 TIOL 79 HC Mum ST. to plead for stay of realisation of the demand in view of stay order passed by Ahmedabad Bench. It may be stated that no two cases are equal. It may also be stated that interim orders cannot be precedent decisions following decision of Apex Court in Empire Industries case - 1985 (20) ELT 179 (SC)." 13. After discussing all these aspects, the Tribunal exercised its discretion in directing the petitioner to make pre-deposit of Rs.70 crores and granting stay of the balance demand, which by all means is no less as the amounts covered by the stay order comes to more than Rs.300 crores. While adopting this approach, the Tribunal has taken into consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven due considerations to various aspects as aforesaid and to the limitation aspect pleaded by the appellant involving Rs.30.00 crores and refund plea to the extent of Rs.20.00 crores raised on behalf of the appellant in the course of hearing, as an interim measure to work out the modality for protection of interest of revenue, following decision of Apex Court in Dunlop India's case - 1985 (19) ELT 22 (SC), we direct the appellant to make pre deposit of Rs.70.00 crores (Rupees seventy crores only) within 4 (four) weeks of receipt of this order and make compliance on 30.09.2009. Subject to such compliance, realization of balance demand shall be stayed till disposal of appeal." 14. In Ravi Gupta (supra), referred to by the learned senior counsel for the petitioner, the Apex Court reiterated the principle, firmly approved by series of judgments, that merely on showing a prima facie case, interim order of protection should not be passed. Such a course of action is to be taken only "if on a cursory glance it appears that the demand raised has no leg to stand". 15. We are afraid, the petitioner cannot pitch its case to that level as there are various thronging issues which are set ..... X X X X Extracts X X X X X X X X Extracts X X X X
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