II. High Court :
2. Pre-deposit of Rs.70 crores directed by Tribunal upheld :
Microsoft Corporation (India) Pvt. Ltd. v. CST, 2009 (16) STR 545 (Del.)
(i) Background :
The Delhi CESTAT passed a stay order in the case of Microsoft Corporation (India) Pvt. Ltd. v. CST, New Delhi, 2009 (15) STR 680 (Tri. Del.) directing pre-deposit of Rs.70 crores on the grounds that the marketing services covered under business auxiliary service which is a recipient-based service as classified under Rule 3(1)(iii) of the Export of Services Rules 2005) (the export Rules) provided by Microsoft India to its Singapore or US-based entities did not qualify as exports. The denial was on the ground that since services were provided in India and consumed by the customers of the Singapore/US entities in India, the benefits of the services were to the customers in India. The CESTAT interpreted the terms ‘delivered outside India’ and ‘used outside India’ used in the conditions in the Export Rules for treating the services as exports to mean physical performance to take place outside India. The Tribunal heavily relied on the judgment of the Supreme Court in All India Federation of Tax Practitioners & Ors. v. UOI & Ors., 2007 (7) STR 625 wherein it was held that services fall in two categories viz. property-based services and performance-based services and as per prima facie view of the Tribunal, the place of performance of a service is decisive for determining the event of taxability and incidence of tax.
(ii) The petitioner cited before the Tribunal Circular No. 111/05/2009-ST, dated 24-2-2009 and various decisions wherein it was decided on similar facts that services were exported. This inter alia included decisions in the cases of Blue Star v. CCE, Bangalore 2008 (11) STR 23 and ABS India Ltd. v. CST, Bangalore 2009 (13) STR 65. Further, the petitioner pointed out that in cases viz. M/s. Gap International Sourcing India Pvt. Ltd. v. CST, Delhi 2009 (15) STR 270 (T) and Hitachi Home & Life Solution (I) Ltd. v. CST, Ahmedabad 2009 (16) STR 341 (Tri. Ahd.), unconditional stay was provided on similar facts considering prima facie case in favour of the appellants.
(iii) As against the above, the Revenue’s case was that the Tribunals or Courts were not bound by the clarificatory Circulars of the Government since the Tribunal had found the Circular No. 111 (supra) to be contrary to the decision in the case of All India Federation of Tax Practitioners’ case (supra). The Revenue further contended that the Court should not be influenced by the stay orders granted by the Co-ordinate Benches of the Tribunal as the issue involved was plain import of goods, whereas the instant case was radically different as it involved peculiar term of agreement between Microsoft India with its foreign counterparts.
(iv) The Court, although found contentions of the appellant to be convincing, concluded that only prima facie view has to be considered at the stage of stay and the Tribunal having fully considered all the relevant parameters required to be gone into including the principle that based on prima facie case interim order of protection should not be passed. Therefore, it was not province of the Court to finally pronounce on the aspects of whether or not the services were extinct in India or abroad. The Court took a view that both the sides had arguable case and the final determination was first to be done by the Tribunal. Further the order being equitable was found not fit for interference, the petition was dismissed granting 4 weeks’ time to the petitioner to make compliance with the pre-deposit.
III. Tribunal :
3. CENVAT Credit :
(a) Repairs & maintenance service — whether an input service ?
CCE, Vadodara v. Danke Products, 2009 (16) STR 576 (Tri. Ahd.)
The issue involved related to whether or not service tax paid on the bill of repairing and maintenance raised on the respondent by an outsourced service provider company called DEL was a correctly availed CENVAT credit. Considering that repairs of transformer during warranty period provided by the respondent through outsourced services of DEL could be said to be an activity relating to the business, it stood concluded that the Commissioner (Appeals) had rightly treated the service as input service and held it entitled for CENVAT credit by relying on the Larger Bench’s decision in the case of ABB Ltd. v. Commissioner, 2009 (15) STR 23 (Tri.-LB) wherein it was held that the expression ‘activity relating to business’ was of large import and would take into its ambit all types of activities.
(b) Security in off-factory residential colony — Whether input service ?
CCE, Nagpur v. UltraTech Cement Ltd., 2009 (16) STR 611 (Tri. Mum.)
The short question for consideration was whether the lower authority rightly allowed CENVAT credit of service tax paid on security service received at the off-factory residential colony of the assessee. Considering the service to be ‘input service’ for Rule 2(1) of the CENVAT Credit Rules, 2004. The respondent’s contention of allowability was based on the fact that the definition of input service included security service in its inclusive part. The Revenue, on the other hand contended relying on the decision in the case of Ponds India Ltd. v. Commissioner, 2008 (227) ELT 497 (SC) that the words ‘means and includes’ used in the definition would afford an exhaustive explanation to the meaning which must invariably be attached to the word or expression. Therefore The Tribunal accordingly observed that services mentioned in the inclusive part of the definition of input service have also to satisfy the parameters laid down in the main part of the definition as the two parts were not independent of each other and as such, the security service used for residential activity was neither a service received prior to the commencement of manufacture, but the value of which got absorbed in the value of goods, nor was it the case of a service received after the clearance of goods where the service is received up to the stage of clearance of goods. It was also not the case of a service like advertising which was not directly related to manufacture but is related to sale of manufactured goods and as such, the credit was ineligible. However, at the end of interpretation in favour of the Revenue, the assessee would not be penalised and penalties would be set aside.
c) Service tax on mobile phones and maintenance of vehicles entitled to the extent of allocated unit :
Force Motors Ltd. v. CCE, Pune-1, 2009 (16) STR 616 (Tri.-Mum)
The appellant in this case had not been able to produce evidence of use of vehicles and mobile phones for business purposes only and there was no check on use for the personal work of employees. Based on the decision in the case of Conzerve Systems (P) Ltd. 2009 (16) STR 195 (Tri.-Mum.) wherein it was held that mobile phones standing in the name of the company and used by the employees in relation to work only and incidentally used for personal work by itself was no ground for denial of credit, the Tribunal allowed the appeal by way of remand to the adjudicating authority to ascertain the quantum of taxable service beyond the allotted limit of use of mobile phones and vehicles and allowed credit availed to the extent of allotted limits and directed to follow the principle of natural justice to pass appropriate order.
d) Garden maintenance service not eligible for CENVAT credit and penalty also sustained. Outdoor catering service to factory workers considered eligible input service :
GKN Sinter Metals Ltd. v. CCE, Aurangabad, 2009 (16) STR 615 (Tri. Mum.)
On the issue of allowability of CENVAT credit of service tax paid to outdoor catering service used for the supply of food to factory workers, the Tribunal relying on the Larger Bench’s decision in the case of CCE, Mumbai v. GTC Industries Ltd., 2008 (12) STR (Tri.-LB) held that such credit could not be denied to a manufacturer where the cost of such supply of food was reflected on the cost of production of the final product. However, in the case of CENVAT credit of service tax taken by the assessee on garden maintenance service, relying on the decision in the case of Kirloskar Oil Engines Ltd. v. CCE, 2009 (241) ELT 474, it was held that garden maintenance service had no nexus even remotely to the manufacture or clearance of excisable goods. It further held that the matter being very clear, the assessee could not take undue benefit of pending clarificatory decisions and therefore, penalty maintained was also sustainable.
