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Software major Microsoft has received major relief on the tax front after the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) ruled that services rendered to overseas entities were not liable to service tax.
The order has implications for all firms exporting, marketing and providing technical support services to overseas firms. The ruling will also clear the air on a number of tax cases involving Indian arms of multinational companies as well as overseas firms.
“The business auxiliary service 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 Rules and are not liable to Service Tax,” the tribunal said in an order dated September 23. The ruling was on an appeal against a service tax demand of around ₹400 crore against the software major in 2008.
Tax experts feel this ruling, along with the Vodafone judgment by the Bombay High Court, will help foreign investors. On October 10, the Bombay High court ruled that Vodafone was not liable to pay tax of ₹3,200 crore in a transfer pricing case dating back to 2009-10.
In the Microsoft matter, the tribunal said the business auxiliary services of market promotion in India for the foreign principal, made in terms of the agreement dated July 1, 2005, amounted to export of services.
The court ruled that since there was an export of services, the appellants were not liable.
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