The Delhi High Court on Monday instructed the revenue department to file its reply on the writ petition of Microsoft India challenging a duty demand of Rs 260 crore by the revenue department for violation of service tax norms. The division bench of the Court headed by Justice A K Sirki and Justice Valmiki J Mehta has also directed that the matter be listed for September 22.
While Microsoft India was unavailable for comment till the time of going to press, it is expected to have a significant impact on companies involved in the export of services, especially in the IT sector.
In July this year, an appellate tribunal of the department had ordered Microsoft India to deposit Rs 70 crore for hearing its appeal against the revenue department.
The tribunal in its decision had noted that the place of performance of a service is decisive for determining the event of taxability as well as the incidence of tax. It also questioned a CBEC circular clarifying under the Export of Services of Rules, the location of the service receiver is more relevant than the place of performance. Further the circular clarified that the phrase ?used outside India? should be understood to mean that the benefit of service accrues outside India.
The case dates back to 2008, when the Central Board of Excise and Customs had slapped a demand notice of Rs 126 crore on Microsoft India, along with an equal fine and interest. It had claimed that Microsoft India?s Gurgaon unit had carried out marketing services for Microsoft Singapore from 2005 onwards.
?It will be interesting to see what the High Court decides. The CBEC circular has called for the ?beneficial enjoyment of services,? which is an internationally practice. One hopes that under the goods and services tax regime, this provision would be followed,? said Pratik Jain, executive director, KPMG.
The revenue department claimed that the Microsoft India was carrying out marketing events and other promotional activities for the Singapore subsidiary.