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Larger bench reiterates export status on marketing services

22 Oct 2014

Further deliberations over a case involving Microsoft and the status of marketing support services has reiterated the export status of such services. Taxand India takes a look at the case and highlights the effect of the ruling for multinationals. 

Microsoft India was engaged by Microsoft Singapore to provide a host of marketing support services. Microsoft India claimed export status in respect of the commission received from Microsoft Singapore under the category of ‘business auxiliary services.’ It was Microsoft India’s case that as Microsoft Singapore was located outside India and the services were used in furtherance of the business of Microsoft Singapore, the service qualified as an export.

The Revenue concluded that the service was not an export due to:

  • The services provided by Microsoft India were performed and consumed by potential Microsoft customers in India
  • No portion of the services was provided, delivered and consumed outside India
  • The user as well as use of the services ought to be outside India and in the present case the use of the service was in India 

When the matter came up for hearing before a Tribunal, the view was that the consumer of the service is the person paying for the service and not any person who may also benefit from the activity in India. Therefore, export status was to be upheld basis the consumption of the service by Microsoft Singapore abroad. 

It was settled that it is the location of the customer and not customer’s customer that determines export status in terms of the rulings regard to the above; the ‘business auxiliary services’ provided by Microsoft India to Microsoft Singapore shall amount to export of services.  

Discover more: CESTAT reiterates export status on marketing support services

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Mahesh Jaiseng
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Taxand's Take

This is an extremely significant decision reiterating and hopefully putting to rest the ongoing debate and dispute on export status of marketing support services provided to a customer. The industry, as well as the Revenue, were keenly awaiting the Microsoft ruling given its referral to a larger bench. It is hoped that the Revenue accepts this ruling without disputing the same any further. Multinationals should keep abreast of any future developments in order to remain compliant. 

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