Karnataka High Court Dismisses Revenue Appeal Against Microsoft India In CENVAT Refund Case

The Karnataka High Court has dismissed the Revenue's appeal against a tribunal order holding that Microsoft India (R&D) Pvt. Ltd. was entitled to a cash refund of accumulated CENVAT credit on services provided to its overseas entities.

A Division Bench of Justice R. Devdas and Justice K. Manmadha Rao was hearing the appeal against the Customs, Excise and Service Tax Appellate Tribunal's (CESTAT) December 9, 2024 order.

The tribunal had held that the services provided by Microsoft India to Microsoft Corp., USA and Microsoft Mobile, Finland were not intermediary services and qualified as export of services.

The dispute concerned Microsoft India's claim for a cash refund of accumulated CENVAT credit under Rule 5 of the CENVAT Credit Rules, 2004.

The Revenue alleged that Microsoft India was providing intermediary services while rendering online technical support to customers of Microsoft Corp. through email and telephone. The services included after-sales and product warranty support.

The tribunal examined the agreements between Microsoft India and its overseas entities. It found that Microsoft India did not arrange or facilitate any main supply between Microsoft Corp., Microsoft Mobile and their customers.

It therefore held that the services could not be treated as intermediary services. The services qualified as export of services, the tribunal held.

The Revenue challenged the tribunal's order before the high court under Section 35G of the Central Excise Act, 1944.

Microsoft India objected to the maintainability of the appeal. It argued that the matter fell under Section 35L and that the Revenue would therefore have to approach the Supreme Court.

Section 35G provides for appeals to the high court against tribunal orders, except where the dispute concerns a question relating to the rate of excise duty or the value of goods for assessment.

Section 35L provides for an appeal to the Supreme Court in such cases. The provision also treats questions concerning the taxability or excisability of goods for the purpose of assessment as questions relating to the rate of duty.

The high court relied on the Supreme Court's ruling in Alupro Building Systems Pvt. Ltd. v. Commissioner of Central Excise, Bangalore-II. The Supreme Court had held that disputes falling within this exclusion lie before the Supreme Court under Section 35L.

Applying that principle, the high court examined the issue decided by the tribunal. It noted that the tribunal had considered whether Microsoft India's services to the overseas entities amounted to export of services while deciding the refund claim.

Justice R. Devdas, writing the judgment for the Bench, observed, “The issue is one of classification and excisability. The issue squarely falls within the bracketed portion of sub-section (1) of Section 35G and sub-clause (b) of sub-section (1) of Section 35L and sub-section (2) of Section 35L of the Act, 1944. The appeal is therefore not maintainable before this Court.”

The high court held that the appeal was not maintainable before it. It said the Revenue would have to approach the Supreme Court under Section 35L.

The appeal was accordingly dismissed. The high court reserved liberty to the Revenue to approach the Supreme Court in accordance with law.

For Appellant: Central Government Senior Panel Counsel M. Unnikrishnan

For Respondent: Raghunandan K.S., Kumar Harshvardhan, Bharath Janarthanan and Ritu Shivakumar, Advocates