Tax dept slaps $60 Million on Microsoft

By siliconindia   |   Thursday, 25 September 2008, 16:32 IST
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New Delhi: The tax department has imposed $30 million (128 crore) as tax and slapped a penalty of another 128 crore on the Indian arm of the software giant Microsoft for certain alleged evasion in service tax. The company's Gurgaon unit is alleged to carry out activities for the Indian arm while it claimed to operate for the Singapore arm. Sources in the department told Economic Times that the company had not paid tax on these services, claiming them to be exports. Sources said the services rendered by Microsoft India were not exports as per the Rule 3(2) of services rules of 2005. The marketing services provided by the company were covered under the business auxiliary services, they added. The government had prescribed a separate set of rules for export of services in 2005, making it clear that any service consumed within India won't be treated as exports. Penalty has been imposed under section 78 of the Finance Act, 1994. Since the services rendered by the company were consumed in India, sources pointed out that Microsoft was liable to pay service tax. As per the service tax rules, export of services is defined as services being used outside India. These rules, however, did not match with the WTO rules of services export. The WTO categorises export services as those consumed abroad under mode 2 category. Many companies cutting across sectors get caught in the maze of these rules. In fact, the ambiguity in rules has been highlighted time and again by tax experts and some industry bodies. Earlier, Microsoft India had been issued a show cause notice by the department in April.