2013 (8) TMI 48 - AT - Service Tax

Online Database Access or retrieval Service - Computer Reservation System (CRS)/Globai Distribution System (GDS) - Such service received by the appellant M/s Thai Airways International Public Company Limited (hereinafter referred to as TAIPCL ) from foreign based CRS service provider and liable to service tax in terms of section 66A of the Finance Act, 1994 (herein after referred to as the Act ) w.e.f. 18.4.2006 on reverse charge mechanism basis. Since there is difference of opinion between Member (Judicial) and Member (Technical), the Registry is directed to place this matter before Hon ble President in accordance with the Provisions of Section 129 C(5) of Custom Act, 1962, as made applicable to service tax matters by Section 35D(1) of Central Excise Act, 1944 read with Section 86(7) of the Finance Act, 1994, for deciding the following points of difference 1. Whether on the facts and in the circumstances of the case, the appellant permitted by Reserve Bank of India (RBI) to carry out air transport activity in India was a branch in India and was recipient of online Database Access or retrieval Service from CRS service provider abroad and liable to service tax in terms of section 65(105)(zh) read with section 65(75) of Finance Act, 1994 on reverse charge mechanism basis u/s 66A of the said Act w.e.f. 18.4.2006 or exempt in terms of section 66A(2) thereof. 2. If service tax is payable by the appellant in respect of the service provided by the CRS companies, whether longer limitation period under provision to section 73(1) finance Act, 1994 would be available to the Department for recovery of tax and whether penalty on the appellant u/s 78 ibid would be attracted?

Issues Involved:
1. Liability of service tax on "Online Database Access or Retrieval Service" received by the appellant.
2. Applicability of extended period of limitation under Section 73(1) of the Finance Act, 1994.
3. Imposition of penalties under Sections 77 and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Liability of Service Tax on "Online Database Access or Retrieval Service":
The primary issue was whether the appellant, a branch of a foreign airline in India, was liable to pay service tax on services received from foreign-based CRS service providers under the reverse charge mechanism as per Section 66A of the Finance Act, 1994. The Tribunal examined the agreements between the appellant's head office and the CRS companies, which facilitated online reservation and ticketing services for travel agents in India.

The Tribunal found that the appellant was indeed the recipient of the service in India, as the CRS companies provided data access and retrieval services that were essential for the appellant's operations in India. The services were used by travel agents in India to book tickets and manage reservations, and payments for these services were made by the appellant to the CRS companies.

The Tribunal rejected the appellant's argument that the service was provided to the head office abroad, noting that the appellant had a place of business in India and was directly benefiting from the services. The Tribunal also dismissed the appellant's reliance on Section 66A(2), which treats permanent establishments in different countries as separate entities, stating that this did not exempt the appellant from service tax liability in India.

2. Applicability of Extended Period of Limitation:
The appellant argued that the extended period of limitation under the proviso to Section 73(1) was not invokable as there was no suppression of facts or intention to evade tax. However, the Tribunal held that the appellant had failed to register under the Act and file returns, which constituted suppression of facts. The investigation revealed that the appellant had not disclosed the receipt of taxable services, justifying the invocation of the extended period for issuing the show cause notice.

3. Imposition of Penalties:
The Tribunal upheld the imposition of penalties under Sections 77 and 78 of the Finance Act, 1994. It was found that the appellant had deliberately evaded tax by not registering and filing returns. The penalties were justified as the appellant's conduct indicated a clear intention to evade tax.

Separate Judgment by Member (Technical):
A separate judgment was delivered by the Member (Technical), who disagreed with the conclusions of the Member (Judicial). The Member (Technical) held that the appellant's head office in Bangkok was the recipient of the service, not the branch office in India. The agreements and payments were made by the head office, and the service facilitated global operations, not just in India. The Member (Technical) also noted that the extended period of limitation and penalties were not applicable as the appellant's actions did not indicate an intention to evade tax.

Conclusion:
The Tribunal, by majority, concluded that the appellant was liable to pay service tax on the services received from CRS companies under the reverse charge mechanism. The extended period of limitation was applicable, and penalties were rightly imposed. The matter was referred to the Hon'ble President for resolving the difference of opinion between the members.

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