2013 (8) TMI 49 - AT - Service Tax

Levy of Service tax on air transport activity - Computer Reservation System (CRS)/Globai Distribution System (GDS) There is difference of opinion between Member (Judicial) and Member (Technical) The Registry is directed to place this matter before Larger bench in accordance with the Provisions of Section 129 C(5) of Customs 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 constituting a bench 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 under Section 66A of the Finance Act, 1994 for "Online Database Access or Retrieval Service" received from CRS service providers abroad.
2. Applicability of extended period of limitation under proviso to Section 73(1) of the Finance Act, 1994.
3. Imposition of penalties under Sections 77 and 78 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Liability of Service Tax under Section 66A:
The primary issue was whether the appellant, operating in India under RBI permission, was liable for service tax for receiving "Online Database Access or Retrieval Service" from CRS service providers abroad. The service involved maintaining and providing access to real-time information on flight schedules, fares, and seat availability by CRS companies to IATA agents for ticket booking. The appellant argued that the service was provided to its head office abroad and not to the Indian branch. However, the adjudicating authority held that the appellant was the recipient of the service in India, as the service facilitated ticket booking in India, and payments were made by the appellant to CRS companies. The Tribunal concluded that the appellant was liable for service tax under Section 66A of the Act, as the service was received and consumed in India.

2. Applicability of Extended Period of Limitation:
The appellant contended that the extended period of limitation under proviso to Section 73(1) was not invocable due to a bona fide belief of non-liability. The adjudicating authority found that the appellant failed to register and file returns, amounting to suppression of facts and evasion of tax. The Tribunal upheld this view, stating that the appellant's failure to seek registration and file returns indicated a deliberate breach of law, justifying the invocation of the extended period of limitation.

3. Imposition of Penalties:
The adjudicating authority imposed penalties under Sections 77 and 78 of the Act for failure to register and pay service tax. The appellant argued against the penalties, citing a bona fide belief of non-liability and potential eligibility for Cenvat credit. The Tribunal dismissed these arguments, emphasizing that the appellant's conduct did not demonstrate bona fide belief and that penalties were warranted due to deliberate evasion of tax.

Separate Judgment by Member (Technical):
The Member (Technical) dissented, arguing that the service was provided to the head office abroad, not the Indian branch, and hence, the appellant was not liable for service tax. He emphasized that the agreements were between the head office and CRS companies, and the payments were made abroad. He also argued that the longer limitation period was not applicable due to the absence of intent to evade tax, as any service tax paid would be available as Cenvat credit, making the exercise revenue-neutral.

Conclusion:
The Tribunal concluded that the appellant was liable for service tax under Section 66A, the extended period of limitation was applicable, and penalties were justified. However, due to the dissenting opinion, the matter was referred to the President for constituting a bench to resolve the points of difference.

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