2014 (4) TMI 363 - AT - Service Tax

Waiver of pre-deposit - online database access or retrieval service - whether the appellant is a mere participant or the appellant access or retrieves data from the computer system maintained by the CRS Companies - Held that - services received by Jet from CRS companies fall under the category of online database access and/or retrieval service. Since the service provider is situated abroad, in terms of Section 66A the appellant is liable to discharge the service tax liability on reverse charge basis and we hold accordingly - Following decision of Thai Airways International Public Company Ltd. 2013 (8) TMI 48 - CESTAT NEW DELHI - Decided against assessee. Interpretation of the scope of Section 66A - reverse charge - Whether the service tax has to be demanded for the appellant airline or from a group company of the foreign service provider in India - Held that - It is the contention of the appellant that the CRS companies have their own group entities in India and therefore, it is those group entities who are liable to pay service tax on the services provided by the foreign entity and not the appellant. The contention of the appellant in this regard is mis-placed. First of all, the service provider and the group companies in India are distinct and different legal entities. The group entities in India are not a branch office or agency of the foreign service provider. Further, they are not involved in any way in providing the service of online data access or retrieval service. Therefore, they clearly fall outside the purview of section 66A read with the Explanation thereto - Prima facie case not in favour of assessee. Extended period of limitation - Held that - The question of time bar is both a question of fact as well as a question as well as a question of law. Even according to the appellant, out of the total service tax demand of ₹ 187 core, an amount of ₹ 147 crore (approx) is within the normal period of limitation; therefore, the question of time bar can be gone into at the time of final hearing of the appeal. Financial difficulty / hardship - Held that - appellant has not established any prima facie case at all. - The service tax demand confirmed against the appellant is also substantial to the extent of ₹ 187 core and the demand for the normal period (as per appellant s contention) itself is about ₹ 147 crore. Therefore, the plea of financial hardship at best can be considered only for waiver of interest and penalties imposed and the tax demand beyond the normal period of limitation. - Conditional stay granted.

Issues Involved:

1. Classification of services received by the appellant from CRS companies.
2. Liability of the appellant to pay service tax under reverse charge mechanism.
3. Whether the Indian group entities of CRS companies are liable to pay service tax.
4. Time-bar of the demand.
5. Financial hardship and pre-deposit requirement.

Detailed Analysis:

1. Classification of Services:

The primary issue was whether the services provided by foreign-based CRS companies to the appellant fell under the category of "online information and database access or retrieval services" as defined in Section 65(105)(zh) of the Finance Act, 1994. The Tribunal noted that the CRS companies accessed data from the appellant's server and provided this information to travel agents for booking tickets. The appellant also retrieved booking and cancellation data from the CRS companies. Therefore, the Tribunal concluded that the appellant was indeed accessing and retrieving data through the CRS companies' computer systems. This service was classified under "online information and database access or retrieval services."

2. Liability to Pay Service Tax:

The Tribunal held that since the CRS companies were located outside India, the appellant was liable to pay service tax under the reverse charge mechanism in terms of Section 66A of the Finance Act, 1994. The appellant's argument that the CRS companies provided services to travel agents and not to the appellant was rejected. The Tribunal clarified that the airlines (appellant) were the recipients of the services, even though the travel agents benefited from the service. The appellant paid consideration for these services, establishing a service provider-recipient relationship.

3. Liability of Indian Group Entities:

The appellant contended that the Indian group entities of the CRS companies should be liable to pay service tax. The Tribunal rejected this argument, stating that the Indian entities were distinct legal entities and not branches or agencies of the foreign CRS companies. They were involved in marketing the CRS system to travel agents and not in providing the online data access or retrieval services. Therefore, the liability to pay service tax under reverse charge mechanism fell on the appellant.

4. Time-bar of the Demand:

The appellant argued that the demand was time-barred. The Tribunal noted that out of the total demand of Rs. 187 crore, Rs. 147 crore was within the normal period of limitation. The question of time-bar was deferred to the final hearing of the appeal, indicating that the issue required a detailed examination of facts and law.

5. Financial Hardship and Pre-deposit Requirement:

The appellant pleaded financial hardship, citing significant net losses. The Tribunal acknowledged the appellant's financial condition but emphasized the substantial current assets available. It directed the appellant to make a pre-deposit of Rs. 147 crore, which was the service tax demand for the normal period, within eight weeks. Upon compliance, the pre-deposit of the balance dues would be waived, and recovery stayed during the pendency of the appeal.

Conclusion:

The Tribunal concluded that the services received by the appellant from CRS companies fell under the category of "online information and database access or retrieval services," making the appellant liable to pay service tax under the reverse charge mechanism. The Indian group entities of CRS companies were not liable for this tax. The issue of time-bar was deferred to the final hearing, and the appellant was directed to make a substantial pre-deposit considering its financial condition.

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