2016 (8) TMI 989 - AT - Service Tax

Demand of tax, interest and penalty airlines business - classification - online information and database access or retrieval service service received from foreign based service provider - computer reservation system reverse charge mechanism Section 66A of the Finance Act, 1994 definition of service - Section 65 (75) of the finance act, 1994 definition of taxable services - 65 (105)(zh) of the Finance Act, 1994 Held that - the activities of CRS Companies would fall under the category of online information and database access or retrieval service as decided in the case British Airways 2014 (6) TMI 626 - CESTAT NEW DELHI (LB). Revenue neutrality CENVAT credit - transport of passenger by air and other services Held that - the appellant could have availed CENVAT credit of the service tax paid on reverse charge mechanism as they are liable to pay tax on output service hence Revenue neutral situation arises wherein appellant pays the tax and takes the credit. It is trait law that question of Revenue Neutrality is a good ground, more so when the tax liability is being discharged under reverse charge mechanism. This very plea of revenue neutrality in an identical issue was raised in British Airways case and decided in favor of appellant. appeal disposed off decided in favor of appellant.

Issues Involved:

1. Classification of services rendered by CRS companies.
2. Applicability of reverse charge mechanism.
3. Revenue neutrality.
4. Invocation of extended period of limitation.
5. Imposition of penalties.

Issue-wise Detailed Analysis:

1. Classification of Services Rendered by CRS Companies:

The primary issue was whether the services rendered by CRS companies to the appellant are classifiable under the taxing entry of "online information and database access or retrieval service." The Tribunal found that the activities of CRS companies, which include maintaining online information about flight schedules, fares, and seat availability, fall under the category of "online information and database access or retrieval service." This conclusion was supported by previous decisions in similar cases, such as British Airways, Austrian Airways, and Thai Airways International Public Company Ltd., where it was held that such services are indeed classifiable under this category.

2. Applicability of Reverse Charge Mechanism:

The appellant contended that the provisions of Section 66A of the Finance Act, 1994, which deals with the reverse charge mechanism, should not apply in this case. However, the Tribunal upheld the adjudicating authority's decision that the appellant, as the recipient of services from CRS companies located abroad, is liable to pay service tax under the reverse charge mechanism. This was based on the fact that the appellant had entered into agreements with CRS companies and made payments for the services received.

3. Revenue Neutrality:

The appellant argued that the entire demand of service tax is revenue-neutral, as any service tax paid could be availed as CENVAT credit. The Tribunal accepted this argument, noting that the appellant is eligible to avail CENVAT credit on all services on which service tax is paid and utilized for rendering output services. The Tribunal referenced the British Airways case, where it was held that the situation was revenue-neutral because the service tax paid would be immediately available as CENVAT credit. Consequently, the Tribunal held that the appellant had made a case in their favor on the question of revenue neutrality.

4. Invocation of Extended Period of Limitation:

The Tribunal considered the appellant's argument that the extended period of limitation should not be invoked in a revenue-neutral situation. The Tribunal agreed with this argument, referencing the British Airways case, where it was held that in a revenue-neutral situation, the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994, would not be applicable. The Tribunal found that no intention to evade tax could be attributed to the appellant, as any service tax paid would be available as CENVAT credit.

5. Imposition of Penalties:

Given the Tribunal's findings on revenue neutrality and the non-applicability of the extended period of limitation, the Tribunal also set aside the penalties imposed on the appellant. The Tribunal concluded that the appellant had made out a case in their favor regarding revenue neutrality, and as such, the demands, interest, and penalties imposed were set aside.

Conclusion:

The Tribunal held against the appellant on the classification of services but in favor of the appellant on the issue of revenue neutrality. Consequently, the demands, interest, and penalties imposed on the appellant were set aside, and the appeals were allowed.

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