2017 (9) TMI 1560 - AT - Service Tax

Import of services - reverse charge - classification of services not done - non-levy of service tax - appellant operating in India is the recipient of online information and database access and/or retrieval services - reverse charge mechanism - Held that - where section 66A of Finance Act, 1994 is sought to be invoked, the classification of the service must necessarily be dealt with in concatenation with identification of the recipient. The impugned order has failed to so and is liable to be set aside on that count itself. the adjudicating authority has transposed the transactions onto a portion of the definition in section 65(75) and section 65(105)(zh) of Finance Act, 1994 without any discussion to identify the appellant as the recipient of the service and, in accordance with the special provisions of section 66A, the deemed provider of the service for liability to tax. This is an essential requirement considering the manner in which section 66A has been enacted as a deviation from the general norm in section 66 of Finance Act, 1994. It would appear to us that the tenor of the various decisions handed down by the Tribunal, and cited by the rival sides, have not been appreciated for the valorous attempts to clarify this much-misinterpreted provision of Finance Act, 1994. It, therefore, devolves upon us to enlighten both disputants and, at the same time, provide ourselves with that steady and unwavering beam within which we will find the resolution to this dispute. The attempt in the present dispute was to hold the Indian branch of a foreign entity liable to tax on consideration paid to an overseas entity arising from contractual relationship of the foreign headquarters of the appellant with CRS/GDS operators outside the country. The thread of provider-recipient relationship as interpreted by Tribunal in the several decisions is unwavering and constant - demand set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Demand of service tax on M/s Korean Air for the period from 18th April 2006 to 31st March 2012.
2. Applicability of section 66A of Finance Act, 1994.
3. Classification of services under section 65(75) and section 65(105)(zh) of Finance Act, 1994.
4. Identification of the recipient of the service.
5. Reliance on previous Tribunal decisions.

Detailed Analysis:

1. Demand of Service Tax:
The appeal sought to set aside the demand of service tax of ?1,10,66,228 for the period from 18th April 2006 to 31st March 2012, along with interest and a penalty of ?30,06,087 imposed under section 78 of Finance Act, 1994. The impugned order disposed of five show cause notices for the period from April 2003 to March 2012, confirming the demand in full for the later four notices and partially for the first notice.

2. Applicability of Section 66A of Finance Act, 1994:
The adjudicating authority confirmed the proposal for recovery of the demand from the appellant under section 66A, as the service was rendered by operators based outside India. The appellant contended they were not the recipients of the service in terms of contract, functional compulsion, or as payer of consideration. The adjudicating authority concluded that the CRS/GDS operator is the provider of the service and the consequences of section 66A devolve on the Indian entity of the first party to the contract.

3. Classification of Services:
The adjudicating Commissioner classified the service under 'online information and database access and/or retrieval services' as defined in section 65(75) and taxable under section 65(105)(zh) of Finance Act, 1994. The classification was based on the provision of data or information, retrievable or otherwise, in electronic form through a computer network. The appellant disputed this classification, arguing that the data is provided by their headquarters to CRS/GDS operators who, in turn, service travel agents.

4. Identification of the Recipient of the Service:
The appellant argued that they were not the recipients of the service, as the service was provided to travel agents. The Tribunal noted that the adjudicating authority failed to identify the appellant as the recipient of the service and to establish the appellant's liability under section 66A. The Tribunal emphasized the necessity of identifying the recipient of the service for taxability under Finance Act, 1994.

5. Reliance on Previous Tribunal Decisions:
The appellant relied on decisions in Qatar Airways and Emirates v. Commissioner of Service Tax, Mumbai-I, British Airways v. Commissioner of Central Excise (Adjn), Delhi, and Paul Merchants Ltd v. Commissioner of Central Excise, Chandigarh, arguing that these decisions were applicable to their case. The Tribunal noted that the impugned order did not establish the appellant as the recipient of the service and that the decision in re British Airways resolves the appeal in favor of M/s Korean Air. The Tribunal also noted the pendency of the Revenue's appeal before the Supreme Court but followed the existing Tribunal decisions.

Conclusion:
The Tribunal allowed the appeal of M/s Korean Air and set aside the impugned order, concluding that the appellant was not liable for the service tax demand as they were not identified as the recipient of the service under section 66A of Finance Act, 1994. The Tribunal emphasized the importance of identifying the recipient of the service for taxability and relied on previous Tribunal decisions to resolve the dispute.

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