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2025 (4) TMI 248 - AT - Service TaxLiability to pay service tax - Online Information and Database Access or Retrieval (OIDAR) services contracted by the overseas head office of the appellants with Computer Reservation System (CRS)/Global Distribution System (GDS) companies to be supplied - liability of Indian branch office of the appellants would be liable to pay service tax on reverse charge basis for such services under Section 66A ibid during the period 18.04.2006 to 30.06.2012. HELD THAT - In the present factual matrix of the case the OIDAR service has been provided by M/s Abacus Distribution Systems PTE Ltd. Singapore to the appellant s head office situated in Hong Kong in terms of agreement dated 05.04.1990; and such services provided by a person situated in Singapore to another person situated in Hong Kong are not covered under the scope of levy of service tax under Section 66 ibid. It also transpires on simple reading of the legal provisions under Section 66A ibid that only in respect of taxable services received by a person in India on which service tax levy has been imposed under Section 66 ibid the deeming provision of treating the recipient of service as though he had himself provided such service in India for the purpose of paying service tax would apply. In the absence of statutory levy of service tax on the OIDAR services in the present case the appellants cannot be brought under the scope and ambit of Section 66A ibid in order to confirm the demands of service tax as proposed in the SCNs. The agreement/arrangement by which the appellants had given their equipment for providing OIDAR service is restricted only to those two persons and does not involve the appellants situated in India. Therefore such services involved between two persons situated outside India cannot be classified as supply of OIDAR services for the purpose of levy of service tax in terms of Section 65 (105) (zh) of Finance Act 1994. Conclusion - i) The branch office in India is not the recipient of the OIDAR services provided by the CRS companies. The head office in Hong Kong was the recipient and thus the branch office is not liable to pay service tax under Section 66A. ii) The branch office and the head office are separate entities for the purposes of service tax liability under Section 66A. The impugned order set aside - appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment are: (a) The interpretation and scope of Section 66A of the Finance Act, 1994, particularly in the context of services received from outside India and the applicability of the reverse charge mechanism. (b) Whether the branch office of an airline in India is a distinct entity from its head office for the purposes of Section 66A. (c) Whether payments made by the head office for services received by the branch office in India make the head office the recipient of service under Section 66A. 2. ISSUE-WISE DETAILED ANALYSIS (a) Interpretation and Scope of Section 66A of the Finance Act, 1994 Relevant legal framework and precedents: Section 66A of the Finance Act, 1994, deals with the reverse charge mechanism, where service tax is levied on services received from outside India by a person in India. The Finance Act defines 'taxable service' under Section 65(105), and Section 66A provides for the levy of service tax on services received from a foreign service provider. Court's interpretation and reasoning: The Tribunal analyzed whether the services received by the head office outside India could be taxed under Section 66A when the branch office in India was not the direct recipient. The Tribunal referred to the legal provisions and determined that the services provided by the CRS/GDS companies to the head office did not fall within the scope of 'taxable service' as defined, since the services were not received by the branch office in India. Application of law to facts: The Tribunal found that the head office in Hong Kong contracted with CRS/GDS companies, and the services were not directly received by the branch office in India. Therefore, the branch office could not be deemed the recipient of the services for the purpose of Section 66A. Treatment of competing arguments: The Tribunal considered the department's argument that the branch office was the beneficiary of the services. However, it concluded that the head office was the entity directly involved in the contractual arrangement with the CRS/GDS companies. (b) Distinct Entity of Branch Office from Head Office Relevant legal framework and precedents: The Tribunal referred to the judgment in British Airways vs. Commissioner of Central Excise, which considered whether a branch office could be treated as a separate entity from the head office for tax purposes. Court's interpretation and reasoning: The Tribunal held that the branch office and the head office are distinct entities for the purposes of Section 66A. It relied on the legal framework that treats permanent establishments as separate entities for taxation. Key evidence and findings: The Tribunal found that the branch office in India did not have connectivity or access to the CRS/GDS system, and the services were provided directly to the head office. (c) Recipient of Service Under Section 66A Relevant legal framework and precedents: The Tribunal examined whether the payments made by the head office for services used by the branch office constituted the head office as the recipient under Section 66A. Court's interpretation and reasoning: The Tribunal concluded that the head office was the contractual recipient of the services, and the branch office did not receive the services directly. Therefore, the branch office was not liable to pay service tax under the reverse charge mechanism. Key evidence and findings: The Tribunal noted that the head office had the rights to access and update the server connected to the CRS/GDS platform, and the branch office did not interact with the CRS/GDS system. 3. SIGNIFICANT HOLDINGS Core principles established: The Tribunal established that for the purpose of Section 66A, the recipient of service must be the entity directly receiving the service in India. A branch office cannot be deemed the recipient if the head office is the contractual party to the service agreement. Final determinations on each issue: (A) The Tribunal held that the branch office in India was not the recipient of the OIDAR services provided by the CRS companies. The head office in Hong Kong was the recipient, and thus, the branch office was not liable to pay service tax under Section 66A. (B) The Tribunal affirmed that the branch office and the head office are separate entities for the purposes of service tax liability under Section 66A. (C) The Tribunal determined that the issues in British Airways were not applicable to the present case as the branch office did not receive the services directly. The appeal was allowed, and the impugned order demanding service tax was set aside, providing consequential relief to the appellants.
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