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TMI Blog2013 (8) TMI 146X X X X Extracts X X X X X X X X Extracts X X X X ..... x and whether penalty on the appellant u/s 78 ibid would be attracted?" - Service Tax Appeal No.166/2012 - - - Dated:- 19-7-2013 - D N Panda And Rakesh Kumar, JJ. For the Appellants : Sri S Ganesh Sr. Adv., Sri Aish Singh, Adv. For the Respondent : Shri Amresh Jain, DR PER : D N Panda This appeal arose against a question as to whether "Online Database Access or retrieval Service" was received by the appellant M/s British Airways during the period from 18.4.2006 to 31.5.2008 from foreign based CRS service provider and liable to service tax in terms of section 66A of the Finance Act, 1994 (herein after referred to as "the Act") on reverse charge mechanism basis. Holding against the appellant, following demand was raised: (i) Service tax of Rs. 4,95,92,348/- including Education Cess and Higher Education Cess was levied under the first proviso to Sub-section (1) of Section 73 of the Act, along with interest. (ii) Penalty of Rs.4,95,92,348/- was imposed u/s 78 of the Act (iii) Penalty of Rs. 5,000/- was levied under Section 77 of the Act. 2. While challenging aforesaid levy by the appellant it was also challenged that extended period of limitation pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and printers to Air Travel Agents with on line inter connectivity subject to certain conditions. 3.5 Data received from the Airlines were processed in master computer maintained by CRS/GDS companies and data structure formed for access and retrieval thereto. Useful information in relation to ticket reservations, seat availability as well as other facility is derived therefrom for ticket booking for passengers according to availability and preparation of passengers manifest as well as check-in-service documents etc. No payments were made by the travelers or the Travel Agents to the CRS companies. But payments were made by service recipient Airlines. 3.6 It was noticed that the Appellant airline was making payment to the CRS Companies for each booking, cancellation, etc made by the Travel Agents as per terms agreed between the parties to the agreement Airline specific CRS software was in use and data base was maintained by CRS companies for easy access and use by the Airline as well as Travel Agents for ultimate benefit of each other so as to facilitate sale of products and services of Airlines. Airline appellant in consideration of the receipt of online data base access and retr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the need of the Travel Agents through CRS. 3.9 Revenue ascertained that CRS companies were getting their consideration by way of commissions from appellant and value of ticket sold/service provided was basis of such consideration. Entire service provided was commercial and under contractual obligations of the parties resulting in carrying out of economic activity. Appellant's reliance on the clarification of Board circular F.No 137/57/2006-CX.4 dated 18.05.2007 was not acceptable to Revenue. 3.10 Revenue on the basis of aforesaid common features of the service of aforesaid description provided by CRS companies and availed by Airlines held that section 65(105)(zh) read with section 65(75) of Chapter-V of the Act was applicable to levy service tax for provision of service prescribed by clause 3(iii) of the Taxation of Services (Provided from outside India and received in India) Rules 2006 received by the Airlines operating in India through their permanent establishment in India. 3.11 Examining section 65(105)(zh) of the Act, learned Adjudicating Authority opined that it was not necessary that the data/information should be provided to a customer personally or that the computer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... another senior counsel on the point of law in appeal case No. ST/330/2012 of Thai Airways, summarily submitted as under: 4.2 The appellant in India is a distinct entity from its head office in London for which there was no import of service since entire service of CRS companies were consumed by head office in London. 4.3 The appellant not entering into contract with CRS companies and not making payment for the service availed by its head office cannot be taxed in India as recipient of service in India. Payments made outside India find place in page 69, 70 and 71 of the appeal paper book. 4.4 The only basis of demand of service tax from appellant is that it is beneficiary of service rendered by CRS companies. But no service was received by appellant in India and the appellant has not made any payment to CRS companies. 4.5 Activity of the CRS companies does not constitute "online information and data base access or retrieval service" within the meaning of section 65(75) of the Finance Act, 1994 read with section 65 (105)(zh) thereof since CRS companies merely enable travel agencies to access the computer system and data base of head office of the appellant. To support such c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular dated 19.06.2012 and Para 71.1 of the decision of the Tribunal (reference order of third member in reference) in the case of Paul Merchants reported in it was submitted that the service recipient is the person on whose instructions/orders the service is provided, who is obliged to make payment for the same and whose need is satisfied by the provision of service. A service is an activity carried out by a person for another for some consideration and in case of provision of service; it is recipient of the service who is obliged to pay for the service to the service provider. Accordingly foreign principal of the appellant being recipient of service provided by the CRS companies, the appellant was not service recipient. (E). Appellant is registered under law for which no adverse inference can be drawn to impose penalty as well as tax. (F). Proceeding was time barred for which neither tax nor penalty is leviable. The appellant bonafide believed that it had not incurred tax liability for which extended period is not invocable. In the course of investigation, entire activities carried out by the appellant were made known to the investigation and reply was submitted against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also governed by mandatory requirement of Accounting Standard 18 i.e., making related party disclosure. Therefore it was covered by section 66A (1) without being covered by section 66A (2) of the Act read with the Taxation of Services (Provided from outside India and Received in India) Rules, 2006 and liable to service tax. 5.5 Appellant's existence being solely attributable to the existence of the principal abroad and Reserve Bank of India only having recognized the head office of the appellant by the permission letter, there is no separability of appellant from its head office. The appellant was only allowed to have place of business in India by RBI permission and regulated under FEMA. It had no permanent establishment in India having acted under limited permission granted by RBI. It was recipient of service from CRS companies abroad to make that available to its Travel Agents in India and others for booking tickets etc., and was making payment to CRS companies through regulatory measures of RBI under FEMA by settlement of its account with its head office and cleared the debits made to its accounts for tickets booked in India. Therefore it cannot plead its innocence of no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant for which no interference to adjudication is desirable. Adjudication should be sustained without any concession on time bar plea. Tax and Penalty imposed by the learned Adjudicating Authority should remain untouched by Tribunal. FINDING AND CONCLUSION OF TRIBUNAL 6. Learned Adjudicating Authority considering role of the appellant and operating in India under RBI permission at the place of business establishment in India having its head office in London and availing "on-line information and data base access and retrieval" service provided by CRS companies abroad for booking air tickets by its Air Travel Agents in India for the appellant making use of the service of master computer of the CRS company and also examining the considerations paid by the appellant to avail above service during the Impugned held that the appellant as a service recipient of taxable service u/s 65(105)(zh) of the Act read with section 65(75) thereof was liable to service tax under section 66A of the Act: Accordingly, he raised demands as set out at the outset. Section 65(105)(zh) of the Act which is the taxing entry reads as under: "Section 65 (105) "taxable service" means any service provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services from that service provider. Appellant participant at its own cost was required to provide Galileo International complete data timely, accurate and advantageous to fulfill object of the agreement between the parties. Its duties and obligations were prescribed by Article 3 of the agreement Under Article 2.A. of the agreement Galileo International was to maintain and operate the system to provide to the participant appellant various standards of services for a consideration agreed between the parties. Online data base access and retrieval of the data by the appellant from CRS Company's system was its absolute right being an inevitable necessity to make it available to the Air travel Agents in India to promote its business. Article 4 of the agreement appearing at page 99 of appeal folder dealt with monthly basis charges payable to Galileo by appellant participant for use of the system of the later. 12. The appellant in consideration of availing aforesaid service had paid charges as has been found by learned adjudicating authority. For the service so availed, consideration paid directly or indirectly by the appellant or paid on its behalf in discharge of its liability or set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided. (2) Where a person is carrying on a business, through a permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons for the purposes of this section. Explanation 1. - A person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country. Explanation 2. - Usual place of residence, in relation to a body corporate, means the place where it is incorporated or otherwise legally constituted.] 15. The appellant having its place of business in India was recipient of online data base access and retrieval thereof to promote its business in India ensuring error free information to the travel agents in India. Who makes payment to the service provider is immaterial and no free service was provided by service provider. What that is material is service received by the appellant which in essence and substance was established. Revenue's arguments that appellant' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngalore - 2009 (14) STR 212 (Tri - Bang). In that case in Para 7 of the order, Tribunal found that United Telecom evolved wide Area Network (WAN) to make the communication between State head quarter and district head quarters possible. Such service was held to be telecommunication service. In the present case, appellant as a recipient of service has been brought to tax while in that case service provider was brought to tax. Both cases are on different footings. Therefore that decision is not profitable to the appellant. Appellant further relied on the decision of Nestle India Ltd. V. CCE, New Delhi -2011 (22) STR 165 (Tri-Del). That was an interim order not laying down the ratio in appeal decision. Therefore that has no application by the very nature of the order which is liable to be varied or vaccated. 19. Appellant's plea that it shall get Cenvat credit of service tax levied by the adjudication order does not exonerate it from the liability it has incurred under the law. Grant of Cenvat credit arises only if service tax is paid by the appellant and such grant is not otherwise disallowed by law. Without undergoing scrutiny of law as to admissibility of Cenvat credit, appellant' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) 24. I have gone through the order recorded by my ld. brother which was received on 03.7.2013. Since I do not agree with his conclusions I am recording an separate order. 25. However, before the coming to the issue involved in this appeal it would be worthwhile having a brief look at the facts of this case. 25.1. M/s. British Airways PLC. with their registered office at "Waterside, P.O. Box 365, Harmondsworth UB7 OGB, United Kingdom" (hereinafter referred to as "B.A UK") are an airline engaged in providing the service of transportation of passengers and cargo by air and having operations all over the world. On the basis of their application dt. 19.10.2005 for grant of permission to establish a branch office in India for the purpose of undertaking the activity of operating air services between India and United Kingdom, the RBI granted the necessary permission in terms of the provisions of Regulation 5 of the Foreign Exchange Management (establishing in India a branch or office or other place of business) Notification No.FEMA-22/2000 RBI dt. 03.05.2000. A copy of this letter is reproduced below:- "FE.CO.FID/10.90.845/2005-2006 BY AIR MAIL/REGISTERED A.D. Britis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses incurred by the Head Office on behalf of the Branch Office and profit made by the Branch Office Debits to this account could be raised for the expenses incurred by the Branch Office and losses incurred by the Branch Office. 4. It is clarified that the permission granted hereby is limited to Regulation 5 of the Foreign Exchange Management (Establishing in India of a branch office or other place of business) Notification No. FEMA. 22/2000-RB dt. 3rd May 2000 and shall not be taken in any way as regularizing condoning or in any manner validating any irregularities, contraventions or other lapses, if any, under the provisions of any other law for the time being in force". 25.2. On the basis of the above permission granted by the RBI, the 'BA, U.K.' have set up an office in India at DLF Plaza Tower, DLF City, Phase-I, Gurgaon-122002,(Haryana) [hereinafter referred to as "BA, India"]. The demand of service tax along with interest and penalty by the impugned order is against BA, India and it is the BA, India who is the appellant. [para 27 of the impugned order in original]. 25.3. The appellant as branch office of the 'BA, U.K.' provided the services of air transportation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 65(36) of the Finance Act, 1994 and since the same has been used by the Appellant's IATA Agents in India for selling of tickets of British Airways, the services provided by the CRS/GDS Companies have to be treated as received and consumed in India by the BA, India and hence the remunerations received by the CRS/GDS Companies abroad from 'BA, U.K.' would attract service tax which would be recoverable from Appellant BA, India under reverse charge mechanism of Section 66A of the Finance Act, 1994 read with Rule 2(1)(d)(iv) of the Service Tax Rules, 1994. On this basis, a Show Cause Notice dt. 24.10.2008 was issued to the Appellant for demand of service tax of Rs 8,98,20,174/- along with interest in respect of period from 01.04.2003 to 31.05.2008 and also for imposition of penalty on them. The Show Cause Notice was adjudicated by the Commissioner vide order-in-original dt. 08.11.2011 by which the Commissioner holding that the service provided by CRS/GDS Companies based abroad has been received by the appellant BA, India, confirmed service tax demand of Rs. 4,95,92,348/- along with interest for the period w.e.f. 18.04.2006. The demand for the period prior to 18.04.2006 was dropped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and hence the same is not taxable. 28. There is no dispute that:- (a) the service providers i.e. the CRS/GDS Companies are located abroad and they do not have any office in India ; (b) the agreements for providing service are between the Appellant's head office at U.K. i.e. 'BA, U.K.' and the CRS/GDS Companies; and (c) the payments for the services rendered by the CRS/GDS Companies have been received by them directly from BA(U.K.) and as such the entire payments for the services, in question,' have been made outside India [para 24.3 of the impugned order dt.24.10.2008]. The dispute is only on the point as to whether the Appellant BA, India can be treated as an entity separate and distinct from their head office 'BA, U.K.' in terms of the provisions of Section 66A(2) and whether BA, India the Appellant, can be treated as recipient of the service provided by CRS/GDS companies and on this basis, subject to service tax under reverse charge mechanism of Section 66A. Another point of dispute is regarding classification of the service being provided by CRS/GDS Companies. 29. Coming first to the question of classification of the service, the activity of the CRS/GDS Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for another person for some consideration the consideration can be in cash or other than cash, whether paid directly or indirectly. Just as in case of a sale transaction, the buyer is the one who is obliged to make the payment or makes the payment for the goods purchased and is legally entitled to receive the goods, in case of a service transaction, the service recipient would be the person on whose instructions the service is provided, who is legally entitled to receive the service and is liable to make the payment or makes the payment and whose need is satisfied by the Provision of the service i.e. who consumes the services, or in other words, is the buyer of the service. Thus, for existence of a service transaction between two persons - A (Service provider), and B (Service recipient), not only there must be an activity performed by A for B, but there must also be flow of consideration, cash or other than cash, direct or indirect from B to A and the provision of Services must satisfy some need of B, which may be his personal need, the need of his business or need to discharge some legal obligation regarding provision of some services to another person C. Thus When a manufacture A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and a person carrying on a business through a branch or agency in any country, is to be treated as having "business establishment" in that country [explanation 1 to Section 66A] Under section 66A(2), when a person carries on a business through a permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate person for the purpose of this section. Thus for the purpose of section 66A, the Head Office of a multinational company incorporated or legally constituted in a Country A and its branches in Countries B,C and D would be treated as separate persons. In term of 1st Proviso to Section 66A(1) the provisions of this sub-section are not applicable to an individual in respect of service received by him from abroad unless the service is for use in any business or commerce. Another important Provision of Section 66A is that when the service provider has his business establishment in more than one country, say A and B, the service recipient located in country C will be treated as having received the service from that establishment of the service provider which is directly concerned with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service, the receipt and consumption goes together, as the provision of service satisfies the need of the service recipient and, thus, stands consumed by him. In other words in case of a service transaction, the service recipient is also the person who has consumed the service. (4) Conceptually the Export of Service Rules, 2005 together with Taxation of Services (Provided from outside India and received in India) Rules, 2006, are basically the Rules for determining the place of service recipient/service consumer, and for this reason only, in the budget of 2012-13, these Rules have been replaced by Place of Provisions of service Rules, 2012, the Rule 3 of which states that the place of Provisions of a service shall be the location of the service recipient (who is the service consumer). (5) Export of Service Rules, 2005 and Taxation of Service (Provided from outside India and received in India) Rules, 2006, put together, are the rules for the purpose of determination of the location of service recipient and the same divide the services into three categories and prescribe different criteria in this regard for each category. In respect of services in relation to an immovable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et up branch, once granted, can not be renewed. Therefore the Department's contention that branch office of 'BA, U.K.' in India is not a permanent establishment is without any basis. The Appellant BA, India, therefore have to be treated as a branch office in India of 'BA, U.K.' and in terms of Explanation to Section 66A, BA, India, would have to be treated as 'Business Establishment' of 'BA, U.K.' in India, which as discussed above, has to be treated as a 'Permanent business establishment' of BA, U.K. in India. By virtue of Sub-Section (2) of Section 66A, BA, India, who are a permanent business establishment in India of 'BA, U.K.' (head office), are to be treated as a person separate from the head office and they can not be treated as part of the head office for the purpose of Section 66A. In this case, there is no dispute that:- (a) agreements are between 'BA, U.K.' and the CRS/GDS companies (located outside India and not having any branch or business establishment in India) ; and (b) the entire payment to CRS/GDS Companies have been made directly by the head office located outside India and no part of payment has been made by the branch office i.e. BA, India. 31.1 As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r another person for some consideration, which may be cash or other than in cash, direct or indirect. Just as in case of sale of goods, it is the buyer who is obliged to pay or pays for the goods and is entitled for delivery of the goods to him or his intended beneficiary, in case of Provision of Service, it is the recipient who would be the person obliged to make the payment or pays for the service and would be entitled for Provision of service to him or his intended beneficiary. However unlike a transaction of sale of goods where a person may buy the goods for further sale, in case of service, the recipient consumes the services simultaneously with the performance of the service and, hence, the recipient and the consumer of the service are the same person. Thus, the recipient of a service is the person who is legally entitled for Provision of service, is the person obliged to make the payment or pays for the same and the person whose need is satisfied by the Provision of service, the need, as discussed above, may be his personal need, the need of his business or the need to discharge some legal obligation for provision to service of another person. Thus in a service transaction b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeds of tickets sold by IATA agents and remitting the same to Head Office and as such there is nothing to show that they are not involved in taking key business decisions for the entire company. Therefore, applying the underlying principle of 2nd proviso of Section 66A(1) discussed in para 30(2) above, it is the Head Office i.e. BA, UK which has to be treated as the recipient of the Service provided by the CRS/GDS Companies as it is the Head Office which is most directly concerned with the use of the Service provided by the CRS/GDS Companies as the Head Office has used the service provided by the CRS/GDS Companies for promoting the sales of the Airlines tickets all over the world and it can not be said that only the Indian branch (Appellant) has benefited from the Service provided by the CRS/GDS Companies. Besides this, from the agreements it is also clear that this is not a case where the Head Office can be said to have acted only as a facilitator to negotiate the agreements with CRS/GDS Companies on behalf of branches for provisions of service to them. When it is the Head Office which has received the service and it is Head Office which is liable to pay for the service and has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement/contract with Head Office of a company 'B', incorporated outside India i.e. located outside India, the service tax can be charged from the branch office 'B-1' in India of the Company 'B' when:- (a) the Headquarter of the Company 'B' has entered into a framework agreement/contract with the service provider 'A' by the way of centralized sourcing of service for Provision of service at various branches located in different countries including India; and (b) the service has been provided at the branch in India and the role of the Headquarter is only as a facilitator. In such a situation service tax can be charged from the branch office in India by treating it as service recipient even if the payment for the service received was made by the head office, as in such a situation, the Indian branch office can be treated as having made the payment indirectly. But in this case, as discussed above, from the agreements of 'BA, U.K.' with CRS/GDS Companies, it is seen that there is nothing in these agreement from which it can be inferred that the CRS/GDS Companies were required to provide location specific service to the branches of 'BA, U.K.', all over the world. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice, is also not correct, as an discussed in para 31.2(1) above, the service recipient in the person, who is legally entitled to receive the service and hence is liable to make the payment or makes the payment whether directly or indirectly and whose need is satisfied by the provision of service, whether it is his personal need or need of his business or his need to discharge some obligations to provide some service to another person the payment, and this person need not always be the beneficiary of the service. 31.4 By virtue of Section 66A(2), a branch office in India of a multinational company having its registered office abroad, can be charged service tax on any taxable service received by it from an off-shore service provider including the service received from its head office. There would be no difficulty in identifying the receipt of service by the branch office in India when the service has been provided by the off-shore service provider in terms of instructions given by the branch office or a contract entered into between the Indian branch office and the off-shore service provider. But when the Head office located abroad, has entered into contract with some off-shore se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt], longer limitation period under Proviso to section 11A (1) of Central Excise Act, 1994 would not be applicable. The ratio of this judgment is squarely applicable to the facts of this case, as the Provisions of Section 11A (1) of Central Excise Act, 1944 are in pari-materia with the Provisions of section 73 (1) of the Finance Act, 1994. Since in this case, intention to evade the tax is absent, the penalty under section 78 of Finance Act, 1994 would not be attracted. 33. In view of the above discussion, the impugned order is not sustainable. The same is set aside. The appeal is allowed. 34. Since there is difference of opinion between Member (Judicial) and Member (Technical), the Registry is directed to place this matter before Hon'ble President in accordance with the Provisions of Section 129 C(5) of Custom 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 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 br ..... X X X X Extracts X X X X X X X X Extracts X X X X
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