9911796707
TMI Blog2014 (8) TMI 592X X X X Extracts X X X X X X X X Extracts X X X X ..... rder and materials available on record of Appeal Case No. ST 330/2012 for which that record was examined and referred to in the discussions throughout this order to arrive at the conclusion in all these five appeals. The adjudication order dated 25/11/2011 involved in ST appeal No. 330/2012 gave rise to following consequences relating to the period form 18 April 2006 to March 2008 and other appeals have similar consequences for different periods: (i) levy of service tax of Rs. 6,66,15,243/-(Rupees six crore sixty six lakhs lifteen thousand and two Hundred Forty three only) including Education Cess and Higher Education Cess under the first proviso to Sub-section (1) of Section 73 of the Act, along with interest. (ii) imposition of Penalty of Rs. 6,66,15,243/-/-(Rupees six crore sixty six lakhs fifteen thousand and two hundred Forty three only) u/s 78 of the Act. (iii) penalty of Rs. 5,000/- imposed under Section 77 of the Act. 3. While challenging aforesaid levy it was also challenged that extended period of limitation prescribed by proviso to sub-section (1) of Section 73 of the Act was not invokable on the ground that the appellant was not liable to service tax under section 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 4.6 It was found 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 retrieval thereof was paying agreed charges to the CRS companies 4.7 Enquiry was made to ascertain whether the CRS companies viz. M/s Amadeus Marketing S.A.R.L. France, M/s Abacus Distribution system Pvt. Ltd, Singapore, M/s Galileo Internat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial and under contractual obligations of the parties resulting in carrying out of economic activity. Appellants reliance on the clarification of Board circular F.No 137/57/2006-CX.4 dated 18.05.2007 was not acceptable to Revenue. 4.10 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. 4.11 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 network should be owned by the service provider as service being accessible or retrievable online in respect of data or information through the computer network as vehicle online. 4.12 Contention of the appellant that the impugned service was provided outside In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oad provided service to head Office of the Appellant at Bangkok and the CRS Companys server was connected to the server of the head office of the appellant for updating and interacting to serve the travel Agents through IATA approved software. Travel Agents in turn were serving the passengers for which the travel agents were liable to service tax. Consequently head office of the appellant was getting service of CRS companies abroad allowing the later to exhibit data of the former to travel agents. Accordingly appellant not being recipient of service u/s 65(105)(zh) read with section 65(75) of the Act is not liable to service tax nor penalty. 5.3 Section 66A (2) of Finance Act, 1994 was applicable to immune the appellant from levy of service tax. The agreements under which the head office acted is as per agreements copies available at page 108 to 198 of the appeal folder. There was no agreement between CRS companies and Travel Agents. Revenue had no evidence of agreement between CRS companies and IATA. The Appellant has suffered tax for providing passenger service. So also Travel Agents have suffered tax serving the passengers. Proceeding before Tribunal is pending in respect of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of air services in or through India subject to various conditions vide letter No. CO.FCS.1219/1003/Activity/77 dated 9/5/1977. It operated in India to achieve the object of Airline business getting service from CRS companies abroad. Section 65(105)(zh) read with section 65(75) is applicable to the appellant as recipient of the service described by that section and without such service being received in India, travel agents in India shall fail to achieve their object. Learned adjudicating authority on proper interpretation of the said sections as well as the rules framed under the Act brought the appellant to the purview of section 66A of the Act and levied the demand which is sustainable. Section 66A (2) of the Act is not applicable to the case of the appellant. 6.2 The appellant as a business entity was supposed to be covered by Part XI of Companies Act, 1956 which prescribes rules regarding companies incorporated outside India and governed by mandatory requirement of Accounting Standard 17 for segment reporting by the appellant and was also governed by mandatory requirement of Accounting Standard 18 i.e., making related party disclosure. Therefore it was covered by section 66A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution against the extent of service provided by CRS/GDS companies to serve Indian Travel Agents. Therefore no service provided by CRS/GDS companies to appellant is misconceived by appellant. Taxation of passenger service is a different subject by a separate taxing entry and taxing service received or provided by travel agents does not exonerate appellant from its liability when event of levy of the appellant arose under law. 6.10 Para 3.1, 3.2, 3.3, 4 of the Show Cause Notice are significant paragraphs depicting the basis of allegation bringing home the appellant to charges and that could not be defended by the appellant 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 7. 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 Bangkok and availing on-line information and data base access and retrieval service provided by CRS companies abroad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness was not defeated by Air Travel Agents in India. 11. In the course of hearing both the parties relied on an agreement appearing at page 127 to 142 of the appeal folder to argue their case and stated that the said agreement was representative sample of all other agreement with CRS companies containing similar clauses and understanding. Therefore that document was examined. According to that document, head office of the appellant entered into agreement with AMADEUS MARKETING S.A.R.L in France. Thai Airways International (without the word Ltd at page 162) signed the agreement on 16.2.1990 and Amadeus Marketing S.A.R.L signed the same on 05.04.1990. That was witnessed on 01.03.1990. Such document carried seal of Thai International Public Co. Ltd, New Delhi (the Appellant). The agreement thus does not speak on which date that came to see the light of the day. However both sides having relied on that and that document having governed the transactions of the appellant was examined. The agreement so relied was governed by French Law as stated therein. 12. According to the above said agreement, Amadeus group (as defined under Article 1 of the above agreement at page 128 of appeal f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and reservation services, on non-discriminatory terms, subject to technical feasibility. 3. The PARTICIPANT will ensure that any CRS in its control provides to all its subscribers display and booking facilities for all services of AMADEUS Affiliates on a level equal to the level it provides to any other carrier, including affiliated carriers, subject to technical feasibility. The PARTICIPANT will also make its best efforts to ensure that any CRS with which it is affiliated providers this level of display and booking facilities in respect of AMADEUS Affiliates, subject to technical feasibility. The list of AMADEUS Affiliates is shown in Attachment D of the Agreement. AMADEUS will notify the PARTICIPANT of any changes to the list. The PARTICIPANT'S obligations under this Agreement will automatically apply to any entity that becomes and AMADEUS Affiliate. 4. The PARTICIPANT will provide AMADEUS, as rapidly as possible with all revisions to its information services provided to passengers, including but not limited to interim schedule change data, fare and fare quotations. 5. If the PARTICIPANT elects to provide pricing, or any other type of assistance on all or any of the rou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their system at any time to protect its interest. So also there was no bar on the appellant in that regard while only prohibition for the appellant was to provide no access to a third party through its own system to the CRS system of CRS companies under Article 2(H) of the agreement. This establishes that online data base access and retrieval of the data by the appellant from CRS companies was its absolute right being an inevitable necessity to make it litigation free ensuring storage of error free information in the CRS by CRS companies for use of Air travel Agents to promote its business. 17. Understanding of the parties also did not reveal forgoing of the right of access by the appellant to the data base maintained by CRS Companies for the obvious reason that reservation data/information was its property and liability of the CRS Companies to the appellant was limited only to the extent of booking fees paid by the appellant in the event of damages arising out of the performance or breach of the agreement between the parties. It may be appreciated that no one would prefer to cause prejudice to himself surrendering his right of self-protection. The Appellant was not an exception ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other participating carrier. 4. In the neutral display provided to AMADEUS Subscribers, referred to in Article 3.A.2 above, subject to the editing rules, which are available for inspection at the AMADEUS principal office, AMADEUS will accept for storage in its database a maximum of 60 single routings and 60 double routings per city pair, which will all be eligible fro display according to the above mentioned input parameters and editing rules. 5. AMADEUS will provided the PARTICIPANT with any enhancements to the AMADEUS system information and reservations services on non-discriminatory terms, subject to0 technical feasibility. If, however, because of technical or resource limitations, it is not practical of feasible for AMADEUS to implement an enhancement or modification at the same time for all Participating Carriers, then AMADEUS will determine the order of implementation. B) Modifications AMADEUS shall have the right to make any adjustments, modifications and changes to its programmes and services it consider necessary from time to time. AMADEUS will notify the PARTICIPANT of any significant change. C) Flight Availability AMADEUS will store PARTICIPANT flight availability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant to the fold of law at the material period read as under: SECTION [66A. Charge of service tax on services received from outside India. (1) Where any service specified in clause (105) of section 65 is, - (a) provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and (b) received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purposes of this section, be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of this Chapter shall apply : Provided that where the recipient of the service is an individual and such service received by him is otherwise than for the purpose of use in any business or commerce, the provisions of this sub-section shall not apply: Provided further that where the provider of the service has his business establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... founded. Appellant in India has its existence under RBI permission. Section 66A (2) of the Act recognizes only different situs under law but the said sub-section does not grant immunity from taxation in India once incidence to tax arises in India. Appellants operation in India was to achieve its object of serving Air Travel Agents in India. To do so, it had reserved its right of access to data base of CRS companies to ensure that those travel agents do not frustrate its object and the appellant operates in India competing with other airlines. 27. Each economic activity being distinct and separate, appellant providing passenger service in India and suffering service tax cannot be a consolation to Revenue to grant immunity to appellant for taxation of the aforesaid service on reverse charge mechanism provided u/s 66A of the Act when incidence to tax arises u/s taxing entry 65(105)(zh) read with section 65(75) of the Act read with the relevant rules made under the Act. Legislature have wide latitude in the matter of taxation to pick and choose event of levy, nature of services and different aspect of services in a series or cluster of services. So also pendency of appeal in Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty followed by interest under law. It cannot claim immunity from taxation. 31. For the aforesaid reasons, Revenue's contentions have force and adjudication findings are well founded on facts as well as law. It can thus irresistibly be concluded that the appellant was recipient of online data base access and retrieval service from the service provider abroad and falls under section 66A of the Act and was liable to the consequence of adjudication rightly made by learned adjudicating authority. Appeal of the appellant thus fails. 32. Before parting with this order it may be stated that although it was mentioned by the appellant in its index to the Appeal memo that Vakalatnama was filed and available at page 308 of the appeal folder that was not in accordance with law. Registry did not verify the same even though writ of mandamus has been issued by Hon'ble High Court of Delhi in the case of Deepak Khosla V. UOI - 2010 (251) ELT 524 (DEL) to all Tribunal in Delhi to strictly follow the law laid down by the Hon'ble Court. Learned Sr. Counsel Sri N. Venkatraman appearing on behalf of the appellant having stated that he has consented to appear in this case beginning from the stage o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gents pay the service tax on the commission earned by them for the services of air tickets booking being provided by them. To facilitate the selling of air tickets, the Appellants head office at Bangkok i.e. Thai Airways has entered into agreements with several computerized reservation system companies (hereinafter referred to as 'CRS' Companies). Some of the CRS Companies with whom Thai Airways have entered into the agreement, are: M/s Galilio International Partnership, U.S.A.; M/s. Abacus Distribution System Pte. Ltd. Singapore; M/s Amadeus Marketing, S.A., Spain, and M/s. Sabre Travel Information Network, U.S.A. In term the agreements of M/s. Thai Airways with the CRS Companies, Thai Airways, Bangkok have computer connectivity with the computer systems of the CRS Companies, who, in turn, have to provide linkage to IATA Agents and all the information regarding flight schedules, fares, seat availability on flights etc. in respect of the flights of M/s. Thai Airways is transferred to the computer system of CRS Companies, who, in turn, make this information available on real time basis to the IATA Agents and thereby facilitate the booking of air tickets of Thai Airways by the IATA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 76 and another penalty of Rs. 11Crore was imposed on the appellant under section 78 of the Finance Act, 1994. Against this order of the Commissioner, four appeal Nos. ST/3777-3782/2012 have been filed 35.2. There is another order No.35/ST/PKL/ADJ/2011 dtd 25.11.11 of Commissioner by which the demand of service tax including education cess of Rs. 6,66,15,243/- was confirmed against the appellant for the period from 18.04.2006 to 31.03.2008 along with interest on it under section 75 and besides this, while penalty of equal amount was imposed on the appellant under section 78, penalty of Rs. 5000/- was imposed under section 77. Against this order of the Commissioner, Appeal No. ST/330/2010 has been filed. 36. The above five appeals were heard together. Since the arguments made on behalf of the appellant and on behalf of the Revenue have been recorded in the order prepared by my learned brother, I am not repeating the same in this order. 37. I have considered the submissions from both the sides and perused the records. While the case of the Department against the appellant is that the CRS Companies located abroad are providing services of 'online data base access and/or ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erated by Thai Airways all over the world, for which CRS Companies have linkage with the computer system of Thai Airways, Bangkok and providing access in respect of this information to the IATA agents appointed by Thai Airways which is used by them for selling of air tickets of Thai Airways. I agree with the findings of my learned brother that this activity of the CRS Companies is covered by the definition of 'Online Database access and/or retrieval' service, as given in Section 65(75) read with Section 65(75) of the Finance Act, 1994 and this service, if provided or deemed to be provided in India, would attract service tax under section 65(105)(zh) ibid. In this regard, I do not accept the Appellant's contention that the activity of CRS Companies is e-commerce and therefore, not taxable, as there is no sale of tickets by the CRS Companies. The Tickets of Thai Airways are sold through IATA agents by using the information/database maintained by the CRS Companies and it is the IATA agents who collect payments from the passengers. Another plea of the Appellant that for taxing a service under section 65(105)(zh) read with section 65(75), as 'Online Database access and/or retrieval serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services to B during warranty period and engages C to provide the service of free repairs to B for which he pays to C, the recipient of the service provided by C is A, not B. The B is only the beneficiary of the service provided by C. However when there is no legal obligation of A to provide any service to C and still on his instructions B provides service to C for which B receives payment from A and circumstance indicate that A has acted merely as facilitator or agent for C and has made payment on behalf of C, flow of consideration from C to the service provider B can be presumed and it is C who will be treated as the recipient of the service. (2) Services mentioned in various clauses of Section 65(105) of the Finance Act, 1994 attract service tax under section 66 ibid. However:- (a) When the service provider as well as the service recipient, both, are located in India (except the state of Jammu & Kashmir), the service tax is charged from the service provider, except for the services notified under section 68 for reverse charge, where the service tax is charged from the service recipient; (b) When there is export of service, as defined in Rule 3 of Export of Service Rules 2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o is the service recipient, when a service provider A located abroad, has provided service to a Company having head office outside India and a branch office in India and in such a situation, it will be reasonable to treat the establishment most directly concerned with the use of the service provided as the recipient of the service provided by A. (3) Thus irrespective of the location of service provider- whether in India or outside India, service tax is charged in India if the service recipient is located in India i.e. the service has been received and, hence, consumed in India, and if service recipient is located abroad i.e. the service has been received and, hence, consumed abroad, there is no liability of the service provider in India to pay the service tax. This is in accordance with the principle of equivalence mentioned in the Apex Court's judgment in the case of All India Federation of Tax Practitioner reported in 2007 TIOL-149-SC-ST and Association of Leasing and Financial Service Companies reported in 2010 (20) STR-417 (SC), wherein it was held that (a) there is no difference between the production or manufacture of saleable goods and production of marketable/ saleable se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived at the place where the same have been performed and in case a service is partly performed at one place and completed at another place, it is treated as performed at the place of completion [for the purpose of export of a performance based service, service partly performed outside India is treated as performed outside India and for the purpose of import of performance based service, the service partly performed in India is to be treated as performed in India]. In case of the service availed for use in relation to business or commerce, the same are deemed to have been received at the place where the recipient using the service in his business is located. Thus, when the service provider is located in India and the service recipient is located outside India, there will be export of service and there would be no taxation in India and if service provider is located outside India and service recipient is located in India, there will be import of service in respect of which the service recipient in India would be liable to pay the tax If, however, the service provider is located outside India and the person receiving the service of category (iii) for use in his business is also loc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that the Revenue's stand that it is the Appellant, the branch office of Thai Airways, Bangkok, who are the recipient of the service provided by the CRS Companies, is totally incorrect for the following reasons. (1) During the period of dispute, there was no definition of 'service recipient' in the Finance Act, 1994 or in the Rules made there under. Even in negative list based regime of service tax in force since 2012, there is no definition of 'service recipient', though there is definition of 'service'. Therefore, the meaning of 'Service' and 'Service Recipient' during the period of dispute has to be ascertained from the nature of the service transaction. As discussed in para 39 above, a service transaction is akin to a sale transaction. Just as sale of goods, which attracts sales tax, is transfer of property in goods by a person (seller) to another person (buyer) for some consideration, a service transaction, generally, is carrying out of an activity by a person (service provider) for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indirect from the Appellant to CRS Companies. In this case, as discussed in the next paragraphs, neither the Appellant can be treated as the recipient of the service provided by the CRS Companies, nor there is any flow of consideration, direct or indirect from the Appellant to CRS Companies. (2) In this case, from the agreements between the Appellant's Head Office at Bangkok and the CRS Companies, it is clear that the CRS Companies were not providing any Indian branch specific service. It is the Head Office at Bangkok which, in order to facilitate the booking of air tickets though IATA agents all over the world, had negotiated with the CRS Companies and had entered into contacts with them for storage of updated data on real time basis regarding their flight schedules, fare, seat availability etc. and making the same accessible to their IATA agents. The Appellant's job is only appointing the IATA agents in India, collection of sale proceeds of tickets sold by IATA agents and remitting the same to Head Office and as such they are not involved in taking key business decisions. Therefore, applying the underlying principle of 2nd proviso of Section 66A(1) discussed in para 39(2) above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as separate persons, the entire transaction of provision of Service has to be treated as having taken place outside India and the service received by the Head Office at Bangkok cannot be treated as received by the Appellant, in India. (6) In my view, the only situation where in respect of the service provided by a service provider A located outside India against an agreement/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' of the Company 'B' in India, 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 branch office can be tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the above discussion, the impugned orders are not sustainable. The same are set aside. The appeals are allowed. (Rakesh Kumar), (T) 43. 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 branch in India and was recipient of online Database Access or retrieval Service from CRS service provider abroad and liable to service tax in terms of section 65(105)(zh) read with section 65(75) of Finance Act, 1994 on reverse charge mechanism basis u/s 66A of the said Act w.e.f.18.4.2006 or exempt in terms of section 66A(2) thereof. 2. If service tax is payable by the appellant in respect of the service provided by the CRS companies, whether longer li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d? 2. I have heard the representatives of the appellants as also the Revenues representative. The short issue involved in all the differences is as to whether the appellants who have their Branch offices in India for providing airline services, were liable to pay the service tax in respect of services provided by various CRS or GDS companies to their head offices. The said services were being received in respect of various computer reservation system from various CRS companies like M/s. Galilio International Partnership, USA; M/s. Abacus Distribution System Pvt. Ltd. Singapore, M/s. Amadeus Marketing SA Spain, and M/s. Sabre Travel Information Network etc. Said services were being provided by M/s. CRS or GDS Company to the head office of the air lines in terms of agreement entered between them and their head office. 3. Whereas the learned Member (Judicial) has held that the appellants are required to pay service tax in terms of section 66 of Finance Act, 1994, learned Member (Technical) has held that there is no such liability arising on the Indian Branches of Airlines inasmuch as there is no direct receipt of any service by the said Branch offices. Further there is difference of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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