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TMI Blog2014 (11) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... cessing, amounting to Information Technology Service, an excluded component of BAS, defined in Section 65(19) of the Act. Export of Services - whether services provided by assessees amount to export of services, within the ambit of the 2005 Rules - Held that:- where the service recipient is located outside India, this taxable service is delivered and used outside India; and payment for such service provided outside India is received by the Indian service provider in convertible foreign exchange, the service falls within the ambit of the 2005 Rules; and is admissible to benefits thereunder. The decision of the Larger Bench in Paul Merchants Ltd. (2012 (12) TMI 424 - CESTAT, DELHI (LB)), particularly in the context of the facts on the basis of which the said decision was pronounced, explain the scope of relevant provisions of the 2005 Rules. From the decisions referred to supra it is clear that activities of assessees fall within the scope of the 2005 Rules. Consequently, there is no liability to Service tax. From 01.07,2003 till introduction of the 2005 Rules also, BAS which was exported and for consideration received in convertible foreign exchange is exempted from liability to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee in these appeals is M/s Acquire Services Pvt. Limited (Acquire). 5. Amadeus India Pvt. Ltd. and Acquire Services Pvt. Ltd., are hereinafter referred to as assessees 6. M/s Amadeus Appeals: (a) Amadeus is a company registered under the Companies Act, 1956. Its application, to establish itself as a 100 percent Export Oriented Unit (EOU) under the Software Technology Parks of India (STP), was accepted in July 1995 and permission was granted to undertake export of its entire production of computer software. In July, 2000, STP issued a clarification to Customs Authorities certifying that the manufacture/activity carried out by Amadeus amounts to export of computer software, this unit is covered under the STP's 100% EOU scheme and is also permitted to import duty free capital goods under the relevant customs Notifications. (b) During 1997-98 proceedings were initiated against this assessee, under the Income Tax Act, 1961. The assessing officer eventually disallowed claim of deduction under Section 80HHE of the Income Tax Act. Aggrieved, this assessee preferred an appeal which was allowed by the Commissioner (Appeals). Revenue preferred an appeal to the ITAT. By a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and transmitting programmes to the latter for incorporation into portions of partitions in its mega-computer at Erding in Germany, so as to enable the travel agents in its marketing region draw on the available information for their benefit. Its activities are to issue instructions to the master-computer to recognise the operators, identify them and provide them access to specific portions of the database. There can be no doubt whatever, for the reasons discussed above, that the assessee manufacturers, produces and exports software within the meaning of the three specified sections of the Act. It is open to it to claim exemption under any one of these sections and as is well established by pertaining to interpretation of taxing statutes is entitled to choose that one which is most favourable to it in any particular assessment year . (c) In December, 2004 DGCEI, on a premise that this assessee was pursuing activities and providing services amounting to Business Auxiliary Service (BAS) but was not remitting service tax, initiated enquiries and requisitioned a brief note on its activities and copies of its Memorandum and Articles of Association; of Agreements with Airlines; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Interglobe was authorised (under the agreement dated 24.02.2005) to commercially exploit and globally distribute, particularly in India, the software, hardware, intellectual property rights and other properties relating to M/s Galileo International Partnership, USA pertaining to the Galileo systems, CRS (Computer Reservation System) services and services/facilities; that M/s Interglobe had established a separate Indian Company (the assessee); that activities of the assessee amounted to rendition of BAS; and the assessee was thus liable to service tax under Section 65(19)(ii) of the Act. (b) In June 2005, statement of the Manager (Accounts) of the assessee was recorded whereunder its nature and activities and consideration received during the period 01.07.2003 to 20.11.2003, were intimated. This statement refuted Revenue's claim, .of a liability to service tax, by asserting that the services were exported by the assessee and were consumed outside India; and therefore there was no liability to tax. In a further statement in September, 2005 the Manager (Accounts) stated that activities of the assessee amounted to export of data processing software; that bills were raised for pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessees are Indian Companies and are 100% EOU's registered with STP and were granted exemption under Section 10A/80HHE of the Income Tax Act, 1961 for export of computer software. Assessees are treated for purposes of the Income Tax Act as exporters of computer software, involved in data processing, receiving payment from foreign entities in convertible foreign exchange. Receipt of consideration (by assessees for rendition of services) from the foreign entities in convertible foreign exchange, is also recorded in the impugned adjudication orders. Amadeus and Galileo Group of Companies (the foreign entities) evolved and maintain a computer reservation system, the requisite software and a huge data base comprising a variety of information relating to several airlines and other travel services providers, for providing international travel related facilities. The core computer systems /servers are established at overseas locations at U.S., Germany or Spain as the case may be. This is one end of the spectrum of inter-related and connected activities which cumulatively provide travel related services. At the other end of the spectrum is the travel agent with a computer, who me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these conclusions recorded by ITAT. 10. Under the schemes and protocols of the interconnected operations, it is the overseas entities - Amadeus and Galileo, which conceived, evolved, maintain and process the worldwide travel related information through mega computers located overseas. CRS is a system connected with a data base carrying various kinds of information pertaining to several airlines and other travel services providers, is used for booking airlines tickets, cabs, hotels and like travel facilities, across the globe. Airlines, hotels, cab agencies and other services providers pay fee to the overseas entities (Amadeus or Galileo) for bookings made by employing the CRS. Assessees process the data generated by their accredited travel agents in India, at their respective STP units and align and interface such information as per protocols of the CRS systems of the overseas entities - Amadeus or Galileo. On successful booking of a ticket or other travel related facilities by accredited travel agents, the relevant data is processed by the assessees and fed into the data base overseas, employing internet facilities, an acitivity amounting to computer data processing. For provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act, 1961 towards export of information technology services, a claim that was confirmed by the ITAT in Asst. CIT v. Amadeus India (P.) Ltd. [2001] 79 ITD 407 (Delhi), a decision which is equally applicable to the other assessee - Acquire. On this basis assessees contended that their activities amount to data processing , which is excluded from the purview of BAS vide the Explanation to 65(19), until substitution of a new definition to BAS w.e.f. 01.05.2005. After the amendment, assessee applied for registration for providing BAS and this was granted, to Acquire. Assessees also contended that activities/services undertaken by them were exported to the foreign based entities and consideration is received in convertible foreign exchange which is exempted from liability to service tax, under the Export of Service Rules, 2005 (the Rules). 13. The defence of the assessees is thus predicated on two contentions; (a) That prior to 01.05.2006, since they were involved in activities amounting to data processing; the activity falls outside the ambit of BAS, in view of the exclusionary clause enumerated in the Explanation to Section 65(19), the provision which defines BAS; (b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9-ST dated 09.04.1999. This Notification was rescinded by Notification NO.2/2003-ST dated 01.07.2003. The exemption was however subsequently reinstated under Notification No. 21/2003-ST dated 20.11.2003, followed thereafter by the 2005 Rules. However, there was no tax liability on a service provided to an overseas recipient (even during 01.07.2003 till the 2005 Rules), in view of Board Circular No. 56/5/2003- ST dated 25.04.2003-ST, which clarified the status of export of services, in view of apprehensions expressed by the trade, consequent on withdrawal of Notification No. 6/1999-ST. The Board clarified that service tax being a destination based consumption tax is not applicable to export of services which would continue to remain tax free even after withdrawal of Notification No. 6/1999 (e) Invocation of the extended period of [imitation is unjustified since assessees had a bonafide belief and there is a clear interpretation dispute as to the scope of BAS, in the light of the Board circulars; the exclusionary clause, excluding information technology service including computerized data processing from the scope of BAS; and the assessees status as a 100% EOU registered with the STP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e recipients some of whom are located abroad (like the foreign entities who maintain the CRS systems) and other recipients are located in India (such as the travel agents and the ultimate consumers), the benefit of the Export of Service Rules, 2005 is inapplicable. (e) Since assessees failed to promptly and voluntarily furnish the relevant information regarding the nature of activities/services provided and the consideration received for the same, periodically, this conduct amounts to suppression of material facts. Hence, invocation of the extended period is legitimate. The impugned orders to the extent demand of Service Tax for the extended period and imposition of penalty under Section 78 is dropped, are therefore unsustainable. Consequently, Revenue appeals should be allowed. 18. Analyses of the relevant statutory provisions: Business Auxiliary Service was introduced w.e.f. 01.07.2003. During the relevant period in issue, to the extent relevant and material for the purposes of this lis, Section 65(19) of the Act defined BAS as: (i) Any service in relation to (ii) Promotion or marketing of service provided by the client; (iii) Any customer care service provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g information/data generated by their accredited travel agents in India and uploading the same to overseas located computer systems, which maintain and process the master data of the overseas entities. Assessees also identify and provide access to relevant segments of travel related data in the CRS to local travel agents by acting as an interface with the overseas computer systems and the composite data maintained and processed therein, by computer data processing. 22. In our considered view services provided by assessees to the overseas entities (Amadeus/Galileo) clearly amount to promotion or marketing of CRS services of the overseas entities (a BAS), but nevertheless falls outside the ambit of BAS as defined, since these services were provided by employing computer data processing, excluded component. 23. The ITAT in its order dated 17.01.2001 (referred to supra) dealt with the activities of assessees in detail and concluded that assessees supplement functions of the overseas entities by preparing and transmitting programmes to the latter for incorporation into portions of partitions in mega-computers located outside India, to facilitate travel agents in India to draw on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 21/2003-ST and in view of the clarification issued in Board Circular No. 56/5/2003-ST dated 25.04.2003. 28. For dropping levy of service tax demand on services provided during the period covered by the extended period of limitation and for deleting penalty under Section 78, the adjudicating Authority recorded elaborate and cogent reasons duly analyzing the material on record and concluded that relevant information and particulars were furnished and was available with the Department much in advance and therefore suppression of material facts or intent to evade tax by the assessees, cannot be inferred. We concur with these conclusions recorded by the adjudicating Authority. 29. The appeals by Revenue against dropping of the demand for service tax for the extended period and of penalty under Section 78, are therefore without merit and liable to be rejected, 30. As a result Service Tax Appeal Nos, 824 and 841 of 2010 are allowed and Service Tax Appeal Nos. 934 and 936 of 2010 are dismissed. No costs. 31. Conclusions: We hold that: (a) Services provided by assessees during 01.07.2003 to 01.05.2006 fall outside the ambit of BAS; and (b) Both prior and subsequent to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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