TMI Blog2014 (8) TMI 592X X X X Extracts X X X X X X X X Extracts X X X X ..... - CESTAT NEW DELHI (LB)] - the matter on merits as also on limitation was in favor of assessee - By adopting the final decision of British Airways vide my Order [2014 (6) TMI 626 - CESTAT NEW DELHI (LB)] demand set aside - Decided in favor of assessee. - Appeal No.330/2012, 3777-3780/2012-2012 - Interim Order No.338/2013 dated 27.06.2013 and FINAL ORDER NO. 53164-53168/2014 - Dated:- 8-8-2014 - Mr. D.N. Panda (J) and Mr. Rakesh Kumar, (T) For the Appellant : Sri N. Venkataraman, Sr. Advocate with Ms. Neha Mr. Indu Amar, CA For the Respondent : Shri Amresh Jain, DR JUDGEMENT PER: D.N.PANDA; All the above 5 (five) appeals arose out of common cause of action giving rise to the same question as to whether Online Database Access or retrieval Service was received by the appellant M/s Thai Airways International Public Company Limited (hereinafter referred to as TAIPCL ) 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 ) w.e.f.18.4.2006 on reverse charge mechanism basis. Those were taken up for analogous hearing and disposal by this common order. Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el Agents. They make payments to CRS/GDS companies towards consideration on the basis of ticket value for the Online information and database access or retrieval services they avail. 4.3 The CRS and GDS facility providing companies maintain data base and structured data relating to ticket reservation and seat availability, fair structure, flight timings sectors etc. information supplied to them by Airlines from time to time with right of access and retrieval of data by Airlines and Air Travel Agents from Master Computer maintained by above CRS companies through on-line computer system facility provided by these companies. There was quid pro quo between Airlines and CRS/GDS companies to meet the needs of each other. 4.4 Revenue examined agreements entered into by Airlines with the CRS companies at great length which defined their object in clear terms. Structuring of data base and sharing thereof accessing and retrieving through networking on real time basis was object of the contract. The CRS companies provided computer terminals and printers to Air Travel Agents with on line interconnectivity subject to certain conditions. 4.5 Data received from the Airlines were proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dates and sectors were obtained by the CRS companies from Airlines to create data base and store the same in master computer so as to make that available/displayed online on real time basis for access or retrieval of the date by Air Travel Agents to enable them to book air tickets or others facilities as well as respond to travel related qurries of passengers. (ii) Queries relating to booking or cancellation information sought by Air Travel Agents go to Master Computer of CRS companies through CRS for interacting with data base of Airlines maintained in master computer to get response on line for booking and cancellation of tickets/facilities. (iii) Access and/or retrieval to data through the Main Computer System of CRS was in electronic form to enable the Airlines and Travel agents to access and interact with each other so as to generate useful travel related data/ information for booking tickets/facility or replying to queries of passengers. (iv) CRS companies made available of their service to the Airlines to cater to the need of the Travel Agents through CRS. 4.9 Revenue ascertained that CRS companies were getting their consideration by way of commissions from appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid description provided by CRS companies. Appellants plea that the service provider has an establishment in India made no sense to Revenue as such establishment was operating in India as different entity under Reserve Bank of India permission. 4.14 On the aforesaid circumstances it was held that appellant was recipient of Online data base access or retrieval service from foreign based service CRS/GDS providers and was liable to pay Service Tax with effect form 18.4.2006 when section 66A of the Act came into force. On the basis of details of consideration paid by the Appellant to CRS companies as exhibited by Page 12 and 13 of show cause notice (SCN) dated 24.10.2008 read with the Table appearing at Page 37 of Order in Original under appeal became basis for levy of service tax. The appellant having failed to deposit the Service Tax liability and failed to file the returns under law for the impugned period suppressing the value of taxable service evading service tax liability under the Act causing prejudice to Revenue, was subjected to adjudication was not time barred and penal consequence of law followed. ARGUMENTS ON BEHALF OF APPELLANT 5.1 Learned Sr. Counsel placin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly foreign principal of the appellant being recipient of service provided by the CRS companies, the appellant was not service recipient. 5.6 Appellant is registered under law for which no adverse inference can be drawn to impose penalty as well as tax. 5.7 Proceeding was time barred for which neither tax nor penalty is leviable. Show Cause Notice was issued belatedly on 24/10/2008. The appellant bonafide believed that it had not incurred tax liability for which extended period is not invocable. Investigation was made in 2005 and during the course of investigation, entire activities carried out by the appellant were made known to the investigation and reply was submitted on 11/11/2005 against the allegations of investigation. When the investigation was well aware of the facts, there was no scope to issue Show Cause Notice. 5.8 There was no suppression of fact nor there do any deliberate intention to evade tax. ARGUMENTS ON BEHLAF OF REVENUE 6. Per Contra submissions of Revenue were as under: 6.1 The Appellant created confusion by an irrelevant diagram while the matter in controversy is plain and simple. The head office of the appellant Thai Airways Internation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing is also liable to service tax. So also stay order dated 23.08.2012 passed in the case of Continental Airlines Vs. CST vide order No. ST/SO/860/2012 indicates liability incurred by the appellants u/s 65(105)(zh) read with section 65(75) of the Act. 6.5 When the Appellant ought to have been registered under the Act, but failed to file its returns under law there cannot be any waiver of penalties imposed in adjudication. 6.6 There is nothing on record that the appellant had no connectivity with CRS companies to respond to its Travel Agents in India for booking tickets for the appellants Airline. 6.7 Relying on pages 127 to 133 of appeal folder it was Revenues contention that entire exercise of head office of the appellant was to carry out business in India through Appellant to achieve its object for which it took RBI permission. 6.8 If appellant s argument that travel agents make remittance to IATA is accepted then there was no necessity for the appellant to operate in India taking RBI permission. Entire pleading of the appellant is to confuse the Tribunal for a misplaced sympathy which has caused prejudice to the interest of Revenue. 6.9 When remittances made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase access or retrieval means providing data or information, retrievable or otherwise, [to any person], in electronic form through a computer network; [Emphasis supplied] 9. The appellant pleaded before learned Adjudicating Authority that it was branch of Thai Airways International Limited at Bangkok. Copy of letter No. CO.FCS.1219/1003/Activity/77 dated 9 May 1977 issued by Reserve Bank of India addressed to Appellants Calcutta office exhibited that it was allowed to carry on existing airline activities, viz., operation of air services in or through India. As an organ of its foreign principal, it operated in India under Reserve Bank of India (RBI) permission at the approved address to promote Airways transport service. It had accordingly place of business in India in terms of section 66A (1) (b) of the Act during the impugned period. 10. As a participant to the CRS agreement, the appellant was coordinator of information relating to computer reservations under the terms of the agreement for storage by CRS companies so as to make that available to the subscribers of the said companies. While doing so, its object was to ensure storage of accurate and error free information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vel related service. The term AMADEUS Subscribers as defined by Article 1 of the agreement at page 128 of the appeal folder means any person other than an Amadeus affiliate or participating carrier, using under a contract or other arrangement the AMADEUS system to obtain information, make reservations and issue documents involving travel related services. They were user of on line data service provided by CRS Company to achieve the object of the appellant. 14. Responsibilities and rights of the participants was defined by the Article 2 of the above agreement and relevant part thereof reads as under: Article 2 RESPONSIBILITIES AND RIGHTS OF THE PARTICIPANT (Page 131 of the appeal folder) A) Services provided 1. The PARTICIPANT shall, at its own cost, coordinate its information and reservations services with AMADEUS and shall take such other steps as may be required to provide all AMADEUS subscribers, ATOs and CTOs with information and reservations services as advantageous as those provided to any subscriber of any other computerised reservation and ticketing system. Such services shall include, but will not be limited to, passenger information, schedule, space availabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DEUS. 2. The PARTICIPANT will ensure that the PARTICIPANT s system fully complies with the interline reservation policies, procedures and message-formats set froth in AIRIMP and amendments thereto. C) Seat availability PARTICIPANT s seat availability status on each flight will be recorded under the terms expressed in ATTACHMENT B (Schedule Loading and Sales Facility) to this agreement. D) Issuance of tickets 1. The PARTICIPANT will take all necessary steps to authorise AMADEUS Subscribers to issue tickets for the PARTICIPANT, as expressed in Schedule 7 to this agreement and subject to technical feasibility. 2. PARTICIPANT will authorise AMADEUS to receive credit card authorisations for the issuance of tickets where the PARTICIPANT is the validating carrier. 3. Before AMADEUS Global Core is equipped with a fully integrated ticketing system, ticket issuance for the PARTICIPANT will be subcontracted by AMADEUS to a third party system. 15. Above article 2 at page 131 of the appeal folder brought out relation of the CRS Company (AMADEUS) with the appellant and its head office as well as its Air Travel Agents in India defining their role and relation confining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n thirty (30) days. 20. The appellant in consideration of availing aforesaid service has also 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 settlement by any mode, made no difference to law as theory of equivalence determines value of taxable service through its in built provisions embedded to the rules of valuation in the Finance Act, 1994. 21. Amongst others, responsibilities and Rights of AMADEUS to the extent that is relevant as defined in Article 3 of the agreement at page 134 of appeal folder reads as under: Article 3 RESPONSIBILITIES AND RIGHTS OF AMADEUS A) Non-discriminatory services 1. AMADEUS will comply with all applicable regulations concerning display of information. 2. AMADEUS will offer neutral display to all AMADEUS Subscribers. The AMADEUS Neutral Display will conform to the EEC-Code of Conduct. A number of display options will available to meet the requests of customer. 3. In the neutral display provided to AMADEUS Subscribers, referred to in Article 3.A.2 above, subject to subscribe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rules or regulations imposed by Civil Aviation regulatory authorities or any other legal authority which may affect the operation of AMADEUS. 22. According to Article 2 of the agreement, the participant i.e., the Appellant and its head office had responsibility to coordinate its information and reservation services with AMADEUS and was required to provide all AMADEUS Subscribers, ATOs and CTOs with information and reservations services as advantageous as those provided to any subscriber of any other computerized reservation and ticketing system. Such services included passenger information, schedule, space availability, fares and fare information and procedure. Thus AMADEUS was a data processor through its master computer to serve the appellant for booking its tickets by Indian Air Travel Agents. 23. Fiction was created by the appellant bringing so many jargons and terminology and illusory concept of entities to raise confusions while the matter was plain and simple to understand modus operandi and arrangement of the appellant. Ticket reservations were done by Air Travel Agent for the appellant making use of the services received by the appellant as an organ of its foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pient of online data base access and retrieval thereof to promote its business in India ensuring error free information to the travel agents in India. Storage of such data in the computer of CRS companies for use thereof was an inevitable necessity since liability of the subscribers to the appellant was limited to the service charge paid by it in respect of each service of ticket booking. Therefore the appellant did not remain silent without exercise of its right of access to such data base and/or retrieval thereof to ensure that that it becomes litigation free. The appellant having right of access to the data base and for such service of access, it had made payments to the CRS Companies. Appellant s plea that service was provided to the head office is baseless. Appellant failed to establish that its existence in India was of no use to it. Revenue s arguments that appellant s remittances came to notice of investigation proved quid pro quo is well founded. So also when the appellant failed to prove that it had not enjoyed any connectivity to the CRS system of CRS companies to respond to travel agents in India, it failed to succeed in adjudication. This rules out appellant s plea tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant is not export of service from India but an import of service into India by virtue of right of access of the appellant to the online data base and retrieval thereof. Nor also reliance on the Board Circular (supra) has any force as circular cannot override the law. Appellant has thus misplaced the cited decision. 30. When the appellant failed to be registered under the Act and file returns periodically, its plea of bonafide belief does not arise sine it escaped scrutiny of law. There was deliberate breach of law to cause evasion. Had there been no investigation, appellants liability would not have been unearthed. Breach of law is neither eroded by lapse of time nor defiance thereof unpunishable. Bonafide should be patent from conduct and a mere plea of bonafide does not make the believer riskless in fiscal administration. Adjudication was not time barred when suppression of fact and intention to evade was detected by investigation. Liability of the appellant arose under law. Had the appellant sought registration and filed nil returns with notes appended to that explaining its belief, it would have provided foundation for its belief to be bonafide. But the appellant had not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in these appeals, it would be worthwhile having a brief look once again at the basic facts of this case. 35. The appellant M/s. Thai Airways International Public Company Ltd., having their office at The American Plaza, Intercontinental Eros, Nehru Place, New Delhi are a branch office in India of M/s. Thai Airways International Public Ltd., Bangkok, Thailand (hereinafter referred to as Thai Airways ). They are engaged in providing the services of air transportation of passengers and cargo. M/s. Thai Airways have obtained the permission of the Reserve Bank of India for setting up branch offices in India and besides the main branch office in New Delhi, they have branch offices at other places also in India. The appellant, however have obtained centralized service tax registration at New Delhi in respect of service of transportation of goods by air and transportation of passengers by air provided by all the branches in India. The appellant have appointed IATA authorized travel agents in India for selling of tickets of Thai Airways. The tickets are sold by the IATA agents on behalf of Appellant. The IATA Agents after selling the tickets of Thai Airways remit the money after retainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(105)(zh) read with Section 65(75) and Section 65(36) of the Finance Act, 1994 and since the same has been used by the IATA Agents in India for selling of tickets of Thai Airways, the remuneration received by the CRS Companies abroad from Thai Airways, Bangkok, would attract service tax from the Appellant in 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, as according to Department, the services have been consumed in India by the Appellant. On this basis, four Show Cause Notices dtd. 10.10.09, 09.04.2010, 19.10.2001 08.04.2001 were issued to the appellant for demand of service tax including education cess amounting to ₹ 4,16,09,932/-, ₹ 04,21,74,455/-, ₹ 1,82,56,729/- ₹ 1,92,13,354/- respectively, in respect of period from April08 to September 2010, along with interest on it under section 75 of the Finance Act, 1994 and also for imposition of penalties on the appellant under section 76,77 78 of the Finance Act, 1994. 35.1. These Show Cause Notices were adjudicated by a common order No. 66-69/AKM/CST/ADJ/2012 dtd.31.08.2011 by which the service tax demands along w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, in respect of the service transactions between the CRS Companies located abroad and Thai Airways, Bangkok, the Appellant cannot be treated as the service recipient, and secondly the service being provided by the CRS Companies is not covered by the definition of online information and data base access and/or retrieval service as defined in Section 65(105)(zh) read with Section 65 (75) and Section 65(36) of the Finance Act, 1994 and hence the same is not taxable. 37.1. There is no dispute that:- (a) the service providers i.e. the CRS 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 Bangkok and the CRS Companies; and (c) the payments for the services rendered by the CRS Companies have been received by them directly from Thai Airways, Bangkok and as such the entire payments for the services, in question, have been made outside India [Para 58 59 of the impugned order dtd. 31.08.2012 and para 28.3 of impugned order dtd. 25.11.11]. The dispute is only on the point as to whether the Appellant- the branch office of Thai Airways, Bangkok in India, can be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tures of the service tax in India, which, in brief, are as under:- (1) while the term service is not defined in the Finance Act, 1994, assuming that a service transaction is akin to a transaction of sale of goods, it can be treated as an activity carried out by a person (service provider) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on liable to pay service tax and the service tax is recovered from him. For this purpose, in case of a body corporate, the place where it is incorporated or is otherwise legally constituted is treated as its usual place of residence [explanation 2 to Sec. 66A] and a person carrying on a business through a branch or agency in any country, is to be treated as having permanent establishment in that country. 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 constituting 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the service, who is the same as the recipient of the service, is located in India. Here it may also be clarified that unlike a transaction of sale of goods, in a transaction of provision of 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, for the purpose of determination of the location of service recipi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia and not having any branch or business establishment in India); and (b) the entire payments to the CRS Companies have been made directly by the head office located outside India and no part of payment has been made by the branch office (Appellant). 40.1 As held in para 38 above, the service provided by the CRS Companies is Online Database access and/or retrieval service taxable under Section 65(105)(zh), read with Section 65(75) and Section 65(36) of the Finance Act, 1994 and this service is covered by Rule 3(iii) of the Taxation of Services (Provided from outside India and received in India) Rules, 2006. This service provided from outside India, would be treated as received in India, only if it has been received by a recipient located in India for use in relation to business or Commerce . The dispute is as to whether the Appellant, the branch office of Thai Airways in India is the recipient, as contended by the Department, or as pleaded by the Appellant, their head office at Bangkok, who has entered into agreements with the CRS Companies for Provisions of Service and has made payment for the service provided, is recipient of the service. However for deciding this quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isfied 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 between A and B, against Provisions of service by A to B, there would be always flow of consideration from B to A, which, as mentioned above, can be in cash, or other than in cash or direct or indirect. Therefore, for existence of service transaction between A and B, along with Provision of service by A to B, there must be Provision for flow of consideration from B to A and only then the B can be treated as service recipient. The consideration in some cases can be indirect. For example, if on the instructions of a person A located outside India, a person B, also located outside India, provides a performance based service to a person C located in India and it is A who makes payment to B for the service, the A will be treated as service recipient only if A has a legal obligation to get the service provided to C, But if there is no such obligation and A had acted only as a facilitator or Agent of C, A can be treated as having made the payment on behal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s received the service and it is Head Office which is liable to pay for the service and has actually made payment for the same, it is the Head Office which has to be treated as the recipient of the service provided by the CRS companies. (3) When neither any service has been received by the Appellant nor there is any evidence or even any allegation that any payment was made directly or indirectly by the Appellant to CRS Companies nor any presumption in this regard can be made, the Appellant cannot be treated as recipient of the service provided by the CRS Companies. (4) Merely because the IATA agents appointed by the Appellant in India used the Services provided by the CRS Companies from abroad, the Appellant do not become the recipient of the Service. For being treated as recipient, a person, in addition to being user of the service to satisfy his need, must also be the person legally liable to receive the service and the person liable to make the payment/person making the payment for the service. In this case, there is neither evidence, nor even allegation of the Department that the Appellant is the person liable to make payment to CRS Companies for there services or have ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recipient of the service provided by the CRS Companies, in pursuance of their agreements with the Appellants Head Office at Bangkok and, therefore, no service tax can be charged from the Appellant. 41. As regards the question of longer limitation period under Proviso to Section 73(1) of the Finance Act, 1944, the same would not be available to the Department, as no intention to contravene the Provisions of Finance Act, 1994 and of the rules made there under can be attributed to the Appellant for the reason that even if they are required to pay service tax on the service, in question, provided by CRS Companies, the entire service tax paid would be immediately available to them as Cenvat Credit and collection of service tax from the Appellant would be a revenue neutral exercise. A Larger Bench of the Tribunal in case of Jay Yushin Ltd. reported in 2000(119) ELT 718,has held that in such circumstances where revenue neutral situation comes about in relation to the credit available to the assessee himself of the duty paid by him and not by the way of availability of credit to the buyer of the assessees manufactured goods [para 13(b) of the judgment], longer limitation period unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 18.04.2006 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 limitation period under provision to section 73(1) finance Act, 1994 would be available to the Department for recovery of tax and whether penalty on the appellant u/s 78 ibid would be attracted? Thai Airways International Public Company Ltd. Service Tax Appeal No. 330/2012, 3777-3780/2012 (Interim Order No.337/13 dt 27.6.13 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) ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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