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2020 (10) TMI 286 - AT - Service TaxExport of services or not - intermediary, commission and marketing service fee received - period from 1st July 2012 to 31st March 2016 - time limitation - HELD THAT - The activity of an intermediary is not envisaged as any less of service than contemplated by section 65B(44) of Finance Act, 1994 and this is evident from its definition in rule 2(f) of Place of Provision of Service Rules, 2012. While main service on own account, implying adequate autonomy to negotiate consideration to be passed on in the value chain to the next provider and onwards until the sum of consideration is recovered in entirety from the ultimate consumer, is also no more and no less than service , the antithesis thereof, characterized by divesting of such autonomy and to be inferred from the nature of the consideration , will relegate the corresponding activity to that of intermediary which is subordinate to a main service on own account within which it is rendered. By designating of the activity of intermediary as service but not on its own account to be distinguished by provision of main service on own account, it would appear that while being provider one of the two essential determinants of service the consideration received, as it must for coverage under Finance Act, 1994, by the intermediary is lesser than, or subordinate to, the consideration that corresponds to performance of the main service on own account. Here, irrespective of the delivery of the main service in the taxable territory or otherwise, the consideration received by the provider in India is deemed to have been for service rendered in India. From this would emerge a pattern in which services coalesce within a main service detracting from independent existence of each of them except for the description corresponding to consideration of the coalesced main service rendered on own account which is characterized by the recipient of service acknowledging only one provider for contractual consideration but yet carrying on business with other entities with whom the recipient of consideration has entered into separate contracts. There is no broader span of activity than the ticketing/booking for access to service that is offered by the airline operator/hospitality provider to the traveler. It is common ground that the assessee was contracted by the overseas entity to promote and market the Abacus computer reservation system (CRS) software among travel agents for enabling access to the offerings of airline operators and hospitality providers who had separately contracted with the overseas entity for access to the system at the other end. The assessee undertook the responsibility of identifying travel agents who were designated as subscribers of Abacus computer reservation system upon successful concluding of agreements with them. Thus are the subscriber and the airline operator/hospitality provider facilitated for providing travel solutions to the public. Upon the successful closure of booking, the overseas entity was recompensed with commission per transaction. Travel agents were, in turn, compensated by the overseas entity on per transaction basis to incentivize usage of the Abacus system. The consideration received by the assessee from the overseas entity for the contracted undertaking is also computed on per transaction basis. It is this networking of activities the channel that links the airline operator/hospitality provider and the traveler - that pushes forward the business of travel, and hospitality, industry - The airlines/hotels and the travel agents are not bound to each other and nor do either contract for exclusive use of the Abacus system. It is upon the volumes generated by the subscriber on Abacus that the licencee of the software is paid and it is from this payment that the assessee, as well as subscribing travel agent, are compensated by the licencee which flows from the agreement of the licencee with the assessee and of the assessee with the travel agent. In all of these multiple transactions that enable a traveler to fly or occupy accommodation, the fare and tariff is in the public domain and the airline/hotel offers commission on that to the parent company of the appellant; consideration for all other transactions pertaining to the ticketing/booking are constrained within this consideration to derogate from autonomy of negotiation and progressive summation of consideration to paid by the ultimate consumer thus derogating from the hallmark of main service on own account. Consequently, the activity of the assessee-appellant rendered is intermediary service taxable in the hands of the provider. Assessee-appellant is provider of the service and, hence, liability devolves on them in terms of rule 9 of Place of Provision of Service Rules, 2012. The impugned order has taxed two streams of consideration commission based on passenger bookings and fixed marketing service fee and, while the former is consideration for intermediary service as set out above, the nature of the latter is not clear. Though the adjudicating authority has not given much thought to its computation, it would appear from the invoices, that these have been billed as a standard amount. Nevertheless, in the narration of facts, the adjudicating authority has recorded that the dues under this head are netted; as netting out involves adjustment of flows in both directions and there is no ostensible reason for the assessee to pay the overseas entity, we are unable to decide the legality of subjecting the marketing service fee to tax - Furthermore, in the context of our finding on the taxability of commission fee , with consequent denial of refund of accumulated credit, the assessee may be entitled to utilise such CENVAT credit in the discharge of tax liability. While upholding the finding in the adjudication order, arising from the proposal to recover tax, to the extent of the confirmation that commission fee is consideration for service rendered in India, we remand all other issues back to the respective original authorities for disposal in accordance with the law as set out by us and the directions recorded. The assessee is at liberty to raise their contentions pertaining to bar of limitation, invoking of section 80 of Finance Act, 1994 and entitlement to CENVAT credit before the adjudicating authorities concerned - Appeal disposed off.
Issues Involved
1. Taxability of 'commission' and 'marketing service fee' received by the appellant-assessee. 2. Eligibility for refund claims under CENVAT Credit Rules, 2004. 3. Determination of whether the appellant-assessee qualifies as an 'intermediary' under Place of Provision of Service Rules, 2012. 4. Applicability of limitation and penalties under Finance Act, 1994. Detailed Analysis 1. Taxability of 'Commission' and 'Marketing Service Fee' The appellant-assessee, a subsidiary of a Singapore-based entity, was engaged in promoting and marketing the Abacus Computer Reservation System (CRS) in India. Proceedings were initiated for recovery of service tax on 'commission' and 'marketing service fee' received from 1st July 2012 to 31st March 2016. The adjudicating authority confirmed the demand for ?50,65,35,795 along with interest and penalties under sections 73(1), 75, 77, and 78 of the Finance Act, 1994. The appellant contended that these receipts were export proceeds realized in foreign currency and should not be taxed. The Tribunal held that the 'commission' received by the appellant for promoting and marketing the CRS software among travel agents in India constitutes 'intermediary service' under rule 9(c) of the Place of Provision of Service Rules, 2012. This makes the service taxable in India. However, the nature of the 'marketing service fee' was unclear, and its taxability needed further examination. The Tribunal remanded the matter to the original authority for re-computation of the tax liability on 'commission' and to ascertain the taxability of 'marketing service fee' based on the agreement details. 2. Eligibility for Refund Claims The appellant-assessee filed four applications for refund of accumulated CENVAT credit, which were partially rejected by the adjudicating authority on grounds of non-compliance with rule 6A of Service Tax Rules, 1994, and limitation of time. The Tribunal noted that the rejection of refund claims was based on the finding that the service rendered to M/s Abacus International Pte Ltd did not amount to export. Given the Tribunal's finding that 'commission fee' is taxable as 'intermediary service,' the appellant may still be entitled to utilize the CENVAT credit for discharging the tax liability. The Tribunal remanded the matter to the refund sanctioning authority for re-evaluation in light of its findings. 3. Determination of 'Intermediary' Status The Tribunal extensively analyzed the definition and scope of 'intermediary' under rule 2(f) of the Place of Provision of Service Rules, 2012. The appellant contended that it operated on a principal-to-principal basis and was not an intermediary. However, the Tribunal found that the appellant's activities, including promoting and marketing the CRS software and receiving commission on a per-transaction basis, fit the description of 'intermediary service.' The Tribunal emphasized that the appellant's role in facilitating transactions between travel agents and the overseas entity without autonomy in negotiating consideration indicated its intermediary status. 4. Applicability of Limitation and Penalties The appellant argued that the demand was time-barred and penalties should be waived under section 80 of the Finance Act, 1994. The Tribunal acknowledged these submissions but noted that they required fresh consideration in light of its findings on the taxability of 'commission fee.' The Tribunal remanded the matter to the original authorities to re-examine the issues of limitation, penalties, and entitlement to CENVAT credit. Conclusion The Tribunal upheld the finding that the 'commission fee' received by the appellant-assessee is taxable as 'intermediary service' in India. However, it remanded the issues related to the taxability of 'marketing service fee,' re-computation of tax liability, and refund claims to the respective original authorities for further examination. The Tribunal also directed the original authorities to reconsider the issues of limitation, penalties, and CENVAT credit entitlement in accordance with the law and the Tribunal's findings.
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