TMI Blog2013 (8) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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? - ST/ 330/2012, 3777-3780/2012 - - - Dated:- 27-6-2013 - D N Panda And Rakesh Kumar, JJ. For the Appellants : Shri N Venkataraman, Sr. Adv. with Ms Neha Mr Indu Amar, CA For the Respondent : Shri Amresh Jain, DR 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r system, commonly known as "Computer Reservation System" (CRS)/Globai Distribution System (GDS) maintained by the above companies. 4.2 Airlines have worldwide operations in terms of agreements entered into by them with CRS/GDS companies as well as Travel 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 throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance Act, 1994. Similar was the status of other CRS companies. 4.8 On the basis of result of enquiry, it came to light of Revenue that: (i) details of available seats, flight schedules and fare applicable to different journey of different 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 quarries 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was held by Revenue to be devoid of merit for the reason that appellant was separate establishment in India as a service recipient and payment was made by it to CRS companies proving nexus of service received by appellant and service of the aforesaid 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 tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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. 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 subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Adjudicating Authority in his order under Appeal No. 718/2012 has appropriately held that the appellant therein was recipient of service and liable to service tax. The appellant being in similar footing 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 appellant's Airline. 6.7 Relying on pages 127 to 133 of appeal folder it was Revenue's 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... network, in any manner;" [Emphasis supplied] 8. The expression "on-line information and data base access and retrieval" has been defined by section 65(75) of the Act reading as under: Section 65 (75) "on-line information and database 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... motion of its products and services. An Amadeus subscriber i.e. IATA and affiliate were allowed under a contract or other arrangement with the Amadeus system to obtain information, make reservations and issue documents involving travel 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of, are described in Schedule 2 of the present Agreement. B) Compliance with applicable formats 1. If the PARTICIPANT elects to supply its schedule and fare information directly to AMADEUS, the PARTICIPANT will be responsible-for compliance with the SSIM or ATPCO formats used by AMADEUS. 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 syst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: ARICLE S PAYMENTS AMADEUS shall submit a monthly invoice to the PARTICIPANT for all charges and fee due to AMADEUS under attachment A to this agreement and incurred during the preceding month. The PARTICIPANT will settle the invoice by paying the amounts due to AMADEUS or any entity AMADEUS may designate, within 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 informat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Schedule Loading and Sales Facility) F) Interruption of service AMADEUS will take all reasonable steps to ensure that service is not interrupted. However, AMADEUS has the right to interrupt the operation of its global Core System or its communication network for technical or operational reasons. G) Compliance with rules and regulations AMADEUS will comply at all times with the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.] 25. 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. 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 baseles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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's hypothetical argument has no sense in the eyes of law. 29. Appellant's reliance on Paul Merchants case (supra) is of no use to it as the issue involved therein was whether there was an export of service made by Paul Merchants from India. Present case of appellant 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, appellant's 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 bona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by member of the Bar. 33. In the result all the 5 (five) appeal are dismissed. (Pronounced in the open court on......................................) Contra Per: Rakesh Kumar, Member (T) 34. I have gone through the order prepared by my Learned Brother which was received on 07.05.2013. Since I do not agree with his conclusions, I am recording a separate order. However before the coming to the issues involved 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided by them has been made outside India by M/s. Thai Airways, Bangkok i.e. the head office of the Appellant and as such no payment for the services being provided by CRS Companies has been made by the appellant who are the Branch Office of Thai Airways in India. The department was of the view that the service being provided by the CRS Companies is "Online Database access and/or retrieval" taxable under section 65(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 Rs.4,16,09,932/-, Rs.04,21,74,455/-, Rs.1,82,56,729/- Rs.1,92,13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by the appellant, who are a branch office of the Thai Airways in India, as the entire transaction is between their Head Office at Bangkok and the CRS Companies located abroad and in terms of the Provisions of sub-section (2) of 66A, the branch office of Thai Airways in India has to be treated as a person separate and distinct from the head office and, therefore, in respect of the service transactions between the CRS Companies located abroad and Thai Airways, Bangkok, the Appellant can not 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 rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he main point of dispute in this case whether the Appellant, who are a branch office in India of Bangkok based Thai Airways, can be treated as recipient of the service provided by the CRS Companies located abroad or whether Thai Airways, Bangkok is to be treated as the services recipient. Before coming to this question, it is necessary to have a look at certain basic features 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 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is located in India i.e. is a person having his place of business, fixed establishment, permanent address or usual place of residence in India, in term of the Provisions of Section 66A(1) read with Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, the service recipient in India is deemed to have provided the service in India and he is treated as "the person 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumer of the service; and (d) It is this principle of equivalence which is inbuilt into the concept of service tax under the Finance Act, 1994. The implication of the above ruling would be that service provided by a service provider located abroad, not having any branch or business establishment in India, would be taxable in India only if the consumer 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 66A, the Appellant who is a branch office of Thai Airways, Bangkok (its head office), is 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 Thai Airways, Bangkok and the CRS Companies (located outside India 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 dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale, in case of service, the recipient consumes the services simultaneously and, hence, the recipient and the consumer of the service are the same person with the performance of the service. 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 between A and B, against Provision 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 ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id that only the India branch (Appellant) has benefited from the Service provided by the CRS Companies. Besides this, from the agreements also it is 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 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 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 can not 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 perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all over the world. There is neither allegation nor evidence that Thai Airways, Bangkok have charged any amount from the Appellant either directly or indirectly by the way of debit/credit notes, account adjustment or by other indirect mean, for the services provided by the CRS Companies. 40.3 In view of the above discussion, the Appellant, the branch office in India of Thai Airways, Bangkok, can not be treated as recipient of the service provided by the CRS Companies, in pursuance of their agreements with the Appellant's 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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