TMI Blog2013 (8) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... 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/207/2012 - - - Dated:- 27-6-2013 - D N Panda And Rakesh Kumar, JJ. For the Appellant : Shri R P Puri, CA For the Respondent : Shri Amresh Jain, DR PER : D N Panda This appeal arose out of order of adjudication dated 15.11.2011 giving rise to the question as to whether "Online Database Access or retrieval Service" was received by the appellant from CRS service provider abroad 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. The said adjudication order relating to the period form 18 April 2006 to April 2008 gave rise to following consequence: (i) levy of service tax of Rs.1,68,33,425/- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to meet the needs of each other. 3.4 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 inter connectivity subject to certain conditions. 3.5 Data received from the Airlines were processed in master computer maintained by CRS/GDS companies and data structure formed for access 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. 3.6 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 parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough 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. 3.9 Revenue ascertained that CRS companies were getting their consideration by way of commissions from appellant and value of ticket sold/service provided was basis of such consideration. Entire service provided was commercial and under contractual obligations of the parties resulting in carrying out of economic activity. Appellant's reliance on the clarification of Board circular F. No 137/57/2006-CX.4 dated 18.05.2007 was not acceptable to Revenue. 3.10 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 (Provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 not time barred and penal consequence of law followed. ARGUMENTS ON BEHALF OF APPELLANT 4. It was argued on behalf of the appellant as under: (A). That the CRS companies abroad provided service to head Office of the Appellant abroad and the CRS Company's 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how Cause Notice. (G). There was no suppression of fact nor there do any deliberate intention to evade tax. ARGUMENTS ON BEHLAF OF REVENUE 5. Per Contra submissions of Revenue were as under: 5.1 The Appellant created confusion while the matter in controversy is plain and simple. The head office of the appellant opening an office in India took permission of Reserve Bank of India vide letter No. CO.FID(I)/2348/10-I-06-06(2455)ACT/97/98 dated 9/5/1977 under FEMA to carry out existing Airline activities, viz., operation of air services in or through India subject to various conditions. It operated in India to achieve the object of Airline business getting service from CRS companies abroad. 5.2 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 when appellant has caused prejudice to the interest of Revenue. 5.10 When remittances made by the appellant came to record, there cannot be any plea that such remittances were for no cause while remittances made by appellant was to make its revenue contribution 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 taxation of service received or provided by travel agents does not exonerate appellant from its liability when its event of levy of the appellant arose under law. 5.11 Para 3.1, 3.2, 3.3, 3.4 and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvations 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 relating to passenger service, schedules, space availability, fares and fare information in the CRS system of the CRS companies so that its objects of promotion of air transport business was not defeated by Air Travel Agents in India. 10. In the course of hearing attention was invited to the terms of the agreement entered into by the head office of the appellant with AMADEUS MARKETING S.A.R.L in France. Similar such agreements were also entered into with different CRS service providers. According to that agreement, Amadeus group, as defined under Article 1 thereof had developed a fully automated reservations and distribution system for and on behalf of its founding Airlines and partners known as Global Travel Distribution System (GDS) to perform comprehensive information search, communication, reservations, ticketing, distribution and related functions on worldwide. Meaning of the participating carrier was defined by the agreement to mean "any carrier th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 routes as it may designate, it will provide such assistance to all AMADEUS Subscribers, ATOs, and CTOs, on the same terms. If the Participant elects to provide such assistance, the Participant will install AMADEUS System terminals in one or more of its offices. Such installations of AMADEUS System equipment will be subject to a separate agreement that will cover the equipment lease or purchase, the connection and communication costs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputer to serve the appellant for booking its tickets by Indian Air Travel Agents. 15. Agreement between the parties did not prohibit the appellant to have access to the data base maintained by the CRS companies in 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. 16. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a non-discriminatory manner on the same level as the direct non-stop, other direct and connecting flights or other transportation services, respectively, of any 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 for 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 to 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 programme and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 establishment both in that country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided. (2) Where a person is carrying on a business through a permanent establishment in India and through another permanent establishment in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration 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. 25. 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 taxation of the aforesaid service on reverse charge mechanism provided u/s 66A of the Act incidence to tax arise 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 Tribunal in respect of service provided by CRS companies to Travel Agents or taxation of passenger service provided by the appellant does not alter the taxability of service received by the appellant under reverse charge mechanism u/s 66A of the Act. 26. Appellant's plea that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 for which that is dismissed. (Pronounced in the open court on......................................) Contra Per: Rakesh Kumar, Member (T) 30. I have gone through the order prepared by my Learned Brother which was received on 09.05.2013. 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. 31. The appellant M/s. Austrian Airline, E-11-12, Mariane Arcade, Outer Circle, Connaught Place, New Delhi, are a branch office in India of Austrian Airlines, Office Park 2- Post Box -100 A-1300, Viena Airport Austria (hereinafter referred to as 'Austrian Airlines'). They are engaged in providing the services of air transportation of passengers and cargo. Austrian Airlines have obtained the permission of the Reserve Bank of India for setting up branch off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India and entire payment for the services being provided by them has been made outside India by Austrian Airlines, Viena 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 Austrian Airlines in India. The department was of the view that the service being provided by the CRS Companies "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 Austrian Airlines, the remuneration received by the CRS Companies abroad from the Airlines, Viena, 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, Show Cause Notices dtd. 24.10.08 was issued to the appellant for demand of service tax including education cess amounting to Rs.2,70,29,310/-, in respect of period from 01.04.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 105)(zh) read with Section 65 (75) and Section 65(36) of the Finance Act, 1994 and hence the same is not taxable. 33.1 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 Viena, Austria and the CRS Companies; and (c) the payments for the services rendered by the CRS Companies have been received by them directly from Austrian Airlines, Viena and as such the entire payments for the services, in question, have been made outside India [Para 21of the impugned order]. The dispute is only on the point as to whether the Appellant- the branch office of Austrian Airlines, Viena in India, can be treated as the recipient of the service provided by the CRS Companies and on this basis subject to service tax under reverse charge mechanism of Section 66A. 34. Coming first to the question of classification of the service, the activity of the CRS Companies is maintaining online information on real time basis about the flight schedule, fare, seat availability etc. of the flights being operated by Austrian Airlines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ash, 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 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 or other than cash, direct or indirect from B to A and the provision of Services must satisfy some need of B, which may be his personal need, the need of his business or need to discharge some legal obligation regarding provision of some services to another person C. Thus When a manufacturer A, who has sold some goods manufactured by him to B and is under obligation to provide free repair services to B during warranty period and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 his business establishment in more than one country, say A and B, the service recipient located in country C will be treated as having received the service from that establishment of the service provider which is directly concerned with the Provision of service [2nd Proviso to Section 66 A(1)]. In my view, the underlying principle behind this Proviso will also be applicable for determining as to who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction, 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 recipient, divide the service into three categories and prescribe different criteria in this regard for each category. In respect of services in relation to an immovable property, as enumerated in these rules, the same are treated as having been received at the location where the immovable property is located. In respect of performance based services, as enumerated in these rules, the same are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Austrian Airlines in India is the recipient, as contended by the Department, or as pleaded by the Appellant, their head office at Viena, which 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 question, in view of the Provisions of Section 66A(2), the branch office and the head office are to be treated as two separate persons. The Revenue's plea is that as the service provided by the CRS Companies has been used by the IATA agents in India appointed by the Appellant for sale of the Airline's Tickets, it is the Appellant who have to be treated as the service recipient, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 behalf of C and indirect flow of consideration from C to B can be presumed and C will have to be treated as the service recipient. Applying the above criteria, in respect of the service provided by CRS Companies, the Appellant can be treated as the recipient only if the service provided by the CRS Companies is meant for the Appellant and their Head Office had acted only as f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 person, in addition to being user of the service to satisfy his need, must also be the person legally entitled 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 made payment to them directly or indirectly. (5) When the service has been received by the Head Office of the Appellant at Viena against its agreements with CRS Companies and as accepted in the impugned order, entire payment has been made abroad by the Head Office directly to CRS Companies and when in view of the provisions of Section 66A(2), the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee's manufactured goods [para 13(b) of the judgment], longer limitation period under Proviso to section 11A (1) of Central Excise Act, 1994 would not be applicable. The ratio of this judgment is squarely applicable to the facts of this case, as the Provisions of Section 11A (1) of Central Excise Act, 1944 are in pari-materia with the Provisions of section 73 (1) of the Finance Act, 1994. Since in this case, intenti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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