TMI Blog2019 (10) TMI 890X X X X Extracts X X X X X X X X Extracts X X X X ..... d in case of British Airways that branch office for the purpose of section 66A was distinct entity from the head office. (c) Whether the tribunal has rightly in case of British Airways held that the payments made by the Head Office against the service received by the branch office located in India, will make the Head Office the recipient of service, for the purpose of Section 66A of the Finance Act, 1994. - Service Tax Appeal No. 88653 of 2013 - Interim Order No. 55/2019 - Dated:- 29-8-2019 - Hon ble Mr. S.K. Mohanty, Member (Judicial) And Hon ble Mr. Sanjiv Srivastava, Member (Technical) Shri Sanjeev Jain, C.A. and Shri Anil K. Makhija, Advocate, for the Appellant Shri M.K. Sarangi, Authorised Representative for the Respondent ORDER PER: SANJIV SRIVASTAVA This appeal is directed against order in original No 17-21/STC-I/SKS/13-14 dated 05.06.2013 read with corrigendum dated 13.06.2013, of Commissioner of Service Tax I Mumbai. By the impugned order as amended by the corrigendum Commissioner has held as follows:- 5.1 I order the classification of services availed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 5.4 I order M/s Cathay Pacific Airways Ltd to pay interest at the appropriate rate against the confirmed demand under Section 75 of the Finance Act, 1994. 5.5 I impose a penalty of ₹ 3,58,43,332/- (Rupees Three Crore Fifty Eight Lakhs Forty Three Thousand Three Hundred and Thirty Two only) on M/s Cathay Pacific Airways Ltd under Section 78 of the Finance Act, 1994 in respect of SCNs mentioned at Sr 1. However I do not impose any penalty under Section 76 ibid for the reasons as discussed in the findings part at para no 4.5. 5.6 In respect of show cause notice at Sr 2 to 5 above I impose a penalty of Two Hundred Rupees for every day or @ two percent of such tax per month whichever is higher starting with the first day after the due date of payment of service tax on M/s Cathay Pacific Airways Ltd under Section 76 of the Finance Act, 1994 as amended for the period upto 07.04.2011 provided that the total amount of penalty in terms of this section shall not exceed the service tax payable and @ One Hundred Rupees for every day (in view of the amendment made under Section 74 of the Finance Act, 2011 (8 of 2011)) or @ one percen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CRS located outside India are received by the appellants, they are responsible for payment of service tax on reverse charge basis. 2.2 Since appellants were not paying the service tax on the services received from CRS, after completion of investigations a show cause notice dated 24.10.2008 was issued to the appellants asking them to show cause as to why- (i) Service Tax amounting to ₹ 4,07,65,204/- (Rupees Four Crores Seven Lakhs Sixty Five Thousand Two Hundred and Four Only), Education Cess amounting to ₹ 7,00,455/- (Rupees Seven Lakhs Four Hundred and Fifty Five only) and Higher Education Cess amounting to ₹ 1,20,147/- (Rupees One Lakh Twenty Thousand One Hundred and Forty Seven Only), totally amounting to ₹ 4,15,85,806/- (Rupees Four Crores Fifteen Lakhs Eighty Five Thousand Eight Hundred and Six Only)comprising of service tax liability under the category of Online data bases access or retrieval service as detailed in para 9.4 of this notice should not be demanded from them under proviso to sub section (1) of the section 73 of the Act, read with Section 66 and 68 ibid and Rule of the Rules. Service Tax 5 Appeal No.88 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies to hold that the services rendered are of Online Database Access or Retrieval Services Extended period of limitation as per proviso to Section 73(10 is not invokable in the present case. Interest could not have been demanded under Section 75 of the Finance Act, 1994. Penalty under Section 76, 77 and 78 could not have been imposed on them Commissioner ahs erred in holding that Head Office of the appellant and they are the same person notwithstanding the provisions of Section 66A(2) of the Finance Act, 1994. 4.1 We have heard Shri Sanjeev Jain, Chartered Accountant with Shri Anil K Makhija, Advocate for the Appellants and Shri M K Sarangi, Additional Commissioner, Authorized Representative for the revenue. 4.2 Arguing for the appellants learned Chartered Accountant submitted- They are not the recipients of the service in terms of contract, functional compulsion or as payer of consideration. Also, they are not the beneficiary of service and the beneficiary are travel agents. Hence the conclusions arrived by the adjudicating authority to effect that CRS/GDS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epared by the appellant for India operations under the Companies Act, 1956. After introduction of Companies Act, 2013, the appellant has been preparing an income and expenditure a/c for local operation. On perusal of same, it will be seen that even after 2013, there is no debit in the local books of account for the payments made to CRS companies by the head office. 4.3 Arguing for the revenue learned Authorized Representative submitted that- Section 66A(1) of Finance Act, 1994 deals with receipt of service by a person who has his place of business, fixed establishment, permanent address or usual place of residence in India. The scheme of the statutory provision shows that if any of the condition is satisfied, it shall be liable to service tax in as much as if any person has a place of business only (as per RBI approval). This issue was not considered by the bench in case of British Airways. Section 66A(2) deals with situation wherein service is provided b a one person abroad to its associated enterprises in other country so that the activity does not accept the taxation. This situation is not applicable to the present case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ider who is not having any permanent establishment in India. In the present case they are not the recipient of the service and their head office located in Hong Kong is the recipient of the service, Since no service has been received by them they are not liable to pay any service tax in respect of the services rendered by the foreign service provider to their head office located in Hong Kong. They heavily rely on the decision of the tribunal in case of British Airways [2014 (36) STR 598 (T-Del)] in their support. The issue of classification has been decided by the Tribunal in the said case as follow: 29. Coming first to the question of classification of the service, the activity of the CRS/GDS Companies is maintaining online information on real time basis about the flight schedules, fare, seat availability etc. of the flights being operated by BA, U.K. all over the world, for which CRS/GDS Companies have linkage with the computer system of BA, U.K. and provider access in respect of this information to the IATA agents appointed by British Airways which is used by them for selling of air tickets of British Airways. I agree with the findings of my learned b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harges payable to the respective CRS companies, notice per se has entered into agreements with the CRS companies with a view first to ensure display of its own data base through the data base of Master Computer System maintained by the CRS companies, comprising of the flight schedule, the fares, and the availability of seats on a particular flight for use by the air travel agents on behalf of the customers of airlines and thus, to market their product/services in a comprehensive manner. The database of the airlines is provided to the air travel agents by making it available on the CRS computer system on a real time basis for access and use by the agents. The access to data/information relating to the flight schedules, the number and class of the seats available on the said flight, and the fare structure of an airline is required to be made available to the Air Travel Agents, wherever they may be, based in the world, particularly where the airline concerned has world wide operations, so as to ensure that the air tickets are not only issued correctly, but subsequently, the data base of CRS system about such issuance of tickets is updated again on a real time basis. The updated data b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pter 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 country other than India, such permanent establishments shall be treated as separate 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 incorporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services of CRS Companies for which contractual agreement was made between the Headquarters of Cathay Pacific Airlines be said to be provided to services received by the Cathay Pacific, Branch Office located in India, for the purpose of levy of service tax. 5.6 In our view the independent identity of branch office or head office of the Appellant is not the criteria for determination of liability to service tax in terms of Section 66A. The issue to be determined is the location of provider and recipient of service as per the provisions of that section. In the instant case the place of business, fixed establishment, permanent address or usual place of residence of recipient of service are the relevant criteria for determination of the liability to payment of service tax, in case were the provider of service is located outside India. All these terms have been considered by the Hon ble Apex Court in the decision as discussed below: 5.7 In case of Indian Performing Arts Society vs Sanjay Dalia [Order dated in Civil Appeals No 10643-10644 OF 2010], Hon ble Supreme Court has held as follows: 14. Corporation in the Explanation would me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tence of a fixed place of business; and (b) through that place business of an enterprise is wholly or partly carried out. We are of the firm opinion, and it cannot be denied, that Buddh International Circuit is a fixed place. From this circuit different races, including the Grand Prix is conducted, which is undoubtedly an economic/business activity. The core question is as to whether this was put at the disposal of FOWC? Whether this was a fixed place of business of FOWC is the next question. We would like to start our discussion on a crucial parameter viz. the manner in which commercial rights, which are held by FOWC and its affiliates, have been exploited in the instant case. For this purpose entire arrangement between FOWC and its associates on the one hand and Jaypee on the other hand, is to be kept in mind. Various agreements cannot be looked into by isolating them from each other. Their wholesome reading would bring out the real transaction between the parties. Such an approach is essentially required to find out as to who is having real and dominant control over the Event, thereby providing an answer to the question as to whether Buddh International Circuit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like licensing and supervision of other parties at the event, travel and transport and data support services. The aforesaid arrangement clearly demonstrates that the entire event is taken over and controlled by FOWC and its affiliates. There cannot be any race without participating/ competing teams, a circuit and a paddock. All these are controlled by FOWC and its affiliates. Event has taken place by conduct of race physically in India. Entire income is generated from the conduct of this event in India. Thus, commercial rights are with FOWC which are exploited with actual conduct of race in India. Even the physical control of the circuit was with FOWC and its affiliates from the inception, i.e. inclusion of event in a circuit till the conclusion of the event. Omnipresence of FOWC and its stamp over the event is loud, clear and firm. Mr. Rohatgi is right in his submission that the undisputed facts were that race was physically conducted in India and from this race income was generated in India. Therefore, a commonsense and plain thinking of the entire situation would lead to the conclusion that FOWC had made their earning in India through the said track over which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial transactions it chose is such that its exclusive circuit access - to the team and its personnel or those contracted by it, was for up-to six weeks at a time during the F1 Championship season. This nature of activity, i.e racing and exploitation of all the bundle of rights the FOWC had as CRH, meant that it was a shifting or moving presence: the teams competed in the race in a given place and after its conclusion, moved on to another locale where a similar race is conducted. Now with this kind of activity, although there may not be substantiality in an absolute sense with regard to the time period, both the exclusive nature of the access and the period for which it is accessed, in the opinion of the Court, makes the presence of a kind contemplated under Article 5(1), i.e. it is fixed. In other words, the presence is neither ephemeral or fleeting, or sporadic. The fact that RPC- 2011's tenure is of five years, meant that there was a repetition; furthermore, FOWC was entitled even in the event of a termination, to two years' payment of the assured consideration of US$ 40 million (Clause 24 of the RPC). Having regard to the OECD commentary and Klaus Vogel's commentary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether FOWC carried on any business and commercial activity in India or not, substantial part of this aspect has already been discussed and taken care of above. Without being repetitive and pleonastic or tautologous, we may only add that FOWC is the Commercial Right Holder (CRH). These rights can be exploited with the conduct of F-1 Championship, which is organised in various countries. It was decided to have this championship in India as well. In order to undertake conducting of such races, the first requirement is to have a track for this purpose. Then, teams are needed who would participate in the competition. Another requirement is to have the public/viewers who would be interested in witnessing such races from the places built around the track. Again, for augmenting the earnings in these events, there would be advertisements, media rights, etc. as well. It is FOWC and its affiliates which have been responsible for all the aforesaid activities. The Concorde Agreement is signed between FIA, FOA and FOWC whereby not only FOWC became Commercial Rights Holder for 100 years, this agreement further enabled participation of the teams who agreed for such participation in the FIA Champio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teworthy that by virtue of the Concorde Agreement, the teams have undertaken to engage in every race - with the added condition that each team would involve two cars for every race in any circuit chosen by FOWC. RPC-2011 also assured that the FOWC would ensure that such team did in fact participate in the event in the Budh Circuit. This is an important fact- which shows that the entire event, i.e. F1 FIA Championship in the circuit was organized and controlled in every sense of the term by FOWC. The peculiarity of this activity is such that FOWC's dominant role is evident; it is the moving spirit with all pervasive presence and control through the teams, which are contracted to participate in the event. In fact, it creates the event, i.e. the race. Each actor, such the promoter/Jaypee, the racing teams, the constructing teams and the other affiliates, plays a part in the event. FOWC's participation and the undertakings given to it by each of these actors, who are responsible for the event as a whole, brings out its central and dominant role. If Jaypee is the event promoter, which owns the title to the circuit in the sense that it owns the land, FOWC is the commercial rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tant case, only with the actual conduct of these races and active participation of FOWC in the said races, with access and control over the circuit. We are of the opinion that the test laid down by the Andhra Pradesh High Court in Visakhapatnam Port Trust case fully stands satisfied. Not only the Buddh International Circuit is a fixed place where the commercial/economic activity of conducting F-1 Championship was carried out, one could clearly discern that it was a virtual projection of the foreign enterprise, namely, Formula-1 (i.e. FOWC) on the soil of this country. It is already noted above that as per Philip Baker[27], a PE must have three characteristics: stability, productivity and dependence. All characteristics are present in this case. Fixed place of business in the form of physical location, i.e. Buddh International Circuit, was at the disposal of FOWC through which it conducted business. Aesthetics of law and taxation jurisprudence leave no doubt in our mind that taxable event has taken place in India and non-resident FOWC is liable to pay tax in India on the income it has earned on this soil. We are now left with two other incidental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of Section 66A of Finance Act, 1994. 5.10 Appellants have given the schematic diagram showing the provision of service which is reproduced below: From the chart depicting the relationships as provided by the appellant, it is clear that the CRS Companies are provider of the service through their data processing centres located outside India and the services provided by the CRS Companies are used by the Cathay Pacific Airlines for booking the tickets for customers located in India through the travel agents located in India. In respect of the tickets booked for customers in India through the travel agents located in India, the place of business for the Cathay Pacific Airlines, is located in India as per the principles laid down by the Apex Court in cases referred above. For determination of the place of business, the issue such as whether the payments for the service provided are made by the Head Office located in Hong Kong or Branch Office located in India is irrelevant. Hon ble Supreme Court has in series of decisions starting from that in case of Toshoku Ltd., Guntur Ors [(1980) Supp SCC 614] GE India Technology Centre Private Limited v. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heavily on where a corporation s actual business activities are located, adopting divergent and increasingly complex tests to interpret the statute. Pp. 10 13. (c) In an effort to find a single, more uniform interpretation of the statutory phrase, this Court returns to the nerve center approach: [P]rincipal place of business is best read as referring to the place where a corporation s officers direct, control, and coordinate the corporation s activities. In practice it should normally be the place where the corporation maintains its headquarters-provided that the headquarters is the actual center of direction, control, and coordination, i.e., the nerve center, and not simply an office where the corporation holds its board meetings. Pp. 13 19. (i) Three sets of considerations, taken together, convince the Court that the nerve center approach, while imperfect, is superior to other possibilities. First, Service Tax 30 Appeal No.88653 of 2013 1332(c)(1) s language supports the approach. The statute s word place is singular, not plural. Its word principal requires that the main, prominent, or most important place be chosen. Cf., e.g., Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of an annual executive retreat- the courts should instead take as the nerve center the place of actual direction, control, and coordination, in the absence of such manipulation. Pp. 18 19. Thus in our view the Head office of Cathay Pacific Located at Hong Kong is the principal place of business for the said airlines, and the branch offices located elsewhere viz one located in India is place of business . Appellants also do not dispute that the said services have been provided by the CRS companies to the head office, and for the provision of said services the payment have also been made by the head office. However for purpose of the determination of liability under Section 66A what needs to be determined is the place of business which in terms of the decisions referred above is in India, and the branch office located in India permanent establishment for the business in India. 5.12 In view of our discussions as above we are not in agreement with the decisions rendered by the tribunal in case of British Airways and subsequently followed in cases referred below: i. British Airways dated 23/05/2014 reported as TIOL979- CESTA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount paid by the Head Office to the CRS Service Provider. On this ground, he submitted that the user of the service is the appellant in India and the consideration for such service has been paid by the Indian office and hence he justified the levy of Service Tax on the appellant. 7. Opposing the arguments of Ld. DR, Ld. Advocate submitted that the Service provider and Service receiver relationship exists only between the Head Office of the appellant and CRS Companies. For such an agreement between these two parties the consideration was paid by the Head Office to CRS Companies. Since the Head Office as well as the Indian office of the appellant are to be considered as two distinct legal persons, even if a debit has been raised against the Indian Office, the same cannot be considered as a consideration liable to payment of Service Tax. 10. The demand for Service Tax has been raised on Reverse Charge Basis under Section 66A of Finance Act, 1994 on the service received by the appellants under the category of Online Information and Data Base Access or Retrieval Service . Such service has been received by the appellant in India from foreign based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other cases. But the Ld. Advocate has asserted the Adjudicating Authority has recorded facts incorrectly. 14. In the facts and circumstances of the present case, we set aside the impugned order and remand the matter to the Adjudicating Authority for de novo decision of the matter in the light of the various decisions on the matter. But before deciding the issue he will extended an opportunity to the appellant to produce documents in support of his assertion that the observations in para 26 are erroneous. In case of Air Canada referred above tribunal has stated the decisions referred by counsel i.e. British airways etc. have decided the issue upto 30.06.2006, and have remanded the matter back to the adjudicating authority for determination of the facts with regards to manner of payment, made by the service recipient to the service provider. 5.14 Since we are not in agreement with decisions rendered by tribunal in case of British Airways and subsequently (refer para 5.12) we are left with no option to refer the matter to Hon ble President, for constituting a larger bench to decide the issue with reference to the scope of Section 66A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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