9911796707
TMI Blog2024 (9) TMI 1689X X X X Extracts X X X X X X X X Extracts X X X X ..... n bench, while hearing this appeal, noticed that conflicting views had been expressed by two Division Benches of the Tribunal in British Airways vs. Commissioner of Central Excise (Adjn), Delhi [2014 (36) S.T.R. 598 (Tri. - Del.)] and M/s. Cathay Pacific Airways Ltd. vs. Commissioner of Service Tax Mumbai-I [2019 (31) G.S.T.L. J33 (Tri.-Mumbai)] and, therefore, referred the following three issues to be decided by a larger bench of the Tribunal: "(a) What is true scope and interpretation of Section 66A of the Finance Act, 1994 (b) Whether the tribunal has rightly decided 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." 3. According to Cathay Pacific Airways Ltd [the appellant], which is the appellant; (i) An International Airline engaged in the business of transportation of passengers and goods by air usually has various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... latform. Such commission is paid by the head office directly to CRS/GDS companies; (viii) The Airlines generally store all the data related to flight schedules and bookings on a server located at the head office of the Airlines outside India. Generally, the head office of the Airline alone has the authority to access and alter the data maintained on these servers. The master server of CRS/GDS companies located outside India is linked to the servers of the head office of Airlines; and (ix) Generally, the branch office of an Airline is not authorized to alter or host the data maintained by the servers of the head office. The branch office systems are also not linked to the servers of CRS/GDS companies and, therefore, do not use the CRS/GDS platforms for booking flight tickets. The branch office books flight tickets through the internal Airline systems. 4. The department contends that the India branch office of the International Airline is the recipient of OIDAR services from CRS/GDS companies, irrespective of the fact that contract and payment is directly undertaken by the head office of the International Airline with the CRS/GDS companies. According to the department, the India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement for all their offices all over the world. However, the bills raised by CRS companies clearly shows the transactions relating to booking made by Indian travel agents which are control of Indian Office of Cathay Pacific, India. ***** 4.3.5 It is argued that CRS companies are having offices in India, hence service tax should have been demanded from them. On this point, I find that enquiries caused revealed that Indian companies having deceptively similar names viz. M/s Galileo (India) P. Ltd, M/s Abacus Distribution Systems (India) P Ltd and M/s Amadeus (India) P Ltd, incorporated under the Companies Act, 1956 were found to be functioning in India. M/s Abacus Distribution Systems (I) P Ltd and M/s Galileo India P Ltd are functioning as National Marketing Companies entrusted with the work of marketing the Abacus and Galileo CRS to travel agents in India. The said Indian companies cannot be treated as a branch of the foreign CRS companies as both are separate legal entities. The foreign entity is not registered in India but the Indian entities are registered under the Indian Companies Act. Hence both are separate legal entity and cannot be treated as branch or the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in UK and the consideration for the same has also been paid by the head office in UK. The contract for provision of CRS services is also between the CRS companies and the head office in UK; (d) The department has not contended that the India branch office has made any payments to the head office towards services received from CRS companies. It is an admitted fact that the entire consideration for the CRS services is paid by British Airways to the CRS companies; and (e) Thus, the India branch office of the International Airline cannot be held to be the recipient of services provided by CRS companies and liable to pay service tax on reverse charge basis under section 66A of the Finance Act. 9. However, in Cathay Pacific Airways, the division bench held that independent identity of branch office or head office is not the criteria for determination of liability to service tax in terms of section 66A of the Finance Act. The relevant criteria for determination of liability to pay service tax would be the place of business of recipient of service in cases where the provider of service is located outside India. Reliance was placed upon the decision of the Supreme Court in Formula O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 currying 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." 12. The aforesaid conditions basically stipulate that: (i) Service must be provided by a person from outside India; (ii) Service must be received in India; (iii) Service provider must not have a business establishment, fixed establishment, permanent address or usual place of residence in India; and (iv) Service recipient must have a business establishment, fixed establishment, permanent address or usual place of residence in India. 13. In order to determine when a service shall be deemed to have been received in India, section 66A of the Finance Act should be read with Taxation of Services (Provided from Outside India and Received in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CRS/GDS companies; (iii) The CRS/GDS services are provided at the request of the head office; (iv) The head office is contractually entitled to receive the services rendered by the CRS/GDS companies; (v) The head office is contractually obligated to make payment of consideration for the services rendered by the CRS/GDS companies; (vi) Any benefits, monetary or otherwise, on account of receipt of services rendered by the CRS/GDS companies shall accrue to the head office; and (vii) The India branch office has not made any payment directly or indirectly to CRS/GDS companies. 18. Thus, the India branch office of the International Airline cannot be considered as a service recipient under section 66A of the Finance Act. It is the head office that would be the recipient of services provided by the CRS/GDS companies located outside India. 19. It also needs to be noted that section 66A(2) of the Finance Act read with Explanation 1, stipulates that a head office and its branch shall be treated as separate persons for the purpose of payment of service tax under the reverse charge. Thus, the India branch office of the International Airline shall be construed as a separate person, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciding factor." 22. Paragraph 26.5 of the Circular dated 27.07.2005 explicitly clarifies that in cases where service provider or service recipient have multiple establishments, then the establishment which is most directly concerned with the service would be the deciding factor. 23. What needs to be noticed is that the Circular states that the establishment most directly concerned with receipt or provision of service has to be considered. The Circular requires determination of the establishment most directly concerned with the provision of service, not only for a service provider but also for the service recipient. The Circular would be applicable for service recipient location as well. 24. The second proviso to section 66A(1) of the Finance Act states that location of establishment of service provider most directly concerned with provision of service has to be seen. It is silent about relevant establishment of the service recipient. It needs to be noted that paragraph 26.5 of CBEC Circular dated 27.07.2005 provides that the establishment most directly concerned with receipt of service has to be seen, even when Explanation to section 65(105) of the Finance Act is silent about it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; * where there are no written contracts, any written account (documents, correspondence/e-mail etc) between parties which sets out in detail their understanding of the oral contract; * in particular, for suppliers, from which establishment the services are actually provided; * in particular, for receivers, at which establishment the services are actually consumed, effectively used or enjoyed; * details of how the business fits into any larger corporate structure; * the establishment whose staff is actually involved in the execution of the job; * performance agreements (which may be indicative both of the substance and actual nature of work performed at a particular establishment); Thus, normally in the case of multiple establishments of a person, it will be the establishment that actually provides, or receives (i.e. uses or consumes), a service that would be treated as 'directly concerned' with the provision of service, notwithstanding the contractual position, or invoicing or payment. For further guidance in this regard, please see section 5.3.4." (emphasis supplied) 28. As seen above, the CRS/GDS companies enter into an agreement with the head office of the Airli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From the facts on record, it is clear that the appellant in India has not utilized any service of the CRS companies, for it is the head office that avails the services of CRS companies and makes payment to them. 32. The entire basis for reference to the larger bench by the division bench is the judgment of the Supreme Court in Formula One in reference to the provisions of the Income Tax Act, 1961. The division bench of the Tribunal, basis the decision of the Supreme Court Formula One, concluded that the branch office of Cathay Pacific located in India is the place of business of Cathay Pacific Airlines in India and so the services received by the branch office in India from the CRS companies for facilitating the booking of tickets through travel agents in India are services received in India. The reference order, therefore, proceeds to hold that the branch office of the International Airline in India would be liable to pay service tax in terms of section 66A of the Finance Act under reverse charge as the criteria for determining applicability of service tax under section 66A of the Finance Act is the place of business in India. 33. The issue that arose for consideration in Formu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Act read with the 2006 Rules. The concept of "permanent establishment" under article 5(1) of DTTA, as interpreted by the Supreme Court, should not have been relied upon by the division bench in the reference order. This would not be relevant to the present case, as the issue involved in Formula One was in the context of interpretation of article 5(1) of DTAA. The relevant portions of the judgment of the Supreme Court in Formula One are reproduced below: "66) As per Article 5 of the DTAA, the PE has to be a fixed place of business 'through' which business of an enterprise is wholly or partly carried on. Some examples of fixed place are given in Article 5(2), by way of an inclusion. Article 5(3), on the other hand, excludes certain places which would not be treated as PE, i.e. what is mentioned in clauses (a) to (f) as the 'negative list'. A combined reading of sub-articles (1), (2) and (3) of Article 5 would clearly show that only certain forms of establishment are excluded as mentioned in Article 5(3), which would not be PEs. Otherwise, sub-article (2) uses the word 'include' which means that not only the places specified therein are to be treated as PEs, the list of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 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." (emphasis supplied) 38. The appellant does not dispute that it has a place of business in India. What the appellant disputes is that the place of business in India is not the recipient of service. 39. The aforesaid discussion would lead to the inevitable conclusion that the branch office in India is not the recipient of OIDAR services provided by CRS companies. It is the head office which is contractually entitled to receive the services rendered by the CRS/GDS companies and it is the head office which is contractually obligated to make payment for the services rendered by the CRS/GDS companies. 40. The reference would, accordingly, have to be answered in the following manner: "(A) For the purpose of levy of service tax under reverse charge under section 66A of the Finance Act, the services should have been rec ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
