2015 (7) TMI 1079 - AT - Service Tax

Tribunal rules in favor of appellant on service tax liability, separates from parent company

M/s Continental Airlines Inc. Versus Commissioner of Service Tax, New Delhi

The Tribunal allowed the appellant's appeal on service tax liability under reverse charge mechanism, holding the appellant separate from its parent ... Demand of Service tax along with interest and penalties - Online information and database access or retrieval service under reverse charge mechanism on the service provided by CRS/GDS - Assessee contended that amount was paid by its parent company in the USA to CRS/GDS service providers and not by it, so not liable to pay service tax - Held that:- by applying the decision of CESTAT in the case of British Airways [2014 (6) TMI 626 - CESTAT NEW DELHI (LB)], assessee has to be treated as a separate person vis-a-vis its parent company based abroad. Therefore, assessee cannot be held to be recipient of the service so as to make it liable to pay service tax on reverse charge basis in terms of the provisions of Section 66 A of Finance Act 1994. Demand of Service tax - Airport taxes collected - Includibility in assessable value - Held that:- CESTAT in many cases has clearly held that airport taxes were collected by the airlines on behalf of the airports and were paid to them and therefore are not includible in the assessable value for the purpose of levy of service tax. Therefore, demand unsustainable. Preponement and postponement charges - collected in connection of rendering the service in relation to providing transport of passengers by air service inasmuch as these charges are recovered for changing the dates of travel - Held that:- it is well-settled that it is the nature of charge and not its nomenclature which has to be considered. Merely, because an airline calls such charges penalties does not alter the nature of such charges which are clearly in relation to providing transport of passengers by air service because of service of change of journey dates is clearly in relation to transport of passengers by air service. Clearly, it is an interpretational issue and therefore the extended period in these circumstances is not invokable particularly when nothing concrete has been brought out in the show cause notice to show that there was any positive act of wilful misstatement/ suppression on the part of the appellant-assessee. That the extended period as well as the mandatory penalty under Section 78 ibid are not invokable in such circumstances is in conformity with the Supreme Court's observations in the case of Gopal Zarda Udyog [2005 (9) TMI 83 - SUPREME COURT OF INDIA] and Chemphar Drugs Liniments [1989 (2) TMI 116 - SUPREME COURT OF INDIA]. Thus, the demand only for the normal period (of one year) is sustainable and penalty under Section 78 ibid, is not imposable. However, penalty under section 76 ibid, is clearly attracted as that is not necessarily dependent upon the existence of wilful misstatement/suppression of facts as is evident from the wording of the said section. - Appeal disposed of Issues:- Service tax liability under reverse charge mechanism for online information and database access service provided by CRS/GDS.- Inclusion of airport taxes and pre-ponement/postponement charges in assessable value for service tax.- Applicability of judgments in similar cases to the present appeal.- Interpretation of charges for pre-ponement and postponement of journey dates in relation to service tax liability.Analysis:1. Service Tax Liability under Reverse Charge Mechanism: The appellant-assessee contested the service tax liability under reverse charge mechanism for payments made to CRS/GDS service providers, arguing that the payments were made by its parent company in the USA, not by the appellant directly. The Revenue contended that the service was received by the appellant, and the payment by the parent company was on its behalf. The Tribunal referred to a previous judgment involving British Airways, where it was held that the appellant must be treated as a separate entity from its parent company, and since the contracts were not with the appellant but with the parent company, the appellant cannot be held liable for service tax under reverse charge mechanism.2. Inclusion of Airport Taxes and Pre-Ponement/Postponement Charges: The Revenue argued that airport taxes and charges for pre-ponement/postponement of journey dates should be included in the assessable value for service tax. However, the Tribunal cited previous cases involving airlines collecting airport taxes on behalf of airports and clarified that such taxes are not includible in the assessable value. Regarding pre-ponement and postponement charges, the Tribunal noted that these charges are related to providing transport of passengers by air service and are therefore leviable for service tax.3. Applicability of Judgments in Similar Cases: The Tribunal emphasized the relevance of a previous judgment involving British Airways in determining the liability for service tax in the present case. It concluded that the judgment in the British Airways case applied to the present appeal, as there were no distinguishing facts or circumstances to render the previous ruling inapplicable.4. Interpretation of Pre-Ponement/Postponement Charges: The Tribunal analyzed the nature of pre-ponement and postponement charges, stating that they are collected in connection with providing transport of passengers by air service. It rejected the appellant's argument that these charges were mere penalties, emphasizing that the nature of the charge, not its name, determines its taxability. The Tribunal found that the demand for service tax on pre-ponement and postponement charges was sustainable for the normal period of one year, along with applicable interest and penalties.In conclusion, the Tribunal allowed the appellant's appeal regarding service tax liability under reverse charge mechanism and partially allowed the Revenue's appeal by confirming the demand for service tax on pre-ponement and postponement charges for the normal period, along with interest and penalties as per the relevant provisions of the Finance Act 1994.