2014 (6) TMI 626 - AT - Service Tax

Indian entity not liable for service tax under reverse charge for foreign CRS services under Section 11A limitation rules

The CESTAT held that the Indian entity of the appellant is not liable to pay service tax under reverse charge for services received from a foreign CRS ... Demand of service tax - Computer Reservation System (CRS / GDS) - services relating to the reservation of ticket availability position through on line computer system - Whether 'Online Database Access or retrieval Service' was received by the appellant M/s British Airways during the period from 18/04/2006 to 31/05/2008 from foreign based CRS service provider and liable to service tax in terms of section 66A of the Finance Act, 1994 on reverse charge mechanism basis - Difference of opinion - Majority order - Held that:- M/s British Airways, India has to be treated as a separate person. If that be so, in view of the admitted position that the contract between CRS/GDS companies is not with M/s British Airways, India and is only that M/s British Airways, UK, the present appellant cannot be held to be recipient of the services so as to make him liable to pay service tax, on reverse charge basis, in terms of the provisions of Section 66A. British Airways, UK having received the services, which stands provided by CRS companies located outside India and the consideration for which stands provided by British Airways UK. The same stands consumed in UK only inasmuch as the Server provided by CRS/GDS companies to IATA agents are connected between the two of them and such services are being utilised by the travel agents. Service is consumed by the persons receiving the same. The service having been provided by a foreign based company to a foreign based head office there cannot be any liability of the present appellant to discharge its service tax, inasmuch as service tax being a destination and consumption based tax cannot be created against the non-consumer of the services. It is also not the Revenue's case that British Airways, India has made any payments for the services so procured by British Airways, U.K. In fact on the contrary, it is admitted position that the entire consideration for the services stand paid by British Airways to the CRS/GDS companies. The appellant in the present case is only appointing IATA agents, dealing with them, collecting sale proceeds of the tickets sold by them and remitting the same to the head office. They are not, in fact, even using the said service directly and as such can, by no stretch of imagination held to be service recipient in India so as to pay any service tax. Extended period of limitation - Revenue neutral exercise - Held that:- Admittedly British Airways India is discharging its service tax liability in respect of air transportation tickets sold by them. The present demand confirmed against them, was admissible to them as Cenvat credit, which could have been further utilised for discharge of their service tax liabilities - demand, having been raised by invoking the longer period of limitation is hit by the provisions of Section 11A of the Act. If non-registration and non-filing of returns is the criteria for rejecting the appellant's plea of bona fide belief and holding against them, the plea of limitation would not be available to any assessee, inasmuch as the service tax liabilities would arise only in those cases where the appellants are not registered and are not filing the returns. If an assessee entertained a bona fide belief that inasmuch as the service is not being received by him, and he is not required to pay any tax, he cannot be blamed for the same. Further the fact that the entire exercise was Revenue neutral is also one of the factors to be considered in support of the appellant's plea of bona fide belief. If the appellant would have paid the said tax, they would have been entitled to the credit of the same and would have been in a position to use the same in discharge of their admitted service tax liabilities - demand is barred by limitation and is required to be set aside along with setting aside of penalty - decided in favour of assessee. Issues Involved:1. Whether the appellant, British Airways India, received 'Online Database Access or Retrieval Service' from foreign-based CRS service providers and is liable to service tax under Section 66A of the Finance Act, 1994.2. Whether the extended period of limitation under proviso to Section 73(1) of the Finance Act, 1994, is invokable.3. Whether penalties under Sections 77 and 78 of the Finance Act, 1994, are applicable.Detailed Analysis:1. Liability to Service Tax:The primary issue was whether British Airways India received 'Online Database Access or Retrieval Service' from foreign-based CRS service providers and is liable to service tax under Section 66A of the Finance Act, 1994.- Background and Investigation Findings:- Revenue discovered that airlines, including the appellant, were availing services from foreign CRS companies without paying service tax.- These services included maintaining databases for ticket reservations, seat availability, and fare structures accessible to travel agents in India.- The agreements between airlines and CRS companies facilitated the provision of these services.- Appellant's Arguments:- The appellant in India is distinct from its head office in London, which consumed the CRS services.- The appellant did not enter into contracts with CRS companies nor made payments for these services.- The services did not constitute 'online information and database access or retrieval service' as per the Finance Act, 1994.- Revenue's Arguments:- British Airways UK and British Airways India are not distinct entities; the appellant received the services in India.- The services provided by CRS companies were taxable under Section 65(105)(zh) read with Section 65(75) of the Finance Act, 1994.- The appellant was liable to pay service tax under Section 66A of the Act.- Tribunal's Findings:- The Tribunal held that British Airways India was a recipient of the 'Online Database Access or Retrieval Service' from CRS companies abroad.- The services were consumed in India, making the appellant liable to pay service tax under Section 66A.- The Tribunal noted that the appellant's head office in the UK entered into contracts with CRS companies, but the services benefited the appellant in India.2. Extended Period of Limitation:The appellant challenged the invocation of the extended period of limitation under proviso to Section 73(1) of the Finance Act, 1994.- Appellant's Arguments:- The demand was time-barred, and the extended period was not invokable.- The appellant had disclosed all relevant information during the investigation.- Revenue's Arguments:- The appellant failed to register and file returns, justifying the invocation of the extended period.- The appellant suppressed facts to evade tax liability.- Tribunal's Findings:- The Tribunal held that the extended period of limitation was invokable due to the appellant's failure to register and file returns.- The appellant's actions constituted suppression of facts, justifying the extended period.3. Penalties:The imposition of penalties under Sections 77 and 78 of the Finance Act, 1994, was also challenged.- Appellant's Arguments:- The appellant acted in good faith and had no intention to evade tax.- The penalties were not justified.- Revenue's Arguments:- The appellant's failure to comply with the law warranted penalties.- The penalties were justified due to the appellant's deliberate evasion of tax.- Tribunal's Findings:- The Tribunal upheld the penalties under Sections 77 and 78, citing the appellant's deliberate breach of law.- The appellant's actions were not in good faith, justifying the imposition of penalties.Majority Order:- The majority order, led by the third member, held that British Airways India could not be treated as the recipient of the services provided by CRS companies.- The services were provided to British Airways UK, and British Airways India did not make any payments for these services.- The demand was set aside on the grounds that British Airways India was not the service recipient.- The Tribunal also held that the extended period of limitation was not invokable, and the penalties were not justified.Conclusion:- The appeal was allowed, and the demand and penalties were set aside.- British Airways India was not liable to pay service tax on the services provided by CRS companies to British Airways UK.