Reverse charge on CRS/GDS services did not fasten service tax on the Indian branch; limitation also failed.

Under reverse charge, service tax on CRS/GDS airline reservation services was not payable by the Indian branch where the overseas head office contracted for and paid for the services, because the foreign establishment was treated as the relevant recipient under Section 66A and the definition of online information and data base access or retrieval service. The Tribunal also held that the extended limitation period could not be invoked where the dispute involved a debatable legal interpretation, the assessee had a bona fide belief, and the situation was revenue neutral. The impugned orders were set aside and consequential relief followed.

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Issues: (i) whether the payments made to overseas CRS/GDS companies for airline reservation services were liable to service tax in the hands of the Indian branch office under reverse charge as online information and data base access or retrieval service; and (ii) whether the demand was barred by limitation.

Issue (i): whether the payments made to overseas CRS/GDS companies for airline reservation services were liable to service tax in the hands of the Indian branch office under reverse charge as online information and data base access or retrieval service.

Analysis: The Tribunal applied the statutory scheme of Section 66A of the Finance Act, 1994 along with the definition of online information and data base access or retrieval service. It followed the earlier majority view that the foreign head office, not the Indian branch, was the recipient of the service where the contract and payment were made by the overseas establishment. The branch office in India was treated as a separate person for the purpose of the reverse charge provision, and the Indian branch could not be fastened with tax liability merely because it carried on business in India.

Conclusion: The issue was decided in favour of the assessee, and the Indian branch was held not liable to service tax under reverse charge on the CRS/GDS payments.

Issue (ii): whether the demand was barred by limitation.

Analysis: The Tribunal accepted the view that the controversy involved a complex and debatable legal interpretation, that the assessee's belief was bona fide, and that the situation was revenue neutral. On these considerations, the extended period could not be sustained and the demand was held to be time-barred.

Conclusion: The issue was decided in favour of the assessee, and the demand was held to be barred by limitation.

Final Conclusion: The impugned orders were set aside and the appeals were allowed with consequential relief.

Ratio Decidendi: For reverse charge under Section 66A of the Finance Act, 1994, the recipient of the service must be the establishment legally answerable for the transaction, and where the overseas head office contracts for and pays for the CRS/GDS services, the Indian branch is not liable merely because it operates in India; a bona fide, revenue-neutral, debatable dispute also negatives invocation of the extended limitation period.

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