2018 (3) TMI 635 - AT - Service Tax

Tribunal rules in favor of airline in tax dispute over foreign-based CRS services

The Tribunal ruled in favor of the appellant, an international airline, in a tax dispute regarding services received from foreign-based CRS companies. The ... Service tax liability on reverse charge basis - Online information and database access or retrieval services (OIDAR) - place of provision of services - separate person / business establishment (disaggregation) - identification of service provider and recipient for taxability - Rule 9 - place of provision of specified services - consumption / destination based tax principleService tax liability on reverse charge basis - separate person / business establishment (disaggregation) - identification of service provider and recipient for taxability - consumption / destination based tax principle - Whether the appellant was liable to pay service tax on reverse charge basis for services provided by foreign CRS/GDS operators for the period prior to 01/07/2012. - HELD THAT: - The Tribunal applied its earlier decisions in British Airways and Korean Air, holding that a foreign head office and its Indian branch are to be treated as separate persons for certain purposes but that taxability still requires identification of the recipient who actually receives and consumes the service. Where the contract and consideration for CRS/GDS services were between foreign entities and the services were consumed outside India, the Indian branch which neither paid for nor directly used those services cannot be treated as recipient to fasten reverse-charge liability. The impugned order's attempt to treat the Indian establishment as recipient was inconsistent with the determinative principle that service tax (a destination/consumption based tax) cannot be imposed on a non-consumer. Applying these precedents to the facts, the appellant's Indian office was not shown to be the recipient liable to discharge service tax for the pre-01/07/2012 period. [Paras 6]No service tax liability on reverse charge basis for the period prior to 01/07/2012; the impugned findings for that period cannot be sustained.Online information and database access or retrieval services (OIDAR) - place of provision of services - Rule 9 - place of provision of specified services - service tax liability on reverse charge basis - Whether statutory changes effective from 01/07/2012 (including Place of Provision of Services Rules, 2012 and Rule 9) alter the tax liability of the appellant for CRS/OIDAR services for the post-01/07/2012 period. - HELD THAT: - The Tribunal examined the amended statutory scheme which renders Section 66A inapplicable but incorporates its effects through provisions such as Section 68(2), explanations to Section 65B(44) and the Place of Provision Rules, 2012. Rule 9 specifically treats OIDAR services as provided at the location of the service provider; here the CRS providers are located outside India. The Tribunal found that these statutory changes did not effect a material factual or legal distinction from the pre-2012 position in the appellant's case: the foreign head office contracted with and paid the CRS providers and the Indian establishment did not directly use or pay for those services. Given these facts and Rule 9's deeming of place of provision to be the provider's location, there is no basis to fasten reverse-charge liability on the Indian establishment for the post-01/07/2012 period. [Paras 7, 8]No service tax liability for the period after 01/07/2012 in respect of the CRS/OIDAR services; the impugned order cannot be sustained for that period.Final Conclusion: The appeal is allowed and the impugned order confirming service tax liability is set aside; the appellant is not liable to pay service tax in respect of the CRS/OIDAR services for the dispute period 01/04/2006 to 31/03/2013. Issues Involved:1. Tax liability of the appellant office in India for services received under “Online Information and Database Access or Retrieval Service” from foreign-based CRS companies.2. Applicability of Section 66A of the Finance Act, 1994, and subsequent statutory provisions post 01/07/2012.3. Determination of the recipient of services for tax purposes.Detailed Analysis:1. Tax Liability for Services Received from Foreign-Based CRS Companies:The appellant, an international airline with a head office in France and an office in India, entered into contracts with foreign companies providing centralized reservation systems (CRS). The dispute centered on whether the appellant's Indian office should be liable for service tax under “Online Information and Database Access or Retrieval Service” for these services. The revenue argued that the services fell under Computer Network Services as per Section 65(105)(zh) of the Finance Act, 1994, and issued show cause notices for the period from 01/04/2006 to 31/03/2013.2. Applicability of Section 66A and Subsequent Provisions Post 01/07/2012:For the period prior to 01/07/2012, the Tribunal had already resolved similar disputes in cases like British Airways and Korean Air, determining that the tax liability under Section 66A did not apply. The appellant argued that these precedents should apply to their case as well. Post 01/07/2012, despite the introduction of new statutory provisions (Section 66D, Section 68(2), Section 66C, and the Place of Provision of Services Rules, 2012), the appellant maintained that these changes did not alter the fundamental ruling regarding their tax liability.3. Determination of the Recipient of Services:The Tribunal's decisions in British Airways and Korean Air emphasized the importance of identifying the recipient of the service. In British Airways, the Tribunal concluded that the Indian branch of a foreign company should be treated as a separate person for tax purposes under Section 66A. It was determined that the services were provided to and consumed by the head office in the UK, not the Indian branch, thus negating the tax liability of the Indian branch. Similarly, in Korean Air, the Tribunal reiterated that the service recipient must be clearly identified, and in cases where the contract and payment were handled by the foreign head office, the Indian branch could not be deemed the recipient of the service.Conclusion:The Tribunal found that for the period prior to 01/07/2012, the tax liability of the appellant was resolved by the precedents set in British Airways and Korean Air. For the period post 01/07/2012, despite new statutory provisions, the Tribunal concluded that there was no material change to justify a different outcome. The services in question were provided by CRS companies located outside India, and the appellant's Indian office did not make payments for these services. Consequently, the Tribunal set aside the impugned order and allowed the appeal, ruling that the appellant was not liable for service tax for the period in question.