2019 (10) TMI 890 - AT - Service Tax

Appellant's Indian branch office deemed taxable under Section 66A Finance Act, 1994. Tribunal upholds service tax demand.

The tribunal concluded that the appellant's branch office in India constitutes a place of business, making services received from CRS companies taxable ... Classification of services - services availed by M/s Cathay Pacific Airways Ltd from the CRS Companies who are non resident service providers - On-Line Information and Database Access or Retrieval Service - reverse charge mechanism - appellants have argued that for the purpose of levy service tax under reverse charge mechanism (Section 66A of the Finance Act, 1994), the services should have been received by them from the service provider who is not having any permanent establishment in India - Whether the services of CRS Companies for which contractual agreement was made between the Headquarters of Cathay Pacific Airlines be said to be provided to services received by the Cathay Pacific, Branch Office located in India, for the purpose of levy of service tax? - difference of opinion. HELD THAT:- The matter referred to the President for constituting larger bench to resolve the following issues: (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. Issues Involved1. Classification of services availed by the appellant from CRS companies.2. Demand of service tax and penalties imposed.3. Liability of the appellant under the reverse charge mechanism.4. Applicability of the extended period of limitation.5. Interest and penalties under various sections of the Finance Act, 1994.Detailed Analysis1. Classification of ServicesThe Commissioner classified the services availed by the appellant from CRS companies under the category of 'On-Line Information and Database Access or Retrieval Service' as defined under Section 65(105)(zh) of the Finance Act, 1994. This classification was upheld based on the agreements between the appellant and CRS companies, which facilitated the sale of airline tickets through online systems.2. Demand of Service Tax and PenaltiesThe Commissioner confirmed the demand for service tax amounting to Rs. 13,01,05,233/- for the period from April 2006 to March 2011. This included penalties under Section 78 and Section 76 of the Finance Act, 1994. The penalties were imposed due to the appellant's failure to pay service tax on services received from CRS companies located outside India.3. Liability under Reverse Charge MechanismThe tribunal examined whether the branch office in India could be considered a separate entity from the head office in Hong Kong for the purpose of Section 66A of the Finance Act, 1994. The tribunal referred to the decision in British Airways, which held that services provided by CRS companies to the head office could not be taxed in India under the reverse charge mechanism. However, the tribunal disagreed with this interpretation, stating that the place of business in India should be considered for determining liability under Section 66A.4. Extended Period of LimitationThe Commissioner invoked the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994, arguing that the appellant had suppressed facts to evade tax. The tribunal upheld this invocation, noting that the appellant had not paid service tax on services received from CRS companies.5. Interest and PenaltiesThe Commissioner ordered the appellant to pay interest on the confirmed demand under Section 75 of the Finance Act, 1994. Additionally, penalties were imposed under Sections 76, 77, and 78 of the Finance Act, 1994. The tribunal upheld these penalties, noting the appellant's failure to comply with service tax provisions.ConclusionThe tribunal concluded that the branch office in India is a place of business for the appellant, and services received from CRS companies are taxable under Section 66A of the Finance Act, 1994. The tribunal referred the matter to a larger bench to resolve issues related to the interpretation of Section 66A and the distinct entity status of the branch office and head office. The tribunal upheld the demand for service tax, interest, and penalties imposed by the Commissioner.