TaxTMI 
TaxTMI 
2013 (8) TMI 48
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....s examined and referred to in the discussions throughout this order to arrive at the conclusion in all these five appeals. The adjudication order dated 25/11/2011 involved in ST appeal No. 330/2012 gave rise to following consequences relating to the period form 18 April 2006 to March 2008 and other appeals have similar consequences for different periods: (i) levy of service tax of Rs.6,66,15,243/-(Rupees six crore sixty six lakhs fifteen thousand and two Hundred Forty three only) including Education Cess and Higher Education Cess under the first proviso to Sub-section (1) of Section 73 of the Act, along with interest. (ii) imposition of Penalty of Rs.6,66,15,243/-/-(Rupees six crore sixty six lakhs fifteen thousand and two hundred Forty three only) u/s 78 of the Act. (iii) penalty of Rs.5,000/- imposed under Section 77 of the Act. 3. While challenging aforesaid levy it was also challenged that extended period of limitation prescribed by proviso to sub-section (1) of Section 73 of the Act was not invokable on the ground that the appellant was not liable to service tax under section 66A of the Act. BACK GROUND OF THE CASE, INVESTI....
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....ion in relation to ticket reservations, seat availability as well as other facility is derived therefrom for ticket booking for passengers according to availability and preparation of passengers manifest as well as check-in-service documents etc. No payments were made by the travelers or the Travel Agents to the CRS companies. But payments were made by service recipient Airlines. 4.6 It was found that the Appellant Airline was making payment to the CRS Companies for each booking, cancellation, etc made by the Travel Agents as per terms agreed between the parties to the agreement. Airline specific CRS software was in use and data base was maintained by CRS companies for easy access and use by the Airline as well as Travel Agents for ultimate benefit of each other so as to facilitate sale of products and services of Airlines. Airline appellant in consideration of the receipt of online data base access and retrieval thereof was paying agreed charges to the CRS companies 4.7 Enquiry was made to ascertain whether the CRS companies viz. M/s Amadeus Marketing S.A.R.L. France, M/s Abacus Distribution system Pvt. Ltd, Singapore, M/s Galileo International Partnership, USA and M/s Sabre....
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....tire service provided was commercial and under contractual obligations of the parties resulting in carrying out of economic activity. Appellant's reliance on the clarification of Board circular F.No 137/57/2006-CX.4 dated 18.05.2007 was not acceptable to Revenue. 4.10 Revenue on the basis of aforesaid common features of the service of aforesaid description provided by CRS companies and availed by Airlines held that section 65(105)(zh) read with section 65(75) of Chapter-V of the Act was applicable to levy service tax for provision of service prescribed by clause 3(iii) of the Taxation of Services (Provided from outside India and received in India) Rules 2006 received by the Airlines operating in India through their permanent establishment in India. 4.11 Examining section 65(105)(zh) of the Act, learned Adjudicating Authority opined that it was not necessary that the data/information should be provided to a customer personally or that the computer network should be owned by the service provider as service being accessible or retrievable online in respect of data or information through the computer network as vehicle online. 4.12 Contention of the appellant that the impugned....
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....s under: 5.2 That the CRS companies abroad provided service to head Office of the Appellant at Bangkok and the CRS Company's server was connected to the server of the head office of the appellant for updating and interacting to serve the travel Agents through IATA approved software. Travel Agents in turn were serving the passengers for which the travel agents were liable to service tax. Consequently head office of the appellant was getting service of CRS companies abroad allowing the later to exhibit data of the former to travel agents. Accordingly appellant not being recipient of service u/s 65(105)(zh) read with section 65(75) of the Act is not liable to service tax nor penalty. 5.3 Section 66A (2) of Finance Act, 1994 was applicable to immune the appellant from levy of service tax. The agreements under which the head office acted is as per agreements copies available at page 108 to 198 of the appeal folder. There was no agreement between CRS companies and Travel Agents. Revenue had no evidence of agreement between CRS companies and IATA. The Appellant has suffered tax for providing passenger service. So also Travel Agents have suffered tax serving the passengers. Proceedin....
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....g Airline activities, viz., operation of air services in or through India subject to various conditions vide letter No. CO.FCS.1219/1003/Activity/77 dated 9/5/1977. It operated in India to achieve the object of Airline business getting service from CRS companies abroad. Section 65(105)(zh) read with section 65(75) is applicable to the appellant as recipient of the service described by that section and without such service being received in India, travel agents in India shall fail to achieve their object. Learned adjudicating authority on proper interpretation of the said sections as well as the rules framed under the Act brought the appellant to the purview of section 66A of the Act and levied the demand which is sustainable. Section 66A (2) of the Act is not applicable to the case of the appellant. 6.2 The appellant as a business entity was supposed to be covered by Part XI of Companies Act, 1956 which prescribes rules regarding companies incorporated outside India and governed by mandatory requirement of Accounting Standard 17 for segment reporting by the appellant and was also governed by mandatory requirement of Accounting Standard 18 i.e., making related party disclosure. T....
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....es made by appellant was to make its revenue contribution against the extent of service provided by CRS/GDS companies to serve Indian Travel Agents. Therefore no service provided by CRS/GDS companies to appellant is misconceived by appellant. Taxation of passenger service is a different subject by a separate taxing entry and taxing service received or provided by travel agents does not exonerate appellant from its liability when event of levy of the appellant arose under law. 6.10 Para 3.1, 3.2, 3.3, 4 of the Show Cause Notice are significant paragraphs depicting the basis of allegation bringing home the appellant to charges and that could not be defended by the appellant for which no interference to adjudication is desirable. Adjudication should be sustained without any concession on time bar plea. Tax and Penalty imposed by the learned Adjudicating Authority should remain untouched by Tribunal. FINDING AND CONCLUSION OF TRIBUNAL 7. Learned Adjudicating Authority considering role of the appellant and operating in India under RBI permission at the place of business establishment in India having its head office in Bangkok and availing "on-line information and data base acce....
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....and error free information relating to passenger service, schedules, space availability, fares and fare information in the CRS system of the CRS companies so that its objects of promotion of air transport business was not defeated by Air Travel Agents in India. 11. In the course of hearing both the parties relied on an agreement appearing at page 127 to 142 of the appeal folder to argue their case and stated that the said agreement was representative sample of all other agreement with CRS companies containing similar clauses and understanding. Therefore that document was examined. According to that document, head office of the appellant entered into agreement with AMADEUS MARKETING S.A.R.L in France. Thai Airways International (without the word Ltd at page 162) signed the agreement on 16.2.1990 and Amadeus Marketing S.A.R.L signed the same on 05.04.1990. That was witnessed on 01.03.1990. Such document carried seal of Thai International Public Co. Ltd, New Delhi (the Appellant). The agreement thus does not speak on which date that came to see the light of the day. However both sides having relied on that and that document having governed the transactions of the appellant was exam....
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....shall include, but will not be limited to, passenger information, schedule, space availability fares and fare information and procedures. 2. The PARTICIPANT shall offer AMADEUS Subscribers, ATOs and CTOs, any improvements enhancements or additional functions to its system's information and reservation services, on non-discriminatory terms, subject to technical feasibility. 3. The PARTICIPANT will ensure that any CRS in its control provides to all its subscribers display and booking facilities for all services of AMADEUS Affiliates on a level equal to the level it provides to any other carrier, including affiliated carriers, subject to technical feasibility. The PARTICIPANT will also make its best efforts to ensure that any CRS with which it is affiliated providers this level of display and booking facilities in respect of AMADEUS Affiliates, subject to technical feasibility. The list of AMADEUS Affiliates is shown in Attachment D of the Agreement. AMADEUS will notify the PARTICIPANT of any changes to the list. The PARTICIPAN....
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....y. 2. PARTICIPANT will authorise AMADEUS to receive credit card authorisations for the issuance of tickets where the PARTICIPANT is the validating carrier. 3. Before AMADEUS Global Core is equipped with a fully integrated ticketing system, ticket issuance for the PARTICIPANT will be subcontracted by AMADEUS to a third party system. 15. Above article 2 at page 131 of the appeal folder brought out relation of the CRS Company (AMADEUS) with the appellant and its head office as well as its Air Travel Agents in India defining their role and relation confining the terms of the agreement to themselves without allowing a third party to be user of the facility. 16. Agreement between the parties did not prohibit the appellant to have access to the data base maintained by the CRS companies in their system at any time to protect its interest. So also there was no bar on the appellant in that regard while only prohibition for the appellant was to provide no access to a third party through its own system to the CRS system of CRS companies under Article 2(H) of the agreement. This establishes that online data ba....
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....ers, responsibilities and Rights of AMADEUS to the extent that is relevant as defined in Article 3 of the agreement at page 134 of appeal folder reads as under: Article 3 RESPONSIBILITIES AND RIGHTS OF AMADEUS A) Non-discriminatory services 1. AMADEUS will comply with all applicable regulations concerning display of information. 2. AMADEUS will offer neutral display to all AMADEUS Subscribers. The AMADEUS Neutral Display will conform to the EEC-Code of Conduct. A number of display options will available to meet the requests of customer. 3. In the neutral display provided to AMADEUS Subscribers, referred to in Article 3.A.2 above, subject to subscriber's input parameters, AMADEUS shall display the PARTICIPANT'S direct and connecting flights in a non-discriminatory manner on the same level as the direct non-stop, other direct and connecting flights or other transportation services, respectively, of any other participating carrier. 4. In the neutral display provided to AMADEUS Subscribers, referr....
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....d by Civil Aviation regulatory authorities or any other legal authority which may affect the operation of AMADEUS. 22. According to Article 2 of the agreement, the participant i.e., the Appellant and its head office had responsibility to coordinate its information and reservation services with AMADEUS and was required to provide all AMADEUS Subscribers, ATOs and CTOs with information and reservations services as advantageous as those provided to any subscriber of any other computerized reservation and ticketing system. Such services included passenger information, schedule, space availability, fares and fare information and procedure. Thus AMADEUS was a data processor through its master computer to serve the appellant for booking its tickets by Indian Air Travel Agents. 23. Fiction was created by the appellant bringing so many jargons and terminology and illusory concept of entities to raise confusions while the matter was plain and simple to understand modus operandi and arrangement of the appellant. Ticket reservations were done by Air Travel Agent for the appellant making use of the services received by the appellant as an organ of its foreign head office having approved p....
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....the place where it is incorporated or otherwise legally constituted.] 25. The appellant having its place of business in India was recipient of online data base access and retrieval thereof to promote its business in India ensuring error free information to the travel agents in India. Storage of such data in the computer of CRS companies for use thereof was an inevitable necessity since liability of the subscribers to the appellant was limited to the service charge paid by it in respect of each service of ticket booking. Therefore the appellant did not remain silent without exercise of its right of access to such data base and/or retrieval thereof to ensure that that it becomes litigation free. The appellant having right of access to the data base and for such service of access, it had made payments to the CRS Companies. Appellant's plea that service was provided to the head office is baseless. Appellant failed to establish that its existence in India was of no use to it. Revenue's arguments that appellant's remittances came to notice of investigation proved quid pro quo is well founded. So also when the appellant failed to prove that it had not enjoyed any connectivity to the CR....
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....se to it as the issue involved therein was whether there was an export of service made by Paul Merchants from India. Present case of appellant is not export of service from India but an import of service into India by virtue of right of access of the appellant to the online data base and retrieval thereof. Nor also reliance on the Board Circular (supra) has any force as circular cannot override the law. Appellant has thus misplaced the cited decision. 30. When the appellant failed to be registered under the Act and file returns periodically, its plea of bonafide belief does not arise sine it escaped scrutiny of law. There was deliberate breach of law to cause evasion. Had there been no investigation, appellant's liability would not have been unearthed. Breach of law is neither eroded by lapse of time nor defiance thereof unpunishable. Bonafide should be patent from conduct and a mere plea of bonafide does not make the believer riskless in fiscal administration. Adjudication was not time barred when suppression of fact and intention to evade was detected by investigation. Liability of the appellant arose under law. Had the appellant sought registration and filed nil returns with ....
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.... on 07.05.2013. Since I do not agree with his conclusions, I am recording a separate order. However before the coming to the issues involved in these appeals, it would be worthwhile having a brief look once again at the basic facts of this case. 35. The appellant M/s. Thai Airways International Public Company Ltd., having their office at The American Plaza, Intercontinental Eros, Nehru Place, New Delhi are a branch office in India of M/s. Thai Airways International Public Ltd., Bangkok, Thailand (hereinafter referred to as Thai Airways'). They are engaged in providing the services of air transportation of passengers and cargo. M/s. Thai Airways have obtained the permission of the Reserve Bank of India for setting up branch offices in India and besides the main branch office in New Delhi, they have branch offices at other places also in India. The appellant, however have obtained centralized service tax registration at New Delhi in respect of service of transportation of goods by air and transportation of passengers by air provided by all the branches in India. The appellant have appointed IATA authorized travel agents in India for selling of tickets of Thai Airways. The tickets ....
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.... was of the view that the service being provided by the CRS Companies is "Online Database access and/or retrieval" taxable under section 65(105)(zh) read with Section 65(75) and Section 65(36) of the Finance Act, 1994 and since the same has been used by the IATA Agents in India for selling of tickets of Thai Airways, the remuneration received by the CRS Companies abroad from Thai Airways, Bangkok, would attract service tax from the Appellant in India under reverse charge mechanism of section 66A of the Finance Act, 1994 read with Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, as according to Department, the services have been consumed in India by the Appellant. On this basis, four Show Cause Notices dtd. 10.10.09, 09.04.2010, 19.10.2001 & 08.04.2001 were issued to the appellant for demand of service tax including education cess amounting to Rs.4,16,09,932/-, Rs.04,21,74,455/-, Rs.1,82,56,729/- Rs.1,92,13,354/- respectively, in respect of period from April'08 to September 2010, along with interest on it under section 75 of the Finance Act, 1994 and also for imposition of penalties on the appellant under section 76,77 & 78 of the Finance Act, 1994. 35.1. These Show Cause Notices....
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....n India has to be treated as a person separate and distinct from the head office and, therefore, in respect of the service transactions between the CRS Companies located abroad and Thai Airways, Bangkok, the Appellant can not be treated as the service recipient, and secondly the service being provided by the CRS Companies is not covered by the definition of "online information and data base access and/or retrieval" service as defined in Section 65(105)(zh) read with Section 65 (75) and Section 65(36) of the Finance Act, 1994 and hence the same is not taxable. 37.1. There is no dispute that:- (a) the service providers i.e. the CRS Companies are located abroad and they do not have any office in India ; (b) the agreements for providing service are between the Appellant's head office at Bangkok and the CRS Companies; and (c) the payments for the services rendered by the CRS Companies have been received by them directly from Thai Airways, Bangkok and as such the entire payments for the services, in question, have been made outside India [Para 58 & 59 of the impugned order dtd. 31.08.2012 and para 28.3 of impugned order dtd. 25.11.11]. T....
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....gkok is to be treated as the services recipient. Before coming to this question, it is necessary to have a look at certain basic features of the service tax in India, which, in brief, are as under:- (1) while the term "service" is not defined in the Finance Act, 1994, assuming that a service transaction is akin to a transaction of sale of goods, it can be treated as an activity carried out by a person (service provider) for another person for some consideration -the consideration can be in cash or other than cash, whether paid directly or indirectly. Just as in case of a sale transaction, the buyer is the one who is obliged to make the payment or makes the payment for the goods purchased and is legally entitled to receive the goods, in case of a service transaction, the service recipient would be the person who is legally entitled to receive the service and is liable to make the payment or makes the payment and whose need is satisfied by the Provision of the service i.e. who consumes the services, or in other words, is the buyer of the service. Thus, for existence of a service transaction between two persons. A (Service provider), and B (Service recipient) not only ....
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.... residence in India, in term of the Provisions of Section 66A(1) read with Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, the service recipient in India is deemed to have provided the service in India and he is treated as "the person liable to pay service tax" and the service tax is recovered from him. For this purpose, in case of a body corporate, the place where it is incorporated or is "otherwise legally constituted is treated as its "usual place of residence" [explanation 2 to Sec. 66A] and a person carrying on a business through a branch or agency in any country, is to be treated as having "permanent establishment" in that country. Under section 66A(2), when a person carries on a business through a permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate person for the purpose of this section. Thus for the purpose of section 66A, the Head Office of a multinational company incorporated or legally constituting in a Country A and its branches in Countries B,C and D would be treated as separate persons. In term of 1st Proviso to Section 66A(1) the provisions of this sub-....
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....ce; and (d) It is this principle of equivalence which is inbuilt into the concept of service tax under the Finance Act, 1994. The implication of the above ruling would be that service provided by a service provider located abroad, not having any branch or business establishment in India, would be taxable in India only if the consumer of the service, who is the same as the recipient of the service, is located in India. Here it may also be clarified that unlike a transaction of sale of goods, in a transaction of provision of service, the receipt and consumption goes together, as the provision of service satisfies the need of the service recipient and, thus, stands consumed by him. In other words in case of a service transaction, the service recipient is also the person who has consumed the service. (4) Conceptually the Export of Service Rules, 2005 together with Taxation of Services (Provided from outside India and received in India) Rules, 2006, are basically the Rules for determining the place of service recipient/service consumer, and for this reason only, in the budget of 2012-13, thes....
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....vice in India. 40. In this case, by virtue of sub section (2) of Section 66A, the Appellant who is a branch office of Thai Airways, Bangkok (its head office), is to be treated as a person separate from the head office and they can not be treated as part of the head office for the purpose of Section 66A. In this case, there is no dispute that- (a) agreements are between Thai Airways, Bangkok and the CRS Companies (located outside India and not having any branch or business establishment in India); and (b) the entire payments to the CRS Companies have been made directly by the head office located outside India and no part of payment has been made by the branch office (Appellant). 40.1 As held in para 38 above, the service provided by the CRS Companies is "Online Database access and/or retrieval" service taxable under Section 65(105)(zh), read with Section 65(75) and Section 65(36) of the Finance Act, 1994 and this service is covered by Rule 3(iii) of the Taxation of Services (Provided from outside India and received in India) Rules, 2006. This service provided from outside India, would be treated as received in India, only if it has been "receive....
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....iciary. However unlike a transaction of sale of goods where a person may buy the goods for further sale, in case of service, the recipient consumes the services simultaneously and, hence, the recipient and the consumer of the service are the same person with the performance of the service. Thus, the recipient of a service is the person who is legally entitled for Provision of service, is the person obliged to make the payment or pays for the same and the person whose need is satisfied by the Provision of service, the need, as discussed above, may be his personal need, the need of his business or the need to discharge some legal obligation for provision to service of another person. Thus in a service transaction between A and B, against Provision of service by A to B, there would be always flow of consideration from B to A, which, as mentioned above, can be in cash, or other than in cash or direct or indirect. Therefore, for existence of service transaction between A and B, along with Provision of service by A to B, there must be Provision for flow of consideration from B to A and only then the B can be treated as service recipient. The consideration in some cases can be indirect. F....
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....d by the CRS Companies for promoting the sales of the Airlines tickets all over the world and it can not be said that only the India branch (Appellant) has benefited from the Service provided by the CRS Companies. Besides this, from the agreements also it is clear that this is not a case where the Head Office can be said to have acted only as a facilitator to negotiate the agreements with CRS Companies on behalf of branches for provisions of service to them. When it is the Head Office which has received the service and it is Head Office which is liable to pay for the service and has actually made payment for the same, it is the Head Office which has to be treated as the recipient of the service provided by the CRS companies. (3) When neither any service has been received by the Appellant nor there is any evidence or even any allegation that any payment was made directly or indirectly by the Appellant to CRS Companies nor any presumption in this regard can be made, the Appellant can not be treated as recipient of the service provided by the CRS Companies. (4) Merely because the IATA agents appointed by the Appellant in India used the Services provided....
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....e agreements of Thai Airways, Bangkok with CRS Companies, it is seen that there is nothing in these agreement from which it can be inferred that the CRS Companies were required to provide location specific service to the branches of Thai Airways, all over the world. There is neither allegation nor evidence that Thai Airways, Bangkok have charged any amount from the Appellant either directly or indirectly by the way of debit/credit notes, account adjustment or by other indirect mean, for the services provided by the CRS Companies. 40.3 In view of the above discussion, the Appellant, the branch office in India of Thai Airways, Bangkok, can not be treated as recipient of the service provided by the CRS Companies, in pursuance of their agreements with the Appellant's Head Office at Bangkok and, therefore, no service tax can be charged from the Appellant. 41. As regards the question of longer limitation period under Proviso to Section 73(1) of the Finance Act, 1944, the same would not be available to the Department, as no intention to contravene the Provisions of Finance Act, 1994 and of the rules made there under can be attributed to the Appellant for the reason that even if they....