TaxTMI 
TaxTMI 
2013 (8) TMI 146
X X X X Extracts X X X X
X X X X Extracts X X X X
..../- was levied under Section 77 of the Act. 2. While challenging aforesaid levy by the appellant 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 and also appellant had furnished entire information during investigation. BACK GROUND OF THE CASE, INVESTIGATION RESULT AND ADJUDICATION FINDING AS WELL AS CONSEQUENCES THEREOF 3.1 When it came to knowledge of Revenue that certain Airlines operating in India were availing "Online information and data base access or retrieval service" from foreign based CRS service providers and were liable to service tax as recipient of service, but no service tax due were deposited by them, investigation was made. It was revealed that those Airlines in terms of certain agreements with foreign based companies viz M/s. Galileo International Partnership USA, M/s. Abacus Distribution System Pvt. Ltd, Singapore, M/s. Amadeus Marketing, S.A. Spain, M/s. Sabre Travels Information Network, USA and others, intended to facilitate reservation and ticket availability position ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....efit 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. 3.7 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 - American airlines Inc, USA, had any office in India to determine the person liable to pay such service tax. It was revealed that Indian companies with similar names viz, M/s Galileo (India) Pvt. Ltd, M/s Abacus Distribution systems (India) Pvt. Ltd and M/s Amadeus (India) Pvt. Ltd, were functioning in India as separate legal entities. M/s Abacus Distribution System (I) P. Ltd and M/s Galileo India P Ltd function as National Marketing Companies entrusted with the work of Marketing the Abacus and Galileo CRS to travel agents in India. Such fact was confirmed from the statements recorded from Shri Ankur Bhatia of M/s Amadeus India (P) Ltd. and Shri V. Kesavan, General Manager, M/s Galileo India P Ltd in their statements dated 06.01.2006, under....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t in India. 3.11 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. 3.12 Contention of the appellant that the impugned service was provided outside India as the CRS company and their parent company were situated outside India for which there cannot be tax liability of appellant was considered by ld. Adjudicating Authority. But he discarded such plea finding that the CRS companies even if situated outside India were providing service to Appellant having establishment in India which enabled Travel Agents of the appellant to achieve its object. Appellant may not be privy to the contract between CRS/GDS companies. But its parent company entered into contract with CRS/GDS companies to achieve object of the appellant operating in India under RBI permission and service was provided to the Appellant in India. Revenue accordingly viewed that the appellant was ultim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of section 65(75) of the Finance Act, 1994 read with section 65 (105)(zh) thereof since CRS companies merely enable travel agencies to access the computer system and data base of head office of the appellant. To support such contention, reliance was placed by appellant on the decision of the Tribunal in the case of United Telecom Ltd Vs. Commissioner of Service Tax, Bangalore - 2009 (14) STR 212 (Tri - Bang). So also reliance was placed on the stay order passed in the case of Nestle India Ltd. Vs. Commissioner of C. EX. New Delhi - 2011 (22) STR 165 (Tri -Del). 4.6 Reliance was placed on CBEC Circular dated 09/07/2001 to submit that platform which only enables e-commerce transaction to be carried out is not covered by section 65 (75) read with section 65 (105) (zh) of the Finance Act, 1994 (Ref: Page : 353 in para 6). 4.7 Demand is time barred and no extended period is invocable. 4.8 Ld. Sr. Counsel also supported following summary of arguments made in the case of Thai Airways heard analogous with this appeal on the same day and dealt separately: (A). That the CRS companies abroad provided service to head Office of the Appellant in London and the CRS Compan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er tax nor penalty is leviable. The appellant bonafide believed that it had not incurred tax liability for which extended period is not invocable. In the course of investigation, entire activities carried out by the appellant were made known to the investigation and reply was submitted against the allegations of investigation. When the investigation was well aware of the facts, there was no scope to issue Show Cause Notice. (G). There was no suppression of fact nor there do any deliberate intention to evade tax. ARGUMENTS ON BEHLAF OF REVENUE 5. Per Contra summary of submissions of Revenue were as under: 5.1 While the Appellant created fiction that British Airways UK and British Airways India are two different entities, only British Airways PLC, UK was granted permission by Reserve Bank of India (RBI) to operate in India (Ref: Page - 85 of appeal paper book). Therefore head office of the appellant and appellant in India cannot be two distinct entities under law. Appellant fulfilled object of the contract entered into by its head office with the CRS companies to avail CRS service in India for use by Indian Travel Agents, availing foreign company status under....
X X X X Extracts X X X X
X X X X Extracts X X X X
....avel Agents in India and others for booking tickets etc., and was making payment to CRS companies through regulatory measures of RBI under FEMA by settlement of its account with its head office and cleared the debits made to its accounts for tickets booked in India. Therefore it cannot plead its innocence of no liability under service tax law. 5.6 Inviting attention to letter dated 25/5/2007 of Austrian Lines filed before learned Adjudicating Authority it was submitted that learned Adjudicating Authority in his order under Appeal No. 718/2012 . has appropriately held that the appellant therein was recipient of service and liable to service tax. The appellant being in similar footing is also liable to service tax. So also stay order dated 23.08.2012 passed in the case of Continental Airlines Vs. CST vide order No. ST/SO/860/2012 indicates liability incurred by the appellants u/s 65(105)(zh) read with section 65(75) of the Act. 5.7 When the Appellant ought to have been registered under the Act, and required to file its returns under law, failing to do so, there cannot be any waiver of penalties imposed in adjudication. 5.8 There is nothing on record that the appellant had no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....service u/s 65(105)(zh) of the Act read with section 65(75) thereof was liable to service tax under section 66A of the Act: Accordingly, he raised demands as set out at the outset. Section 65(105)(zh) of the Act which is the taxing entry reads as under: "Section 65 (105) "taxable service" means any service provided or to be provided, - (zh) to any person, by any person, in relation to on-line information and database access or retrieval or both in electronic form through computer network, in any manner;" [Emphasis supplied] 7. The expression "on-line information and data base access and retrieval" has been defined by section 65(75) of the Act reading as under: Section 65 (75) "on-line information and database access or retrieval" means providing data or information, retrievable or otherwise, [to any person], in electronic form through a computer network; [Emphasis supplied] 8. The appellant pleaded before learned Adjudicating Authority that it was branch of its head office in London. Copy of letter-issued by Reserve Bank of India to British Airlines PLC, UK at page 85 of the appeal folder exhibits that it was allowed to carry on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yable to Galileo by appellant participant for use of the system of the later. 12. The appellant in consideration of availing aforesaid service had paid charges as has been found by learned adjudicating authority. For the service so availed, consideration paid directly or indirectly by the appellant or paid on its behalf in discharge of its liability or settlement by any mode, made no difference to law as theory of equivalence determines value of taxable service through its in built provisions embedded to the rules of valuation in the Finance Act, 1994. 13. Argument of the appellant that the appellant was not a party to the agreement falls to stand for the reason that it is no way different from its head office to operate in India since its head office was only permitted to operate in India which was a party to the agreement aforesaid. It was service recipient from Galileo. So also its Indian office. Modus operands' of the appellant came to record proving its existence to fulfill object of the agreement with Galileo carrying out the mandate of RBI permission letter aforesaid. Ticket reservations were done by Air Travel Agent for the appellant making use of the services receive....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. Who makes payment to the service provider is immaterial and no free service was provided by service provider. What that is material is service received by the appellant which in essence and substance was established. Revenue's arguments that appellant's remittances came to notice of investigation proved quid pro quo is well founded. Appellant misconceived that it was taxed as beneficiary. 16. When the appellant falls u/s 66A (1)(b) of the Act as recipient of the description of service charged to tax by section 65(105)(zh) read with section 65(75) of the Act, its plea that it is immune from service tax in India is ill founded. Appellant in India has its existence under RBI permission. Section 66A (2) of the Act recognizes only different situs under law but the said sub-section does not grant immunity from taxation in India once incidence to tax arises in India. Appellant's operation in India was to achieve its object of serving Air Travel Agents in India. To do so, it had ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ication by the very nature of the order which is liable to be varied or vaccated. 19. Appellant's plea that it shall get Cenvat credit of service tax levied by the adjudication order does not exonerate it from the liability it has incurred under the law. Grant of Cenvat credit arises only if service tax is paid by the appellant and such grant is not otherwise disallowed by law. Without undergoing scrutiny of law as to admissibility of Cenvat credit, appellant's hypothetical argument has no sense in the eyes of law. 20. Appellant's reliance on Paul Merchants case (supra) is of no use 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. 21. When the appellant failed to be registered under the Act and file returns periodically, its plea of bonafide belief does not arise sine it escap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in India for the purpose of undertaking the activity of operating air services between India and United Kingdom, the RBI granted the necessary permission in terms of the provisions of Regulation 5 of the Foreign Exchange Management (establishing in India a branch or office or other place of business) Notification No.FEMA-22/2000 RBI dt. 03.05.2000. A copy of this letter is reproduced below:- "FE.CO.FID/10.90.845/2005-2006 BY AIR MAIL/REGISTERED A.D. British Airways PLC, Registered Office Waerside P.O.Box-365, Harmondsworth UB7 OGB United Kingdom. Dear Sir, SUB: Permission to establish a Branch Office in India for operating Air Services Please refer to your application in Form FNC 1 dt. 19.10.2005 on the captioned subject. 2. Reserve Bank of India hereby grants you permission under Foreign Exchange Management (Establishment in India of a branch or office or other place of business) Regulation 5 of Notification No. FEMA 22/2000-RB dt. 03.05.2000 for establishing Branch in India, for the purpose of undertaking t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation No. FEMA. 22/2000-RB dt. 3rd May 2000 and shall not be taken in any way as regularizing condoning or in any manner validating any irregularities, contraventions or other lapses, if any, under the provisions of any other law for the time being in force". 25.2. On the basis of the above permission granted by the RBI, the 'BA, U.K.' have set up an office in India at DLF Plaza Tower, DLF City, Phase-I, Gurgaon-122002,(Haryana) [hereinafter referred to as "BA, India"]. The demand of service tax along with interest and penalty by the impugned order is against BA, India and it is the BA, India who is the appellant. [para 27 of the impugned order in original]. 25.3. The appellant as branch office of the 'BA, U.K.' provided the services of air transportation of passengers and cargo for which they have service tax registration. For the purpose of sale of air tickets to passengers, BA, India have appointed IATA Agents who issue and sell the air tickets to the passengers, collect the air fare from them, and remit the same to BA, India after deducting their commission. There is no dispute that IATA Agents are paying service tax on the Air Travel Agent's services taxable under Sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....A, 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. On this basis, a Show Cause Notice dt. 24.10.2008 was issued to the Appellant for demand of service tax of Rs 8,98,20,174/- along with interest in respect of period from 01.04.2003 to 31.05.2008 and also for imposition of penalty on them. The Show Cause Notice was adjudicated by the Commissioner vide order-in-original dt. 08.11.2011 by which the Commissioner holding that the service provided by CRS/GDS Companies based abroad has been received by the appellant BA, India, confirmed service tax demand of Rs. 4,95,92,348/- along with interest for the period w.e.f. 18.04.2006. The demand for the period prior to 18.04.2006 was dropped as during that period, there was no provision in the Finance Act, 1994 to charge service tax under reverse charge mechanism from the service recipient in India on the import of services. The above demand was confirmed by invoking first proviso to Section 73(1) of Finance Act, 1994 upholding the allegation that the appellant have suppressed relevant facts from the Department and for the same reason, penalty of equal amoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../GDS Companies have been received by them directly from BA(U.K.) and as such the entire payments for the services, in question,' have been made outside India [para 24.3 of the impugned order dt.24.10.2008]. The dispute is only on the point as to whether the Appellant BA, India can be treated as an entity separate and distinct from their head office 'BA, U.K.' in terms of the provisions of Section 66A(2) and whether BA, India the Appellant, can be treated as recipient of the service provided by CRS/GDS companies and on this basis, subject to service tax under reverse charge mechanism of Section 66A. Another point of dispute is regarding classification of the service being provided by CRS/GDS Companies. 29. Coming first to the question of classification of the service, the activity of the CRS/GDS Companies is maintaining online information on real time basis about the flight schedules, fare, seat availability etc. of the flights being operated by BA,U.K. all over the world, for which CRS/GDS Companies have linkage with the computer system of BA, U.K. and provider access in respect of this information to the IATA agents appointed by British Airways which is used by them for sell....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... would be the person on whose instructions the service is provided, 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 there must be an activity performed by A for B, but there must also be flow of consideration, cash or other than cash, direct or indirect from B to A and the provision of Services must satisfy some need of B, which may be his personal need, the need of his business or need to discharge some legal obligation regarding provision of some services to another person C. Thus When a manufacture A, who has sold some goods manufactured by him to B and is under obligation to provide free repair services to B during warranty period and engages C to provide the service of free repairs service to B for which he pays to C, the recipient of the service provided by C is A, not B. The B is only the beneficiary of the service provided by C. However when there is no legal o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 constituted 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-section are not applicable to an individual in respect of service received by him from abroad unless the service is for use in any business or commerce. Another important Provision of Section 66A is that when the service provider has his business establishment in more than one country, say A and B, the service recipient located in country C will be treated as having received the service from that establishment of the service provider which is directly concerned with the Provision of service [2nd Proviso to Section 66 A(1)]. In my view, the underlying principle behind this Proviso will also be applicable for determining as to who is the service recipient, when a service provider A located abroad, has provided service to a Company ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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, these Rules have been replaced by Place of Provisions of service Rules, 2012, the Rule 3 of which states that the place of Provisions of a service shall be the location of the service recipient (who is the service consumer). (5) Export of Service Rules, 2005 and Taxation of Service (Provided from outside India and received in India) Rules, 2006, put together, are the rules for the purpose of determination of the location of service recipient and the same divide the services into three categories and prescribe different criteria in this regard for each category. In respect of services in relation to an immovable property, as enumerated in these rules, the same are treated as having been received at the location ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ffice of 'BA, U.K.' in India is not a permanent establishment is without any basis. The Appellant BA, India, therefore have to be treated as a branch office in India of 'BA, U.K.' and in terms of Explanation to Section 66A, BA, India, would have to be treated as 'Business Establishment' of 'BA, U.K.' in India, which as discussed above, has to be treated as a 'Permanent business establishment' of BA, U.K. in India. By virtue of Sub-Section (2) of Section 66A, BA, India, who are a permanent business establishment in India of 'BA, U.K.' (head office), are 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 'BA, U.K.' and the CRS/GDS companies (located outside India and not having any branch or business establishment in India) ; and (b) the entire payment to CRS/GDS Companies have been made directly by the head office located outside India and no part of payment has been made by the branch office i.e. BA, India. 31.1 As held in para 29 above, the service provided by the CRS/GDS Companies is "Onl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her than in cash, direct or indirect. Just as in case of sale of goods, it is the buyer who is obliged to pay or pays for the goods and is entitled for delivery of the goods to him or his intended beneficiary, in case of Provision of Service, it is the recipient who would be the person obliged to make the payment or pays for the service and would be entitled for Provision of service to him or his intended beneficiary. 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 with the performance of the service and, hence, the recipient and the consumer of the service are the same person. 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 Provisions of service by A to B, there w....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... same to Head Office and as such there is nothing to show that they are not involved in taking key business decisions for the entire company. Therefore, applying the underlying principle of 2nd proviso of Section 66A(1) discussed in para 30(2)(c) above, it is the Head Office i.e. BA, UK which has to be treated as the recipient of the Service provided by the CRS/GDS Companies as it is the Head Office which is most directly concerned with the use of the Service provided by the CRS/GDS Companies as the Head Office has used the service provided by the CRS/GDS Companies for promoting the sales of the Airlines tickets all over the world and it can not be said that only the Indian branch (Appellant) has benefited from the Service provided by the CRS/GDS Companies. Besides this, from the agreements it is also 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/GDS 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 and it is the head office whos....
X X X X Extracts X X X X
X X X X Extracts X X X X
....contract with Head Office of a company 'B', incorporated outside India i.e. located outside India, the service tax can be charged from the branch office 'B-1' in India of the Company 'B' when:- (a) the Headquarter of the Company 'B' has entered into a framework agreement/contract with the service provider 'A' by the way of centralized sourcing of service for Provision of service at various branches located in different countries including India; and (b) the service has been provided at the branch in India and the role of the Headquarter is only as a facilitator. In such a situation service tax can be charged from the branch office in India by treating it as service recipient even if the payment for the service received was made by the head office, as in such a situation, the Indian branch office can be treated as having made the payment indirectly. But in this case, as discussed above, from the agreements of 'BA, U.K.' with CRS/GDS Companies, it is seen that there is nothing in these agreement from which it can be inferred that the CRS/GDS Companies were required to provide location specific service ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....service provided is not material for determining as to which has received the service, is also not correct, as an discussed in para 31.2(1) above, the service recipient in the person, who is legally entitled to receive the service and hence is liable to make the payment or makes the payment whether directly or indirectly and whose need is satisfied by the provision of service, whether it is his personal need or need of his business or his need to discharge some obligations to provide some service to another person the payment, and this person need not always be the beneficiary of the service. 31.4 By virtue of Section 66A(2), a branch office in India of a multinational company having its registered office abroad, can be charged service tax on any taxable service received by it from an off-shore service provider including the service received from its head office. There would be no difficulty in identifying the receipt of service by the branch office in India when the service has been provided by the off-shore service provider in terms of instructions given by the branch office or a contract entered into between the Indian branch office and the off-shore service provider. But whe....