TaxTMI 
TaxTMI 
2024 (9) TMI 1689
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....ct, 1994 [the Finance Act]. 2. A division bench, while hearing this appeal, noticed that conflicting views had been expressed by two Division Benches of the Tribunal in British Airways vs. Commissioner of Central Excise (Adjn), Delhi [2014 (36) S.T.R. 598 (Tri. - Del.)] and M/s. Cathay Pacific Airways Ltd. vs. Commissioner of Service Tax Mumbai-I [2019 (31) G.S.T.L. J33 (Tri.-Mumbai)] and, therefore, referred the following three issues to be decided by a larger bench of the Tribunal: "(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." 3. According to Cathay Pacific Airways Ltd [the appellant], which is the appellant; (i) An International Airline engaged in the busin....
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....S/GDS companies get consideration by way of commissions from Airlines on the basis of tickets sold on the CRS/GDS platform. Such commission is paid by the head office directly to CRS/GDS companies; (viii) The Airlines generally store all the data related to flight schedules and bookings on a server located at the head office of the Airlines outside India. Generally, the head office of the Airline alone has the authority to access and alter the data maintained on these servers. The master server of CRS/GDS companies located outside India is linked to the servers of the head office of Airlines; and (ix) Generally, the branch office of an Airline is not authorized to alter or host the data maintained by the servers of the head office. The branch office systems are also not linked to the servers of CRS/GDS companies and, therefore, do not use the CRS/GDS platforms for booking flight tickets. The branch office books flight tickets through the internal Airline systems. 4. The department contends that the India branch office of the International Airline is the recipient of OIDAR services from CRS/GDS companies, irrespective of the fact that contract and payment is dir....
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....y are beneficiary of service. Only for commercial reasons like to achieve the best and economical deal, the Cathay Pacific, Hong Kong has entered into an agreement for all their offices all over the world. However, the bills raised by CRS companies clearly shows the transactions relating to booking made by Indian travel agents which are control of Indian Office of Cathay Pacific, India. ***** 4.3.5 It is argued that CRS companies are having offices in India, hence service tax should have been demanded from them. On this point, I find that enquiries caused revealed that Indian companies having deceptively similar names viz. M/s Galileo (India) P. Ltd, M/s Abacus Distribution Systems (India) P Ltd and M/s Amadeus (India) P Ltd, incorporated under the Companies Act, 1956 were found to be functioning in India. M/s Abacus Distribution Systems (I) P Ltd and M/s Galileo India P Ltd are functioning as National Marketing Companies entrusted with the work of marketing the Abacus and Galileo CRS to travel agents in India. The said Indian companies cannot be treated as a branch of the foreign CRS companies as both are separate legal entities. The foreign entity is not registe....
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....e of the Airline located outside India in terms of section 66A(2) of the Finance Act; (c) The services provided by CRS companies are received and consumed by the head office of the Airlines in UK and the consideration for the same has also been paid by the head office in UK. The contract for provision of CRS services is also between the CRS companies and the head office in UK; (d) The department has not contended that the India branch office has made any payments to the head office towards services received from CRS companies. It is an admitted fact that the entire consideration for the CRS services is paid by British Airways to the CRS companies; and (e) Thus, the India branch office of the International Airline cannot be held to be the recipient of services provided by CRS companies and liable to pay service tax on reverse charge basis under section 66A of the Finance Act. 9. However, in Cathay Pacific Airways, the division bench held that independent identity of branch office or head office is not the criteria for determination of liability to service tax in terms of section 66A of the Finance Act. The relevant criteria for determination of liabilit....
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.... country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided. (2) Where a person is carrying 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 persons for the purposes of this section. Explanation 1- A person currying on a business through a branch or agency in any country shall be treated as having a business establishment in that country. Explanation 2.-Usual place of residence, in relation to a body corporate, means the place where it is incorporated or otherwise legally constituted." 12. The aforesaid conditions basically stipulate that: (i) Service must be provided by a person from outside India; (ii) Service must be received in India; (iii) Service provider must not have a business establishment, fixed establishment, permanent address or usual place of residence in India; and (iv) Service recipient must have a b....
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.... the CRS/GDS companies located outside India. The privity of contract is between the head office and the CRS/GDS companies, both located outside India. In the contract, there is no stipulation for rendition of services to the India branch offices; (ii) The access to the data of Airlines is from the server located outside India. The India branch office has not been provided any access or data of the CRS/GDS companies; (iii) The CRS/GDS services are provided at the request of the head office; (iv) The head office is contractually entitled to receive the services rendered by the CRS/GDS companies; (v) The head office is contractually obligated to make payment of consideration for the services rendered by the CRS/GDS companies; (vi) Any benefits, monetary or otherwise, on account of receipt of services rendered by the CRS/GDS companies shall accrue to the head office; and (vii) The India branch office has not made any payment directly or indirectly to CRS/GDS companies. 18. Thus, the India branch office of the International Airline cannot be considered as a service recipient under section 66A of the Finance Act. It is the head of....
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.... establishment is an establishment other than the business establishment. It should have both the technical and human resources necessary for providing or receiving services permanently present. A business may have several fixed establishments including a branch ***** 26.5 ***** If either the provider of services or recipient of services have establishments in more than one country, the establishment most directly connected with the particular service would be the deciding factor." 22. Paragraph 26.5 of the Circular dated 27.07.2005 explicitly clarifies that in cases where service provider or service recipient have multiple establishments, then the establishment which is most directly concerned with the service would be the deciding factor. 23. What needs to be noticed is that the Circular states that the establishment most directly concerned with receipt or provision of service has to be considered. The Circular requires determination of the establishment most directly concerned with the provision of service, not only for a service provider but also for the service recipient. The Circular would be applicable for service recipient location as well. 24. The second ....
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...., after the introduction of negative list regime, which has laid down principles for determining the establishment "most directly concerned with the supply". The relevant portion of the Education Guide is reproduced below: "5.2. 7 How will the establishment "most directly concerned with the supply" be determined? This will depend on the facts and supporting documentation, specific to each case. The documentation will include the following :- * the contract(s) between the service provider and receiver; * where there are no written contracts, any written account (documents, correspondence/e-mail etc) between parties which sets out in detail their understanding of the oral contract; * in particular, for suppliers, from which establishment the services are actually provided; * in particular, for receivers, at which establishment the services are actually consumed, effectively used or enjoyed; * details of how the business fits into any larger corporate structure; * the establishment whose staff is actually involved in the execution of the job; * performance agreements (which may be indicative both of the s....
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.... remitted by the India branch office to the head office is towards the tickets sold in India through the travel agents, which amount has been received by the branch office through the International Air Transport Association, after deducting the local expenses incurred in India. The said amount is not remitted by the India branch office for any alleged services rendered by the head office. 31. It is also not possible to accept the contention of the learned authorized representative appearing for the department that the ultimate beneficiary of engaging CRS companies is the appellant. From the facts on record, it is clear that the appellant in India has not utilized any service of the CRS companies, for it is the head office that avails the services of CRS companies and makes payment to them. 32. The entire basis for reference to the larger bench by the division bench is the judgment of the Supreme Court in Formula One in reference to the provisions of the Income Tax Act, 1961. The division bench of the Tribunal, basis the decision of the Supreme Court Formula One, concluded that the branch office of Cathay Pacific located in India is the place of business of Cathay Pacific Airl....
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.... office of Airlines in India is the "place of business" in India. In the present case, there is no dispute that the branch office of the Airline in India is the place of business in India. The question, however, is whether the branch office of the Airline located in India, which is a separate person under section 66A(2) of the Finance Act, is the recipient of services provided by CRS companies or it is the head office located outside India, which is also a separate person under the provisions of the Finance Act, the recipient of service. 36. This issue has to be examined in the context of the provisions of the Finance Act read with the 2006 Rules. The concept of "permanent establishment" under article 5(1) of DTTA, as interpreted by the Supreme Court, should not have been relied upon by the division bench in the reference order. This would not be relevant to the present case, as the issue involved in Formula One was in the context of interpretation of article 5(1) of DTAA. The relevant portions of the judgment of the Supreme Court in Formula One are reproduced below: "66) As per Article 5 of the DTAA, the PE has to be a fixed place of business 'through' which business o....
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.... Court, thereafter, concluded: "76) We are of the opinion that the test laid down by the Andhra Pradesh High Court in Visakhapatnam Port Trust case fully stands satisfied. Not only the Buddh International Circuit is a fixed place where the commercial/economic activity of conducting F-1 Championship was carried out, one could clearly discern that it was a virtual projection of the foreign enterprise, namely, Formula-1 (i.e. FOWC) on the soil of this country. It is already noted above that as per Philip Baker27, a PE must have three characteristics: stability, productivity and dependence. All characteristics are present in this case. Fixed place of business in the form of physical location, i.e. Buddh International Circuit, was at the disposal of FOWC through which it conducted business. Aesthetics of law and taxation jurisprudence leave no doubt in our mind that taxable event has taken place in India and non-resident FOWC is liable to pay tax in India on the income it has earned on this soil." (emphasis supplied) 38. The appellant does not dispute that it has a place of business in India. What the appellant disputes is that the place of business in India is not the re....