Custom, Excise & Service Tax Tribunal
M/S Qatar Airways vs Commissioner Of Service Tax, Mumbai-I on 23 March, 2016
IN THE CUSTOMS, EXCISE AND SERVECE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI COURT NO. I APPEAL NO. ST/86596, 88811 to 88814/13 & ST/85574/14 (Arising out of Order-in-Original No. 40/STC-1/SKS/12-13 dated 26.12.2012, 101/STC-1/SKS/13-14 dated 12.11.2013, and 9-12/STC-1/SKS/13-14 dated 28.05.2013 passed by the Commissioner of Service Tax, Mumbai-I.) For approval and signature: Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical) =====================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the : No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair copy : Seen of the order? 4. Whether order is to be circulated to the Departmental : Yes authorities? ===================================================== M/s Qatar Airways M/s Emirates Appellant Vs. Commissioner of Service Tax, Mumbai-I Respondent Appearance: Shri D.B. Shroff, Sr. Advocate with Shri Abhishek A. Rastogi, Advocate, Shri Anupam Dighe, Advocate for Appellant Shri V.K. Singh, Special Counsel for Respondent CORAM: HONBLE SHRI M.V. RAVINDRAN, MEMBER (JUDICIAL) HONBLE SHRI C.J. MATHEW, MEMBER (TECHNICAL) Date of Hearing: 23.03.2016 Date of Decision: 12.05.2016 ORDER NO. Per: M.V. Ravindran:
All these appeals are directed against the Orders-in-Original No. 40/STC-1/SKS/12-13 dated 26.12.2012, 101/STC-1/SKS/13-14 dated 12.11.2013, and 9-12/STC-1/SKS/13-14 dated 28.05.2013 passed by the Commissioner of Service Tax, Mumbai-I.
2. Since these appeals raise a common question of law, they are being disposed of by a common Order. The relevant facts that arises for consideration are appellant M/s Emirates is an international airlines having headquarter at Dubai and M/s Qatar Airways having headquarter at Doha. Both the appellants are having branch office located in India and operated airlines and have registration for discharge of Service Tax liability under the category of Transportation of Passengers, Cargo Handling Services, Transportation of Goods by Air. Appellants offer sales of ticket and make reservation of seats on schedule flights through 2 different channels (1) through its branch offices located in different countries and (2) through Global Distribution System (GDS) platform provided by other companies operated facilities for Computerized Reservation System also located outside India viz. Galileo, USA, Abacus, Singapore, Amadeus, Spain and Sabre. This CRS companies facilitated the sale of products or services, appellant herein as to seat inventory in a specific flight by using an online computer system provided by these foreign based companies which are used by Travel Agents. Appellants head offices entered into an agreement with the CRS companies for making payment to them on booking of tickets. The CRS companies raised invoice on the appellants for the tickets booked, based upon such agreement and bills are settled by head office of the appellants. After detailed investigation which was carried out, Revenue authority concluded that the appellants branch office in India are liable to discharge the Service Tax liability under the category of online information and data base access or retrieval service for the payments made in respect of the tickets which are issued by the various transport agents for individuals based in India; it is the conclusion that the appellants branch office are permanent establishment and they collected the charges for the tickets from transport agents and remitted the same to head quarters, in Dubai and Doha. The Revenue authority have also come to a conclusion that the payment made to CRS companies by the head office of the appellants is taxable under the reverse charge mechanism under Section 66A of the Finance Act, 1994, in the hands of the branch office of the appellant. A show-cause notice was issued for demand of Service Tax liability, interest thereof and also proposing imposition of penalties. The appellant contested show-cause notice on merits as well as on limitation wherever extended period was invoked. The adjudicating authority after following due process of law, confirmed the demands raised along with interest and also imposed penalties. In one of the case adjudicating authority dropped the demand raised for the period 01.04.2003 to 17.03.2006 on the ground that the period involved was prior to 18.04.2006.
3. Learned Sr. Advocate Shri D.B. Shroff, with Shri Abhishek A. Rastogi, Advocate and Shri Anupam Dighe, Advocate appeared for the appellants and learned Special Counsel Shri V.K. Singh appeared for the Department.
4. Learned Sr. Advocate would submit that the service provided by CRS companies cannot be qualified as import of services as held by the adjudicating authority. It is his submission that the appellant have a branch office and does not access or receive data of CRS companies. He would further explain activity of CRS companies vis-a-vis travel agent and other branches of the appellant, and submit booking the air tickets for various passengers who wish to travel through their airlines is done based on the requirement. He would submit that the CRS companies are located outside India and the appellants head offices have entered into agreement with CRS companies for issuing tickets by using CRS companies data whenever passengers want to travel. It is his submission that CRS companies are providing the online information to passengers/transport agent about availability of the flight or seats for travelling at the date chosen by such passengers. He would draw our attention to the agreement entered into by the head office of the appellant with CRS companies. After pointing out the relevant clause, he would submit that it no way stipulates access or retrieval any data from the CRS companies to the appellant. It is also his submission that head office of the appellant settled the bills raised by such CRS companies for the issuance of tickets by the passengers. He would submit the demand confirmed by the adjudicating authority in these cases in respect of the payment made by the headquarter of the appellant for the tickets issue to the passengers who were based in India. He would take us through the provision of Section 66A of the Finance Act, 1994. It is his submission that the said Section will not apply in the case in hand as branch office are not making any payment to CRS companies. He would submit that the issue involved in this case is now squarely settled by the majority decision of the Tribunal in the case of British Airways Vs. Commissioner of Central Excise (ADJN), Delhi 2014 (36) STR 598 (Tri.- Del.). He would read the relevant paragraphs.
5. Learned Special Counsel after giving us the brief facts of the case submits that the agreement entered into by the head office of the appellant with CRS companies indicated that the CRS companies is meant to provide fully automated reservations and distribution system on behalf of the airlines; that the data from appellants computer system is first accessed and retrieved by the data processing centre/master computer system maintained by the CRS companies for display for use by the Air Travel Agent who sells the air tickets of the airlines and then the CRS system displays the updated data on real time basis the availability of flight and seats. He would submit that the services are covered under the category of on-line data base access or retrieval service which is brought into Service Tax net w.e.f. 16.07.2001 as per Section 65(75) of the Finance Act, 1994. He would draw our attention to the definition of the said services. He would submit that as per provision of Section 66A(1) of the Finance Act, 1994, where any service is (a) provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual palace of residence in a country other than India, and (b) received by a person who has place of his business, fixed establishment, permanent address or usual place of residence in India, such service for the purposes of this section, this is consider as taxable service and tax liability needs to be discharged by the recipient as the provider provided the services in India. It is his submission that the Permanent Establishment has not been defined in the Finance Act, 1994 but as it is commercially understood, it means that any office of accompany which is used for conducting business or from where some of the business of parent organization is carried out, as the establishment of parent organization. In the case in hand, appellants having an office in India is used for marketing of their business; hence it is a permanent establishment of appellant which would attract the provision of Section 66A. It is his submission that the argument that contract was entered by appellants head office situated in foreign country is of no relevance because it is only a method of entering into commercial contract, in this case the beneficiary of the service is Indian office. It is his further submission that CRS companies clearly shows that transaction relating to booking made by Indian Travel Agent which are under the control of Indian office of appellants. It is his further submission that these tickets are for the passengers embarking in Indian for international journeys and therefore the user of service provided by the CRS companies is appellant and not their foreign based head office. He would submit that Hon'ble Supreme Court in the case of All India Federation of Tax Practitioners - 2007(7) STR 625 (SC) has held that Service Tax is a VAT, which in turn is a destination based consumption tax in the sense that it is commercial activity and it is not a charge on the business but on the consumers and is leviable on only services provided within the country. He would also reliance placed on the decision of Hon'ble Bombay High Court in the case of Commissioner of Service Tax, Mumbai-II Vs. SGS India Pvt. Ltd. 2014 (34) STR 554 (Bom.) to propose that destination of the services can be determined only location of the service provider; location of the recipient of the services and place whether the service has been performed. And in this case service has been provided in India and has been received and consumed by the appellant in India. He would submit that the payment made by the head office of the appellant, the payment made by the appellant herein as if no service had been provided by CRS companies to the appellant, there was no need to make such payment. He would try to differentiate facts of case in the case of British Airways (supra) on the ground that the service used by appellants in providing the service of air transport to passenger was not brought to the notice of Tribunal. He would submit that the question of limitation does not arise as this information was not provided to the Department.
6. We have considered the submissions made at length by both sides and perused the records.
7. The issue involved in this case is whether the Service Tax liability arises on the appellants under reverse charge mechanism as per Section 66A of the Finance Act, 1994 under the category of online information and data base access or retrieval service as per Section 65(75) read with Section 65(105)(zh) of the Finance Act, 1994.
8. Undisputed facts are the branch office of appellant is in India and the main head office situated in Dubai and Doha. The dispute is as to whether the appellants, branch office of M/s Emirates, Dubai and M/s Qatar Airways, Doha is required to discharge Service Tax liability under Section 66A of the Finance Act, 1994, as contented by the Department, when the head office has made the payment for the services provided to CRS companies or otherwise.
9. We find that learned Sr. Advocate appearing on behalf of the appellant had correctly relied upon the judgment of Tribunal in the case of British Airways (supra), it is a case where identical issue was agitated before the Tribunal, wherein Honble Member (Judicial) held that services rendered by CRS companies for which payment made by head office is taxable, but Honble Member (Technical) held that such payment are not taxable as the Indian branch office cannot be treated as recipient of the service provided by the CRS companies under Section 66A of the Finance Act, 1994. The matter was referred to third Member, it would be very important here to record the findings of the Third Member as is recorded in paragraphs 42 to 53. We respectfully reproduce the same.
42.?In the light of the above undisputed position, the legal issue which arises is as to whether British Airways, India has to be considered as an extension of British Airways UK or the same has to be treated as a separate legal entity in terms of the provisions of Section 66A(2). The provisions of Section 66A(2) are to the effect that 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. The Explanation 1 appearing below the said sub-section is to the effect a person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country.
43.?Ld. DR appearing for the Revenue has strongly contended that British Airways, India cannot be treated as a separate legal entity in terms of the said provisions of Section 66A(2) inasmuch as British Airways, India cannot be held to be a permanent establishment of British Airways, UK. The same is only a branch office of British Airways, UK. My attention has been drawn to the various provisions of the Companies Act, 1956, which deal with the law relating to companies and their other associations. A company which is incorporated outside India and wishes to conduct business within India can do so by following Section 592(1) of the Companies Act read with the other relevant Sections like Section 594, etc. By referring to various other Sections of the Companies Act, it stands contended that any foreign company having its place of business in India is required to prepare annual accounts and balance sheets in terms of Sections 210 and 211. The Notification dated 7-12-2006 issued by the Ministry of Company Affairs lays down that accounting standards should be followed by all companies whether incorporated in India or not. The accounting standard 17 relates to the Segment Reporting whereas Para 5.2 of the same tax arid geographical segments. The entire accounts from their Indian operations stand debited by the head office along with the expenses incurred by the corporate office in relation to operations in India and which includes the payment of CRS debit for tax sold in Indian ticketing. Further the foreign company will not be able to sue in India however they can be sued by any person. As such, it stands contended that the scheme of the Companies Act which primarily deals with the legal status of corporate bodies makes it abundantly clear that there is no legal distinction between the foreign companies with its parent office abroad and their local subordinate branch office in India. It was in these circumstances that British Airways, UK was given permission by the RBI to open its branch office in India. As a consequence, of this facility provided to the foreign company for operating in India, by opening an office, the corporate office directly controls its office in India not as a holding company but as an office with administrative flow over of their operations including appointment of employees, control over expenses and obligation of evidence as long as that is not in conflict with Indian laws. As such, ld. DR submits that British Airways, UK and British Airways India is the same legal person as its branch office in India.
44.?While dealing with an identical submission of the Revenue, ld. Member (Technical) has referred to the permission dated 3-5-2000 granted to British Airways, UK. No doubt, the permission granted to British Airways, UK is to establish a branch office in India for operating air services. But whether such establishment in India is to be considered as permanent establishment in terms of provisions of Section 66A and as such to be treated as a separate person, is the issue required to be decided. The British Airways, India has appointed IATA agents who issued and sold air tickets to the passengers, collected the air fare from them and remit the same to British Airways, India, after deducting their commission. The said earnings collected by British Airways, India are remitted to their head office in UK.
45.?Going back to the provisions of Section 66A read with the explanation to sub-section (2) of the said Section, a person carrying on a business through a permanent establishment, is required to be treated as separate person for the purpose of the said Section. If that be so, the issue as to whether British Airways, India is to be treated as a separate person or not, is required to be addressed in the light of the said provisions of law as contained in Section 66A. Whether the same is a permanent establishment or not in the light of the other laws, in my views, would not be proper, especially when the explanation attached to the said sub-section further clarifies the scope of the expression Business Establishment. Though, the said explanation is to the effect that a person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country and does not expressly deals or explains that a person located outside India and carrying on a business through a branch in India shall be treated as having a business establishment in India but the reasonable construction of the same would lead to only one inevitable conclusion that permanent establishments in India are also required to be treated as separate persons. A cumulative reading of sub-section (2) of Section 66A read with explanation 1 makes it clear that the permanent establishment whether in India or outside India have to be treated as business establishments. If that be so, they have to be treated as separate persons for the purposes of Section 66A. In fact, by treating the branch office of foreign companies, as a separate person the service transacted between the head office outside India and their branch office in India would become tenable. Similarly, if the branch office receives any service from an outside India service provider, he will have to be treated as service recipient, being a separate person in view of the said Section 66A.
46.?In view of the foregoing discussions, M/s. British Airways, India has to be treated as a separate person. If that be so, in view of the admitted position that the contract between CRS/GDS companies is not with M/s. British Airways, India and is only that M/s. British Airways, UK, the present appellant cannot be held to be recipient of the services so as to make him liable to pay service tax, on reverse charge basis, in terms of the provisions of Section 66A. The said issue stands discussed by the ld. Member (Technical) in his impugned order, by giving example with which I am in full agreement.
47.?The above discussions leads to the factual position of British Airways, UK having received the services, which stands provided by CRS companies located outside India and the consideration for which stands provided by British Airways, UK. The same stands consumed in UK only inasmuch as the server provided by CRS/GDS companies to IATA agents are connected between the two of them and such services are being utilised by the travel agents.
48.?I also find myself in agreement with the observations and findings arrived at by ld. Member (Technical) that the service is consumed by the persons receiving the same. The service having been provided by a foreign based company to a foreign based head office there cannot be any liability of the present appellant to discharge its Service Tax, inasmuch as Service Tax being a destination and consumption based tax cannot be created against the non-consumer of the services.
49.?Ld. Member (Technical) has also discussed in para-31 of the proposed order as to how the British Airways, India a branch office of British Airways, U.K. cannot be considered as a temporary establishment. The same is not for a particular project after the completion of which the same would get wound up. The same has been specifically permitted by RBI to carry on the air transportation activities and has to be held as a permanent establishment, in which case on account of the provisions of Section 66A, it has to be treated as a person separate from its head office.
50.?It is also not the Revenues case that British Airways, India has made any payments for the services so procured by British Airways, U.K. In fact on the contrary, it is admitted position that the entire consideration for the services stand paid by British Airways to the CRS/GDS companies. The appellant in the present case is only appointing IATA agents, dealing with them, collecting sale proceeds of the tickets sold by them and remitting the same to the head office. They are not, in fact, even using the said service directly and as such can, by no stretch of imagination held to be service recipient in India so as to pay any Service Tax.
51.?I also find favour with the appellants contention that the entire situation is Revenue neutral. Admittedly British Airways, India is discharging its Service Tax liability in respect of air transportation tickets sold by them. The present demand confirmed against them, was admissible to them as Cenvat credit, which could have been further utilised for discharge of their Service Tax liabilities. I do not agree with the reasoning adopted by ld. Judicial Member that inasmuch as the tax has not been paid by them, the credit would not be available. The said finding is contrary to the law laid down by various Courts, including the Honble Supreme Court. Admittedly, the demands stand raised by invoking the longer period of limitation and during the relevant period, there was no Service Tax being paid by M/s. British Airways, India and as such the question of availability of credit of the same would become relevant only once the demands stand raised subsequently on a disputed issue. Had they been paying the Service Tax during the relevant period, they would have been availing the credit of the same and utilising the same for discharge of admitted Service Tax liability, leading to Revenue neutral situation. The question of availability of credit in a subsequently raised confirmed demand would arise only at the time of finalisation of the demand itself. Reference in this regard can be made to the Honble Supreme Courts decision in the case of Formica India - 1995 (77) E.L.T. 511 (S.C.), wherein the Honble Supreme Court has held that when an assessee is contesting the correctness of the demand, he could not have followed the procedure of Rule 56A (erstwhile) for the claim of set-off, which has to be extended, if the demand is ultimately upheld. It is only when after the demand stands confirmed, against an assessee, who is even challenging the same on merits, he can always take an alternative plea of availability of the demand as Cenvat credit to him leading to Revenue neutral situation. As such, even on this count, the appellant is bound to succeed.
52.?I am also of the view that the demand, having been raised by invoking the longer period of limitation is hit by the provisions of Section 11A of the Act. My ld. Brother Shri D.N. Panda in his proposed order has held that inasmuch as the appellant was not registered under the Act and failed to file return periodically their plea of bona fide belief does not arise and there was a deliberate breach of law to cause evasion. I am afraid that I do not find myself in agreement with the said observations made by my brother. If non-registration and non-filing of returns is the criteria for rejecting the appellants plea of bona fide belief and holding against them, the plea of limitation would not be available to any assessee, inasmuch as the Service Tax liabilities would arise only in those cases where the appellants are not registered and are not filing the returns.
Coming to the bona fide belief of the assessee, there are number of factors which are required to be considered. The issue involved is a complicated issue of legal interpretation and cannot be held to be a settled law. The fact that there is difference of opinion between the two Members of the original Bench, itself establishes the fact that the legal issue is complex issue requiring legal expertise to settle the same. In such a scenario, if an assessee entertained a bona fide belief that inasmuch as the service is not being received by him, and he is not required to pay any tax, he cannot be blamed for the same. Further the fact that the entire exercise was Revenue neutral is also one of the factors to be considered in support of the appellants plea of bona fide belief. If the appellant would have paid the said tax, they would have been entitled to the credit of the same and would have been in a position to use the same in discharge of their admitted Service Tax liabilities. In such a scenario, there are plethora of judgments by various Courts that no mala fide can be attributed to an assessee so as to invoke the longer period of limitation. Accordingly, I agree with the ld. Member (Technical) that the demand is barred by limitation and is required to be set aside along with setting aside of penalty.
53.?In view of the foregoing, I agree with the ld. Member (Technical) that the impugned orders are required to be set aside and the appeal is required to be allowed with consequential relief to the appellant. It can be seen from the above reproduced majority order the issue is same as is in this case and is held in favour of the assessee.
10. The point which was brought by learned Special Counsel for the Revenue that the Bench was not informed about that the service in India, is also not correct as the same is recorded in findings of the Third Member, which is a majority view. In view of the foregoing, in the facts of the circumstances of these cases, we hold that the impugned orders are unsustainable and liable to be set aside to the extent they are challenged before us. The impugned orders are set aside and appeals are allowed with consequential relief, if any.
(Pronounced in Court on 12.05.2016) (C.J. Mathew) (M.V. Ravindran) Member (Technical) Member (Judicial) Sp 14 APPEAL NO. ST/86596, 88811 to 88814/13 & ST/85574/14