Custom, Excise & Service Tax Tribunal
Air India Ltd vs Commissioner, Service Tax-Delhi on 20 August, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI.
PRINCIPAL BENCH,
COURT NO. IV
SERVICE TAX APPEAL NO. 52780 OF 2014
[Arising out of the Order-in-Original No. 6/AKM/CST/ADJ/2014 dated
03/02/2014 passed by Commissioner (Adjudication), Service Tax, New Delhi. ]
M/s Air India Ltd. ......Appellant
(Earlier known as Indian Airlines Ltd.),
Airlines House, 113, Gurudwara Rakabganj Road,
New Delhi.
Versus
Commissioner (Adjudication), ....Respondent
Service Tax, IAEA House, 17-B, IP Estate, MG Marg, New Delhi - 110 002.
APPEARANCE:
Shri Kunal Aggarwal, Advocate - for the appellant. Shri Ajay Jain, Special Counsel for the Department CORAM:
HON'BLE DR. MS. RACHNA GUPTA, MEMBER (JUDICIAL) HON'BLE SHRI P.V. SUBBA RAO, MEMBER (TECHNICAL) FINAL ORDER NO. 51291/2025 DATE OF HEARING/DECISION : 20.08.2025. RACHNA GUPTA M/s Air India Ltd. Company registered under Companies Act, the appellant herein, was engaged in transporting passengers and cargo to various domestic and international destinations. It was registered for payment of service tax under the category of Business Auxiliary Service, maintenance and repair service and transport of goods by air service. The appellant
2 ST/52780 OF 2014 was found evading service tax on the services availed under the category of, "Online Information and Data Base Access and Retrieval Service" (herein after referred as OIDAR Service) from foreign based service providers without paying service tax.
Investigations were initiated against the appellant and documents were called from. From the perusal thereof it was observed that the appellant along with various other airlines have entered into agreements with several foreign based companies like M/s Galileo International partnership USA, M/s Abacus Distribution System Pte Ltd., Singapore, M/s Amadeus Marketing, S.A. Spain, M/s Sabre Travel Information Network, USA and others for using the online computer system known as Computer Reservation System (CRS)/Global Distribution System (GDS) provided by these companies to facilitate reservation and availed for bookings to travel agents, seat inventory etc.
2. Department observed that the manner in which online information and database access/retrieval are generally made through CRS can be said to comprise for two elements :-
(i) First element resembles the service provided by the Internet Service Providers (ISPs). The CRS like ISPs provide telecommunication network or gateways necessary to access online the messages and database and other information between the airlines and the air travel agents. This network is arranged by CRS
3 ST/52780 OF 2014 companies with the help of separate organization who are paid by CRS companies for the services.
(ii) The second element relates to maintenance of an updated data base in respect of travel related data of airlines on real time basis by the data processing center (DPC) or Master Computer System (MCS), as obtained from airlines computer system and then making provision for online data access or retrieval from data base of DPC or MCS by both the airlines and the Air Travel Agents.
Observing appellant to be the major beneficiary of such CRS computer network in as much as the same enables it to make known the seatwise availability on each of the flights to the booking agents, update its own data base after each booking of tickets through the data base of CRS computer network, besides enabling it to generate a passenger manifest before the departure of the flight that the appellant was alleged to be the service recipient of online data information services from the said foreign based companies invoking the provisions of Rule 2 (1) (d)
(iv) of Service Tax Rules, 2002 the appellant was alleged liable to pay service tax under reserve charge mechanism. Accordingly, show cause notice bearing No. 02/07 dated 22.04.2009 was served upon the appellants proposing recovery of service tax amounting to Rs. 51,48,70,713/- along with the proportionate interest and the appropriate penalties. The said proposal has been confirmed vide order-in-original No. 6/2014 dated 4 ST/52780 OF 2014 03.02.2014. Being aggrieved, the appellant is before this Tribunal.
3. We have heard Shri Kunal Aggarwal, learned counsel for the appellant and Shri Ajay Jain, learned Special Counsel for the department.
4. Learned counsel for the appellant has submitted that the appellant has not received the alleged OIDAR service from the foreign based CRS companies as, is alleged by the department, for the simple reason that there was no provision of data or information from those companies to the appellant. It is submitted that issue was earlier decided by the Tribunal in the case of United Telecom Ltd. versus Commissioner of Service Tax, Bangalore1 wherein it was held that the services could not be classified as OIDAR service if the service provider merely established an infrastructure for the service recipient and the data transmitted over such electronic infrastructure belong to the service recipient commodities. However the department had relied upon the another decision in the case of Jet Airways India Ltd. versus CST, Mumbai2 wherein the arrangements between airlines and foreign CRS companies were held to be qualified as import of OIDAR services.
5. It is further mentioned that since there were contrary decisions of Division Benches of this Tribunal that the matter was referred to the Larger Bench. The Larger Bench vide interim
1. 2009 (14) S.T.R. 212
2. 2016 (44) S.T.R. 465 (Tribunal) 5 ST/52780 OF 2014 order No. 02/2025 dated 23.06.2025 has decided the reference in favour of the appellant. It has been held that since the data or information was owned by and belonged to the appellant, the services provided by CRS companies to the appellant cannot be taxed under OIDAR services. Learned counsel submitted that since the issue remains no more res-intregra the order under challenge holding the agreement of the appellant with foreign based companies as an arrangement of receiving OIDAR services taxable under reverse charge mechanism as against the appellant, is liable to be set aside. Appeal is accordingly prayed to be allowed.
6. While rebutting the submissions made on behalf of appellant, learned Special Counsel has duly acknowledged the interim order of the Larger Bench of this Tribunal. However, it is submitted that there is no conflict in two sets of the decision, the issue was not fit to be referred to the Larger Bench as two set of decisions are in two different set of facts. The facts of case in „United Telecom‟ (supra) are entirely different from the facts of the case in British Airways (supra). In the case of United Telecom (supra), the service being provided was held to be a telecommunication service and not OIDAR service. There were no arguments as to what constitutes the essential elements of OIDAR. Even though there was data access and retrieval involved, but because the data was owned by the service provider, they were not providing the OIDAR service. The argument of the appellant was that they were providing a 6 ST/52780 OF 2014 different service which did not involve access or retrieval of any data on their part. However, in case of British Airways, the service provided by the CSR companies was in question; which is akin to the services being provided in the impugned appeal, and it was held to be OIDAR service. However, in view of the acknowledgement to the decision of the Larger Bench the appeal is prayed to be disposed of accordingly.
7. Having heard both the parties and perusing the entire record, we observe that the issue to be adjudicated in the present appeal is :
Whether services provided by CRS companies to the appellant would be taxable under the category of online information and data access or retrieval services.
8. We have perused the acknowledged interim order No. 02/2025 dated 23.06.2025 in service tax appeal No. 52780 of 2014, the issue adjudicated vide the said order is whether the services provided by computer reservation system companies to M/s Air India Ltd. (earlier known as Indian Airlines Ltd.) would be taxable on a reverse charge basis under the category of online information and data base access or retrieval services defined under section 65 (75) of Finance Act, 1994 and made taxable under section 65 (105) (zh) of the Finance Act. Further perusal reveals that the Hon‟ble Larger Bench has dealt with two contrary sets of decisions i.e in the case of United Telecom Ltd. (supra)_ and Jet Airways (supra) the Jet Airways had followed the 7 ST/52780 OF 2014 earlier decision in British Airways versus Commissioner of Central Excise (Adjudication), Delhi3. It has been held as follows :-
"41. Before I go to the said Section, it would be worthwhile referring to certain undisputed facts. The CRS/GDS companies are admittedly located outside India and do not have any office in India; "online data based access/or retrieval service‟ stands provided by the said CRS/GDS companies in terms of the agreement entered between them and British Airways, UK and the payment for the said services stand made by British Airways, UK. As such, the service provider is located in a foreign land, service is being mainly provided to British Airways UK, which is also located outside India and the payment for such services are being made by British Airways, UK outside India only.
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
3. 2013 (36) S.T.R. 598 (Tri. - Del.) 8 ST/52780 OF 2014 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- 9 ST/52780 OF 2014 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 10 ST/52780 OF 2014 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 11 ST/52780 OF 2014 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 Revenue‟s 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 appellant‟s 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 Hon‟ble 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 Hon‟ble Supreme Court‟s decision in the case of Formica India -
12 ST/52780 OF 2014 1995 (77) E.L.T. 511 (S.C.), wherein the Hon‟ble 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".
9. The present appeal has been dealt with pursuant to the said interim order. The direction in the said decision is absolutely binding upon this Division Bench and we have no reason to differ there from. Resultantly we hold that the agreements of the appellants with computer reservation companies do not fall under the taxable category of OIDAR services. Demand was wrongly proposed and thus has wrongly been confirmed. With these observations, we hereby set aside the order under challenge consequent thereto the appeal stands allowed.
(Order dictated and pronounced in open court.) (DR. RACHNA GUPTA) MEMBER (JUDICIAL) (P.V. SUBBA RAO) MEMBER (TECHNICAL) PK