Case Law Details
Singapore Airlines Vs Commissioner of Service Tax (CESTAT Mumbai)
CESTAT Mumbai held that the provisions of service to the overseas entity by an entity situated abroad does not merit liability under section 66A of Finance Act, 1994. Accordingly, set aside tax recovery from M/s Singapore Airlines as ‘deemed provider’ of ‘online information data base access or retrieval service’.
Facts-
This appeal of M/s Singapore Airlines lies against order-in-original in which tax liability of ₹5,78,00,015/ has been ordered for recovery from them as ‘deemed provider’ of ‘online information data base access or retrieval service’ taxable under section 65(105)(zh) of Finance Act, 1994.
The allegation against the appellant is that they availed the services of ‘computer reservation system’ provider based outside India for their passenger handling and operational requirements for consideration on which tax liability has not been discharged by them as required under section 66A of Finance, Act, 1994.
Conclusion-
Held that considering the several decisions in which the Tribunal has consistently taken the stand that the provisions of such service to the overseas entity by an entity situated abroad does not merit liability under section 66A of Finance Act, 1994.
The impugned order not identified the local office of the airline operator as the recipient of the service. Respectfully following the decision, we set aside the impugned order and allow the appeal.
FULL TEXT OF THE CESTAT MUMBAI ORDER
This appeal of M/s Singapore Airlines lies against order-in-original no. 4-8/STC-I/SKS/13-14 dated 30th April 2013 of Commissioner of Service Tax – I, Mumbai in which tax liability of ₹5,78,00,015/ has been ordered for recovery from them as ‘deemed provider’ of ‘online information data base access or retrieval service’ taxable under section 65(105)(zh) of Finance Act, 1994.
2. The allegation against the appellant is that they availed the services of ‘computer reservation system’ provider based outside India for their passenger handling and operational requirements for consideration on which tax liability has not been discharged by them as required under section 66A of Finance, Act, 1994.
3. Learned Counsel for the appellant submits that the issue in dispute stands covered by the decision of the Tribunal in British Airways v. Commissioner of Central Excise (Adjn), Delhi [2014 (36) STR 598 (Tri.-Del.)], in Qatar Airways v. Commissioner of Service Tax, Mumbai – I [2017 (6) GSTL 335 (Tri.Mumbai)], in Korean Air v. Commissioner of Service Tax, Mumbai – I [2018 (8) GSTL 428 (Tri.Mumbai)] and in Air France v. Commissioner of Service Tax, Delhi [2019 (20) GSTL 367 (Tri.-Del.)].
4. We have heard Learned Authorised Representative who submitted that the adjudication order has rightly made out a case for recovery of the tax liability from the appellant herein and that the law prescribing the same has been elaborated therein.
5. Considering the several decisions in which the Tribunal has consistently taken the stand that the provisions of such service to the overseas entity by an entity situated abroad does not merit liability under section 66A of Finance Act, 1994. It is seen from the decision of the Tribunal in re Korean Air
8. Having heard both sides, we note that reliance has been placed on various decisions that invariably address the Explanation in Section 66A of Finance Act, 1994 in the context of various impugned demands and the arguments cited before the Tribunal. Before we proceed to ascertain the applicability of those decisions to the present dispute, it behoves us to refer to the manner in which the adjudicating authority has found it legal and proper to crystallise the demand on the appellant.
9. Following an elaborate narration of the transactions, the adjudicating Commissioner arrives at the classification of the service thus
… …. It is a fact that the CRS companies ‘4.2.2 do not own the data but they do involve in processing in the two way transactions of data between airlines and travel agents/passengers. They provide an electronic interface that facilitates this data processing and its retrieval/excess by the client.
4.2.3 the way, in which the transaction takes place, I find that the CRS companies provide the Noticee service in relation to access and retrieval of online data of the Noticee to their Travel agents and vice versa. I also find that any service provided by any person in relation to access and retrieval of online data is correctly classifiable under the category of ON-LINE INFORMATION AND DATABASE ACCESS AND/OR RETRIEVAL SERVICES. As varied Section 65 the definition of the said service is reproduced below.
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… … … I find the ownership of the data is 4.2.4 immaterial here. As per the definition, taxable service is any service provided ought to be provided to any person, by any person, in relation to on-line information and database access retrieval or both in electronic form through computer network, in any manner. Reading the definition would show that the definition is verified so as to cover all types of activities which are provided IN RELATION TO On Line Information and Data base Access or Retrieval. Further the use of the word IN ANY MANNER at the end of the definition further expands the scope of the service as CRS companies carries out the work of real-time processing of data received from airlines as Willis from travel agents and involved in the two-way transmissions of data between airlines on one hand and travel agents and passengers on the other hand. This service is definitely in relation to On Line Information and Data base Access or Retrieval. Even if it is accepted that the data do not belong to the CRS companies but as the definition of OLIDAR covers the activity of providing data or information, therefore the actor facilitating of providing data of the airline companies to the travel agents and vice versa is clearly covered in the definition of OLIDAR…… ’
10. It is clear from the above that the adjudicating authority has transposed the transactions onto a portion of the definition in Section 65(75) and Section 65(105)(zh) of Finance Act, 1994 without any discussion to identify the appellant as the recipient of the service and, in accordance with the special provisions of Section 66A, the deemed provider of the service for liability to tax. This is an essential requirement considering the manner in which Section 66A has been enacted as a deviation from the general norm in Section 66 of Finance Act, 1994. It would appear to us that the tenor of the various decisions handed down by the Tribunal, and cited by the rival sides, have not been appreciated for the valorous attempts to clarify this much-misinterpreted provision of Finance Act, 1994. It, therefore, devolves upon us to enlighten both disputants and, at the same time, provide ourselves with that steady and unwavering beam within which we will find the resolution to this dispute.
11. After a futile attempt, through a provision in the Service Tax Rules, 1994, to accord a national treatment to services received from abroad that should, in equity, be subject to the same tax that a provider and receiver situated within the domestic territory is, legislative sanction to incorporate Section 66A in Finance Act, 1994 was accorded with effect from 18th April, 2006. The key expression authorising the collection of tax dues from the recipient of the service as a deviation from the norm of placing the burden on the provider is
‘…….and such taxable service shall be treated as if the recipient had himself provided this service in India, and accordingly all the provisions of this Chapter shall apply :’
12. It is apparent that legislative wisdom considered it necessary to discard for this purpose the use of the expression ‘person liable to tax’ that applies to ‘reverse charge’ in a domestic situation and to substitute it with the legal fiction of the recipient being deemed to be the provider of the service and, thereby, subject not only to the tax but also all other obligations and privileges ensconced in the Chapter. It is not the force of administrative convenience that prompted the alteration but the dilemma of having to collect a tax from a nebulous entity that could not be identifiable as the corporeal ‘person’ referred to in the various enumerations in Section 65(105) of Finance Act, 1994 and the apparent lack of jurisdiction over the overseas entity. Conversely, the recipient of the particular service who is to be so subjected to tax must necessarily be associated with the service in some manner; it was to give effect to such intention that the Taxation of Service (Provided from Outside India and Received in India) Rules, 2006 was framed. This, again, is apparent from the content of the Rules and the authority under which the Rules are framed; these Rules do not flow from Section 66A but invoke the general rule-making powers, as well as the power to exempt, conferred in Finance Act, 1994. These Rules enable the identification of the person in receipt of the service in the context of the specific taxable service. We, therefore, come to the conclusion that, where Section 66A of Finance Act, 1994 is sought to be invoked, the classification of the service must necessarily be dealt with in concatenation with identification of the recipient. The impugned order has failed to do so and is liable to be set aside on that count itself.
13. Nevertheless, we must also address the larger issue of the intention of the sovereign legislature in placing the burden of tax on the recipient of the service. The economic reality of cross-border commercial transfer of goods has been grafted into the tax laws of most countries in near-perfect visualisation of the flows and has evolved as a nearly universal code. The intangibility of services, unfortunately, does not easily lend itself to such a clear perception. Such transnational engagement in services take multifarious forms which are not readily amenable to straitjacketing as ‘one rule fits all’; hence, the selective culling of judicial interpretations in a vain attempt to persuade us to adopt respective points of view. Most disputes have stemmed from the single-minded determination to tax by relying upon the Explanation in Section 66A that disaggregates units within the same commercial entity and the refuge sought by assessees in this disaggregation to claim exclusion from taxability. Ignoring these expectations, an analysis of the various decisions points to the convergence of thinking apparent in the judicial interpretations.
14. In re British Airways, the tax authorities sought to subject the consideration earned by ‘CRS/GDS’ operators on the rendering of a facility to IATA agents in India from a contract between two overseas entities; the rationale for such a proposal was the residential status of the agents combined with the existence in India of a branch of the overseas entity that entered into a contract with ‘CRS/GDS’ operators. Convinced that tax liability under Section 65(105)(zh) of Finance Act, 1994 did arise, and confronted by the impossibility of collecting it from agents by recourse to Section 66A of Finance Act, 1994, the suggestion that British Airways (India), vicariously for British Airways (UK), should be deemed to be the recipient in India was not found acceptable because the Indian entity was held to be distinguishable from its overseas parent in view of the legislated disaggregation. Learned Counsel has seized that lifeline.
15. We take note of pendency of the appeal of Revenue before the Highest Court in the land but, in the absence of any stay of the order of the Tribunal, we have no choice but to remain on the path already trodden by this Tribunal. In the light of our discussions supra on the necessity of a harmonious construction of Section 66A and the Rules framed for its implementation, we do not merely rely upon the precedent of the decision in re British Airways but also find that the impugned order has not established the appellant before us to be the recipient of the service provided by ‘CRS/GDS’ operators. We also take note that the impugned order has, while recording the submission of the appellant that establishments of ‘CRS/GDS’ operators did exist within the country, failed to accord further consideration to that aspect; in all probability, the lack thereof in the show cause notice precluded a foray in that direction. The decision of the Tribunal in the identical set of facts in re British Airways also resolves the appeal in favour of M/s. Korean Air.
16. The decision of the Tribunal in re Paul Merchants Ltd., though delivered in resolving a dispute of taxability of a service purportedly rendered within India vis-a-vis exclusion claimed as exporter of service, emphasised that taxability arises not merely from conformity with the descriptions in Section 65(105) of Finance Act, 1994 but also with reference to the identification of recipient of the service. The authorities sought to tax the commission received by entities in India from M/s. Western Union, who had engaged to handle remittances from abroad to persons in India through these entities, as consideration for ‘business auxiliary service’ rendered within India. Considering the nature of the service envisaged in Section 65(19) of Finance Act, 1994 and the scheme of Export of Service Rules, 2005, it was held that such service had been rendered to the remitters abroad and, therefore, outside the scope of taxability under Section 66 of Finance Act, 1994. Though the setting was one of export of services, the principle that was espoused, viz., the identification of recipient of the service being crucial to taxability, is the fulcrum of the decision in re Paul Merchants Ltd.
17. In re Torrent Pharmaceuticals Ltd., relied upon by learned Authorised Representative, the Tribunal had held that, the Explanation in Section 66A notwithstanding, the indivisibility of branches and head office precluded the crystallisation of a tax liability on payments effected between them. The decisions in re 3i Infotech Ltd. and in re Tech Mahindra Ltd. to relieve the payment flows between the Indian headquarters and their overseas branches, which had been established to function as convenient intermediaries, was also founded on this same indivisibility. These decisions took note of the legal fiction of disaggregation as having been intended to forestall any attempt to use branch transactions as a cover to blur the identification of recipient of service. This does not further the case put forth by learned Authorised Representative that the decision in re British Airways may have had a different outcome had the benefit of the later decisions been available. On the contrary, all the decisions flow from the essential requirement to pinpoint the service, the provider of the service and the recipient of the service for the consideration to be taxable under Finance Act, 1994.
18. From these decisions, the common thread that makes itself visible may be stated thus :
(a) service tax is leviable only when recipient and providers are identifiable and identified;
(b) unlike domestic transactions, the identity of the provider/recipient are not distinct in cross-border service agreement
(c) in the context of exclusion of tax from the value of services that are exported, the Export of Service Rules, 2005 provide the framework for such blurring of the recipient in the context of services rendered
(d) such blurring or lack of administrative jurisdiction over provider cannot be allowed to stand in the way of taxing services that are sourced from a provider outside India
(e) to overcome such blurring and to provide the mechanism for collection, Section 66A deems it sufficient to identify the recipient which is, however, a sine qua non for fastening liability
(f) the legal fiction of disaggregation does not waive the obligation to identify the recipient in the context of the service but is intended to preclude taking refuge under the umbrella of corporate identity when the Indian headquarters is the recipient of a service within the meaning of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.
19. The attempt in the present dispute was to hold the Indian branch of a foreign entity liable to tax on consideration paid to an overseas entity arising from contractual relationship of the foreign headquarters of the appellant with ‘CRS/GDS’ operators outside the country. The thread of provider-recipient relationship as interpreted by Tribunal in the several decisions is unwavering and constant. The decision of the Tribunal in re Jet Airways would also not be contrary to the decision in re British Airways as the crystallisation of liability in the former was grounded in the identification of the Indian headquarters as the recipient of the service. Consequently, the reference to the decision of the Hon’ble Supreme Court in re : Paras Laminates (P) Ltd. in the submissions of learned Authorised Representative for consideration of the present dispute by a Larger Bench does not appear to be of relevance.
6. The impugned order not identified the local office of the airline operator as the recipient of the service. Respectfully following the decisions supra, we set aside the impugned order and allow the appeal
(Order pronounced in the open court on 26/09/2022)
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