Sabre Travel Network India P Ltd Vs Commissioner of CGST & Central Excise (CESTAT Mumbai)
Summary: The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal considered five connected appeals involving Sabre Travel Network (India) Private Limited, formerly Abacus Distribution System (India) Pvt. Ltd., and the Revenue concerning service tax on commissions and marketing service fees received from its Singapore-based parent company. The assessee operated as a national marketing company for the Abacus Computer Reservation System (CRS), promoting the reservation software among Indian travel agents and receiving commission linked to bookings and a separate marketing service fee. The Department treated these activities as intermediary services performed in India under Rule 9(c) of the Place of Provision of Service Rules, 2012, and confirmed a service tax demand of ₹50,65,35,795 for July 2012 to March 2016, together with interest and penalties. Connected appeals concerned rejection of CENVAT credit refund claims filed on the footing that the services qualified as exports.
The assessee contended that it supplied services to an overseas entity under a principal-to-principal arrangement and received consideration in convertible foreign currency. It relied on earlier decisions treating similar activities as exports under the pre-negative-list service tax regime. The Tribunal examined the evolution of service taxation from the classification-based system to the negative-list regime introduced in July 2012 and emphasized that the statutory concept of an intermediary required examination of the contractual arrangements, the main service, the flow of consideration and the provider’s commercial autonomy. It held that receipt of consideration from an overseas entity and the location of that entity outside India were not, by themselves, sufficient to establish export of service when a specific place-of-provision rule located the service in India.
Examining the CRS distribution arrangements, the Tribunal observed that the overseas software licensee contracted with airlines and hospitality providers, while the Indian assessee identified and promoted participation by travel agents. The overseas entity received booking-linked payments and compensated both travel agents and the Indian assessee from those receipts. The assessee’s commission was therefore subordinate to the consideration for the wider booking service and did not represent an independently negotiated main service supplied on its own account. Consequently, the Tribunal held that the booking-related commission constituted consideration for intermediary service rendered in India, attracting service tax under Rule 9 of the Place of Provision of Service Rules, 2012.
However, the Tribunal distinguished the fixed marketing service fee from booking-linked commission because the contractual and accounting evidence did not sufficiently establish the nature of the activities for which that fee was paid. It also observed that the adjudicating authority had confirmed the entire amount proposed in the show cause notice despite acknowledging a discrepancy in the computation. The Tribunal therefore directed reconsideration of the marketing service fee, recomputation of tax liability, eligibility to utilize CENVAT credit, refund claims, limitation and penalties. While upholding the taxability of the booking commission, it remanded the remaining issues to the respective original authorities. The five appeals were disposed of accordingly, without finally sustaining the full amount originally demanded.
List of Cases Discussed
- British Airways Vs Commissioner of Central Excise, 2014-TIOL-979-CESTAT-DEL — Cited concerning the taxability of computer reservation system transactions as online information and database access or retrieval services.
- Jet Airways (I) Ltd Vs Commissioner of Service Tax, Mumbai, 2016 (8) TMI 989 (CESTAT Mumbai) — Referred to regarding service tax treatment of CRS software transactions.
- D’Pauls Consumer Benefit Ltd Vs Commissioner of Central Excise, New Delhi, 2017 (52) STR 429 (Tri.-Del.) — Discussed regarding consideration received in connection with travel-agent activities and business auxiliary services.
- Blue Star Air Travel Services Pvt Ltd Vs Commissioner of Service Tax, 2018-TIOL-1233-CESTAT-AHM — Cited for the taxability of marketing services rendered to CRS software licensees.
- All India Federation of Tax Practitioners Vs Union of India, (2007) 7 SCC 527 (Supreme Court) — Referred to for the destination-based consumption-tax character of service tax.
- Paul Merchants Ltd Vs Commissioner of Central Excise, Chandigarh, 2012-TIOL-1877-CESTAT-DEL — Discussed in the context of the service recipient’s relevance under the earlier service tax regime.
- Union of India Vs Intercontinental Consultants and Technocrats Pvt Ltd, 2018 (10) GSTL 401 (Supreme Court) — Referred to regarding the scope of taxable consideration in a service transaction.
- Acquire Services Pvt Ltd Vs Commissioner of Service Tax, Delhi, (2014) 36 STR 1148 (Tri.-Del.) — Relied upon by the assessee concerning business auxiliary services and export treatment.
- Abacus Distribution Systems (India) Pvt Ltd Vs Commissioner of Service Tax, Mumbai-I, 2014-TIOL-1617-CESTAT-MUM — Earlier decision concerning the assessee’s activities under the pre-negative-list regime.
- Go Daddy India Web Services Pvt Ltd, 2016 (46) STR 806 (AAR) — Advance ruling cited by the assessee on the characterization of services supplied to an overseas entity.
- Universal Services India Pvt Ltd, 2016 (42) STR 585 (AAR) — Advance ruling cited by the assessee in support of its export-of-service position.
- Sunrise Immigration Consultants Private Limited Vs Commissioner of Customs, Central Excise & Service Tax, Chandigarh, 2018 (5) TMI 1417 (CESTAT Chandigarh) — Cited concerning intermediary classification of referral and commission-based services.
- Evalueserve SEZ Pvt Ltd and Anr Vs Commissioner of Customs, Central Excise & Service Tax, Chandigarh, 2018 (12) TMI 1242 (CESTAT Chandigarh) — Relied upon concerning intermediary classification and overseas consideration.
- Valmiki Consultants Pvt Ltd Vs Commissioner of Customs & Central Tax, Hyderabad, 2008 (11) TMI 1085 (CESTAT Hyderabad) — Cited as following Sunrise Immigration Consultants and related decisions.
- Commissioner of Goods & Service Tax, Gurgaon-II Vs Orange Business Solutions Pvt Ltd, 2019-VIL-332-CESTAT-CHD-ST — Referred to concerning contractual examination of intermediary services.
- Verizone India Pvt Limited Vs Commissioner of Service Tax, Delhi, 2019-VIL-527-CESTAT-DEL-ST — Cited concerning the application of intermediary-service provisions.
- Principal Commissioner, CGST, Delhi South Vs Comparex India Pvt Ltd; Final Order No. 50023/2020; 19/01/2020 — Discussed as another decision emphasizing contractual arrangements when determining intermediary status.
- Joint Commissioner of Income Tax, Surat Vs Saheli Leasing & Industries Ltd, 2010 (253) ELT 705 (Supreme Court) — Cited by the Revenue in its submissions.
- Krishena Kumar and Others Vs Union of India and Others, (1990) 4 SCC 207 (Supreme Court) — Cited by the Revenue in its submissions.
- Principal Commissioner of Central Excise, Pune-I Vs Advinus Therapeutics Ltd, 2016-TIOL-3138-CESTAT-MUM — Relied upon by the assessee concerning continuity of export treatment after introduction of the negative-list regime.
FULL TEXT OF THE ORIGINAL ORDER OF CESTAT MUMBAI
After dismissing application of Revenue for stay of operation of order impugned by them, we take up four appeals of M/s Sabre Travel Network (India) Private Ltd and one of Revenue for disposal by this common order as the issue in dispute, arising out of one order of original authority and one of first appellate authority, has identical origin. The appellant-assessee (formerly known as M/s Abacus Distribution System (India) Pvt Ltd), a subsidiary of M/s Sabre Asia Pacific Pte Ltd, Singapore, was appointed as ‘national marketing company’ of the parent entity through ‘sub-distribution agreement’ dated 6th June 1996 envisaging promotion, marketing and distribution of Abacus Computer Reservation System (CRS) in return for commission on each booking for air travel or accommodation effected on the system by subscriber travel agents in India. In addition, ‘marketing service fee’ was also to be received by them for providing assistance services in operating the computer reservation system (CRS) software.
2. Proceedings were initiated against the appellant-assessee for recovery of service tax that had not been discharged as ‘intermediary’ on ‘commission’ and ‘marketing service fee’ received for the period from 1st July 2012 to 31st March 2016 and which, in accordance with rule 9(c) of Place of Provision of Service Rules, 2012 that deems the location of the provider as the place of provision, has been rendered in the taxable territory. The proposal in show cause notice dated 19th April 2017 for recovery of ₹ 50,65,35,795, under section 73(1) of Finance Act, 1994, along with applicable interest under section 75 of Finance Act, 1994, was confirmed and penalty of like amount imposed under section 78 of Finance Act, 1994 with further penalty of ₹ 5000 under section 77 of Finance Act, 1994 vide order-in-original no. 96/COMMR/(DR. KNR)/CGST & CEX/MC/2018-19 dated 6th November 2018 of Commissioner of CGST & CEX, Mumbai Central. The assessee is in appeal against this order.
3. M/s Sabre Travel Network (India) Pvt Ltd had, in accordance with rule 5 of CENVAT Credit Rules, 2004, filed four applications for refund of ₹ 28,41,563, ₹ 37,12,591, ₹ 15,85,672 and ₹ 13,63,439, pertaining to each quarter between October 2013 and September 2014, claimed to be the accumulated credit of tax paid on ‘input services’ attributable to export of ‘output services’ to M/s Abacus International Pte Ltd, Singapore and to M/s Abacus Travel Systems Pte Ltd, Singapore; these were adjudicated by the competent authority in three orders. While that for October 2013 to March 2014, against 14 invoices, was summarily rejected for not being compliant with limitation of one year from the relevant date, prescribed in section 11B of Central Excise Act, 1944 on the assumption of correspondence with export of goods, the other two orders held that three of the six invoices, raised on M/s Abacus International Pte Ltd, did not conform to conditions in rule 6A of Service Tax Rules, 1994, that one invoice in each application was barred by limitation of time, and that quantum of credit disallowed, for having been wrongly availed, was in excess of the eligible refund of ₹ 6918 and ₹ 7780 respectively and, therefore, warranted rejection in toto. The upholding of non-conformity with rule 6A of Service Tax Rules, 1994, vide order-in-appeal no, PK/ST-I/MUM/46-48/16-17 dated 31st July 2017 of Commissioner of Service Tax (Appeals), Mumbai-II, while setting aside the bar of limitation in some of the invoices has brought those disputes also to our doorstep. While the appeal of Revenue is limited to the finding in the impugned order that the claims, originally held to be time-barred, were eligible, that of the assessee challenges the finding that service rendered to M/s Abacus International Pte Ltd did not amount to export.
4. It may not be out of place to take note that similar proceedings to recover tax on ‘commission’, claimed to be proceeds of export of ‘business auxiliary services’ for the period from 2003 to 2010, was confirmed in adjudication but, having been discarded by the Tribunal in order no. A/1106-1108/14 dated 20th June 2014, is presently pending before the Hon’ble Supreme Court on appeal by Revenue. Notice was also issued for recovery of tax on ‘marketing fee’ received between October 2006 and February 2010 which is yet pending for adjudication. For the period after February 2010, it appears that a conscious decision was taken not to issue notices as the condition of ‘used outside India’ was excluded in the relevant Rules for qualifying as export of service. The present proceedings, though, relate to the period after the ‘negative list’ regime was notified in July 2012, with Place of Provision of Service Rules, 2012 as the pivot for primary evaluation of one among the several conditions, stipulated in rule 6A of Service Tax Rules, 1994, to be fulfilled without exception for qualifying as export.
5. There is no dispute that, for want of exclusion from the definition of service, of enumeration in the negative list or of exemption under any notification, the transaction is otherwise taxable. The claim to being an exporter is based on the contract, asserted to be on principal-to-principal basis, which places the recipient in Singapore and obliges that entity to remit the dues in convertible foreign currency. The scope and terms of the contract were dealt with at length by Learned Counsel and, placing emphasis on the decision of Tribunal in the dispute for the earlier period, it is contended by him that recourse to ‘intermediary’ was prompted solely by the determination to saddle them with tax liability, despite the consideration being nothing but export proceeds realized in foreign currency, on the impugned transaction.
6. The thrust of arguments advanced by Learned Counsel for the appellant-assessee is the equivalence of the transaction, affirmed as exports by the Tribunal in the pre-‘negative list’ era, with those continued unchanged even thereafter. According to him, the new regime has merely broadened the tax base without any impact on existing assessees and that tax authorities were not justified in denying the privileges that, in the erstwhile regime, had been their entitlement. Elaborate arguments and submissions were made by Learned Counsel on these lines and Learned Authorized Representative was no less forceful in urging that the impugned orders, except to the extent of the challenge mounted by Revenue against allowing refunds, be upheld.
7. The appellant-assessee has an agreement with the parent company, licenced for the Asia Pacific region by the owner, to market and promote computer reservation system (CRS) software in India. Prima facie, this should have been a ‘no brainer’ but the judicial time expended on disputes over taxation of computer reservation system (CRS) software is testimony to the complexity of the multiple transactions in the consummation of the airline operator – passenger engagement on e-commerce platforms and which bears baring. No less important to the narration is the schema for acknowledging exports, essential for the privilege of being exempted from tax on intangibles and, more particularly, the changes wrought by the ‘negative list’ regime that was found by the tax authorities to warrant re-visit of tax liability.
8. Computer reservation system (CRS) software is the platform that enables conflux of business interests of airline operators and of travel agents in the ticketing of passengers intending to travel on scheduled flights. The transaction between owners, or licencees, of the software and airline operators rendered, by the presence of both or even of the latter, in the domestic territory has been held by the Tribunal as taxable, in the hands of the provider – actual or deemed – of ‘online information and database access or retrieval’ service, in several decisions arising from proceedings initiated against airline operators. Prominent among these are British Airways v. Commissioner of Central Excise [2014-TIOL-979-CESTAT-DEL] and Jet Airways (I) Ltd v. Commissioner of Service Tax, Mumbai [2016 (8) TMI 989 – CESTAT MUMBAI]. Access to the system is provided to travel agents (subscribers) whose incentivizing through appropriate share of the ticket discounts offered by the airlines has been held by the Tribunal, in D’Pauls Consumer Benefit Ltd v. Commissioner of Central Excise, New Delhi [2017 (52) STR 429 (Tri-Del)], to be taxable consideration for rendering ‘business auxiliary service’ in the erstwhile regime. Entities, contracted by competing owners/licencees for marketing the use of their software platforms among travel agents in return for a share in the commission, were held by the Tribunal, in Blue Star Air Travel Services Pvt Ltd v. Commissioner of Service Tax [2018-TIOL-1233-CESTAT-AHM], to be taxable for rendering of ‘business auxiliary service’ to the licenced holder of the software. The underlying web of transactions were segregated as different taxable services though, as pointed by Learned Counsel with reference the demand raised on the assessee herein for providing ‘business auxiliary service’, saved from liability to the extent of conformity with Export of Service Rules, 2005. Thus, even by the argument put forth by Learned Counsel, the impugned activities are conceded to be service in the new regime and taxable as well.
9. We now turn to the fitment of exports within the tax scheme as intangibility of services does not lend itself to as easy a discernment as in commodities. And yet, it must needs be for exclusion from tax without compromising taxability. In its truest sense, service is the satisfying of one’s need through another person engaged as a ‘provider’, sine qua non in any service transaction, and afforded by accumulated capital. Till the imposition of the writ of the State on this sector of the economy, service attracted only statistical attention for which cross-border transactions could be identified by currency flow. With the increasing pressure on manufacturers and trading enterprises to scale up in size and to specialize in competencies for achieving cost optimality, its leverage could not be ignored by the State and, as always, tax was, so to speak, the foot in the door though, by and large, of little concern to the general populace and most service providers owing to the restricted base. The five-fold increase between 2000-01 and 2006-07, encompassing about a hundred commonplace activities within the tax net, signposted the imminent transition to ‘negative list’ regime. The adroit easing of the ‘negative list’ phase into the sphere of tax administration was accomplished by incorporating parallel provisions in Finance Act, 1994 to reflect not just the foundational shift but also the culmination of carefully calibrated strategy to mitigate surefire resistance anticipated even at the genesis and to facilitate the evolution thereafter.
10. With taxpayer fatigue, engendered by prohibitively high rates, frenetic enforcement overreach and incessant adversarial litigation, threatening to enervate the economy, public soreness presaged anything but ready acquiescence to taxing of services. Not only would the broadening of the tax base have to be phased but the impediment of intangibility warranted definitional certitude of taxable services to forestall adversarial enforcement. Such enumeration, typical of classificatory regime of tax which inherently limited impost to specific services and describing the activity to be taxed, could not do without stipulating the recipient but for whom service would remain unfulfilled. The recipient, being the destination of the service and the source of the consideration, made manifest the rendering of service. The description of the levy as ‘destination based consumption tax’ by the Hon’ble Supreme Court in All India Federation of Tax Practitioners v. Union of India [(2007) 7 SCC 527)] was the ray of sunbeam illuminating a dawn that, at its meridian zenith, inspired the decision of the Tribunal in Paul Merchants Ltd v. Commissioner of Central Excise, Chandigarh [2012-TIOL-1877-CESTAT-DEL] to place the recipient inextricably within the context of tax on services. Not least of such pronouncements is the decision of the Hon’ble Supreme Court in Union of India v. Intercontinental Consultants and Technocrats Pvt Ltd [2018 (10) GSTL 401 (SC)] that restricted the taxable value to the extent of description of the taxable transaction manifested through provider and recipient.
11. That design, comprising specific descriptions, encapsulated within the provider-recipient engagement, and consideration, though difficult enough to administer in the domestic jurisdiction, nevertheless, did, inherently, facilitate exemption of exports as the legal eclipsing of the recipient from, and in, the tax jurisdiction could not survive definitional conformity. Two significant developments were to intrude on this simple artifice: maturation of the scheme of CENVAT credit by absorption of service tax within its fold and the according of national treatment to services procured from outside the tax jurisdiction. With taxable ‘output services’ as the pivot for setting off duties and taxes borne on procurement of goods and services, refund of accumulated credit, ascribed to exports, could be appended to the architecture of the tax only by positive evidence, and not by presumption, of consumption outside the domestic jurisdiction. Export of Service Rules, 2005, notified initially under the general rule-making powers conferred by section 94 of Finance Act, 1994, afforded the required ascertainment to be eligible for refunds and it was only with the amendment of 2006 for bringing the Rules under the umbrella of the power of exemption, conferred by section 93 of Finance Act, 1994, that exports were depicted as mirror image of the flow that was deployed for comprehending cross-border transactions in the reverse direction to operationalize the legal fiction of section 66A of Finance Act, 1994. With that adjunct for identification of non-domestic transactions in service for either levy or exemption, as the case be, cross-border transactions were fully integrated into the tax system. The Point of Taxation Rules, 2011 enabled the shift from receipt-based to accrual-based liability. The legislated evolution of the scheme of tax was, thus, no less robust than the judicial.
12. With this ontogeny, and, coincidentally, corresponding to the age of attainment of majority, the stage was set to give free rein to taxation of services by phasing out the classificatory regime to make room for the ‘negative list’ regime. Not unnaturally, the principal, and adjunct, machinery that had evolved till then were embedded in the new scheme of Finance Act, 1994, as section 66B, 66C, 66D and 66E, to resonate with
‘(44) …any activity carried out by a person for another for consideration, and includes a declared service, but shall not include – ..’
assigned to ‘service’ in section 65B of Finance Act, 1994 not only to cover all ‘activities’ save those exogenic to, and excepted in, the definition but also those excluded out of, and exempted from, levy in ‘negative list’ or by notification. Also, here the expression ‘for another’, as substitute for ‘to any person’, eliminates the erstwhile touchstone of ‘recipient’ for determination of the rendering of service and thus conflates the definition and ‘service’ in its essential form; resort to ‘recipient’ was henceforth restricted to situations, specifically articulated, where such recognition is necessary for harmony with the charging provision. In the new scheme of tax, ‘consideration’, as also the ‘provider’, continued to be no less vital than before for discerning the service transaction even as ‘recipient’, with the obliteration of carefully crafted boundaries inherent to the definition of ‘taxable services’ by the generalized explication as the substituting of self-performance, had ceased to be.
