By TIOL News Service

NEW DELHI, JULY 24, 2013: THE appellant Thai Airways International Public Company Ltd., having their office at The American Plaza, Intercontinental Eros, Nehru Place, New Delhi are a branch office in India of Thai Airways International Public Ltd., Bangkok, Thailand ('Thai Airways'). They are engaged in providing the services of air transportation of passengers and cargo.

To facilitate the selling of air tickets, the Appellant's head office at Bangkok i.e. Thai Airways has entered into agreements with several computerized reservation system companies ('CRS' Companies). Some of the CRS Companies with whom Thai Airways have entered into the agreement, are: Galilio International Partnership, U.S.A.; Abacus Distribution System Pvt. Ltd. Singapore;Amadeus Marketing, S.A., Spain, and Sabre Travel Information Network, U.S.A. In term the agreements of Thai Airways with the CRS Companies, Thai Airways, Bangkok have computer connectivity with the computer systems of the CRS Companies, who, in turn, have to provide linkage to IATA Agents and all the information regarding flight schedules, fares, seat availability on flights etc. in respect of the flights of Thai Airways is transferred to the computer system of CRS Companies, who, in turn, make this information available on real time basis to the IATA Agents and thereby facilitate the booking of air tickets of Thai Airways by the IATA agents. For providing these services to Thai Airways, the CRS Companies receive remuneration as specified in the agreements, which is based on the number of tickets sold by the IATA agents using the Data Base maintained by the CRS Companies. No amount is charged by the CRS Companies from IATA agents.

There is no dispute that all the CRS Companies are based abroad and do not have any office in India and entire payment for the services being provided by them has been made outside India by Thai Airways, Bangkok i.e. the head office of the Appellant and as such no payment for the services being provided by CRS Companies has been made by the appellant who are the Branch Office of Thai Airways in India.

The department was of the view that the service being provided by the CRS Companies is "Online Database access and/or retrieval" taxable under section 65(105)( zh ) read with Section 65(75) and Section 65(36) of the Finance Act, 1994 and since the same has been used by the IATA Agents in India for selling of tickets of Thai Airways, the remuneration received by the CRS Companies abroad from Thai Airways, Bangkok, would attract service tax from the Appellant in India under reverse charge mechanism of section 66A of the Finance Act, 1994 read with Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, as according to Department, the services have been consumed in India by the Appellant.

There are five demands adjudicated by the Commissioner totalling more than Rs. 16 crores with attendant penalties and interest, against which the appellant is before the Tribunal.

Case of the Department against the appellant : the CRS Companies located abroad are providing services of "online data base access and/or retrieval" taxable under section 65(105)( zh ) read with section 65 (75) and Section 65(36) of the Finance Act, 1994 and the same has been received by the appellant in India and, therefore, the Appellant would be liable to pay service tax in respect of the same in terms of Provisions of Section 66A of the Finance Act, 1994 read with Rule 2(1)(d)(iv) of the service tax Rule 1994,

The main contentions of the appellant: firstly no service has been received by the appellant, who are a branch office of the Thai Airways in India, as the entire transaction is between their Head Office at Bangkok and the CRS Companies located abroad and in terms of the Provisions of sub-section (2) of 66A , the branch office of Thai Airways in India has to be treated as a person separate and distinct from the head office and, therefore, in respect of the service transactions between the CRS Companies located abroad and Thai Airways, Bangkok, the Appellant can not be treated as the service recipient, and secondly the service being provided by the CRS Companies is not covered by the definition of "online information and data base access and/or retrieval" service as defined in Section 65(105)( zh ) read with Section 65 (75) and Section 65(36) of the Finance Act, 1994 and hence the same is not taxable.

There is no dispute that:-

(a) the service providers i.e. the CRS Companies are located abroad and they do not have any office in India;

(b) the agreements for providing service are between the Appellant's head office at Bangkok and the CRS Companies; and

(c) the payments for the services rendered by the CRS Companies have been received by them directly from Thai Airways, Bangkok and as such the entire payments for the services, in question, have been made outside India.

The dispute is only on the point as to whether the Appellant- the branch office of Thai Airways, Bangkok in India, can be treated as the recipient of the service provided by the CRS Companies and on this basis subject to service tax under reverse charge mechanism of Section 66A.

There was difference between the two Members of the Tribunal.

Member (J) was of the view that:

1. The appellant having right of access to the data base and for such service of access, it had made payments to the CRS Companies. Appellant's plea that service was provided to the head office is baseless. Appellant failed to establish that its existence in India was of no use to it. Revenue's arguments that appellant's remittances came to notice of investigation proved quid pro quo is well founded. So also when the appellant failed to prove that it had not enjoyed any connectivity to the CRS system of CRS companies to respond to travel agents in India, it failed to succeed in adjudication. This rules out appellant's plea that its head office was only recipient of service but not the appellant.

2. When the appellant falls u/s 66A (1)(b) of the Act as recipient of the description of service charged to tax by section 65(105)( zh ) read with section 65(75) of the Act, its plea that it is immune from service tax in India is ill founded. Appellant in India has its existence under RBI permission. Section 66A (2) of the Act recognizes only different situs under law but the said sub-section does not grant immunity from taxation in India once incidence to tax arises in India.

3. Appellant's plea that it shall get Cenvat credit of service tax levied by the adjudication order does not exonerate it from the liability it has incurred under the law. Grant of Cenvat credit arises only if service tax is paid by the appellant and such grant is not otherwise disallowed by law. Without undergoing scrutiny of law as to admissibility of Cenvat credit, appellant's hypothetical argument has no sense in the eyes of law.

4. When the appellant failed to be registered under the Act and file returns periodically, its plea of bonafide belief does not arise sine it escaped scrutiny of law. There was deliberate breach of law to cause evasion. Had there been no investigation, appellant's liability would not have been unearthed. Breach of law is neither eroded by lapse of time nor defiance thereof unpunishable . Bonafide should be patent from conduct and a mere plea of bonafide does not make the believer riskless in fiscal administration. Adjudication was not time barred when suppression of fact and intention to evade was detected by investigation.

He found the adjudication findings to be well founded on facts as well as law. He irresistibly concluded that the appellant was recipient of online data base access and retrieval service from the service provider abroad and falls under section 66A of the Act and was liable to the consequence of adjudication rightly made by learned adjudicating authority. He held that the Appeal of the appellant thus fails.

Member (T) however did not agree, though he agreed with his Brother Member that the activity of the CRS Companies is covered by the definition of "Online Database access and/or retrieval" service, as given in Section 65(75) read with Section 65(36) of the Finance Act, 1994 and this service, if provided or deemed to be provided in India, would attract service tax under section 65(105)( zh ). In his view:

1. By virtue of sub section (2) of Section 66A , the Appellant who is a branch office of Thai Airways, Bangkok (its head office), is to be treated as a person separate from the head office and they can not be treated as part of the head office for the purpose of Section 66A .

2. Revenue's stand that it is the Appellant, the branch office of Thai Airways, Bangkok, who are the recipient of the service provided by the CRS Companies, is totally incorrect.

3. When neither any service has been received by the Appellant nor there is any evidence or even any allegation that any payment was made directly or indirectly by the Appellant to CRS Companies nor any presumption in this regard can be made, the Appellant can not be treated as recipient of the service provided by the CRS Companies.

4. Merely because the IATA agents appointed by the Appellant in India used the Services provided by the CRS Companies from abroad, the Appellant do not become the recipient of the Service. For being treated as recipient, a person, in addition to being user of the service to satisfy his need, must also be the person legally entitled to receive the service and the person liable to make the payment/person making the payment for the service.

5. The Appellant, the branch office in India of Thai Airways, Bangkok, can not be treated as recipient of the service provided by the CRS Companies, in pursuance of their agreements with the Appellant's Head Office at Bangkok and, therefore, no service tax can be charged from the Appellant.

6. As regards the question of longer limitation period under Proviso to Section 73(1) of the Finance Act, 1944, the same would not be available to the Department, as no intention to contravene the Provisions of Finance Act, 1994 and of the rules made there under can be attributed to the Appellant for the reason that even if they are required to pay service tax on the service, In question, provided by CRS Companies, the entire service tax paid would be immediately available to them as Cenvat Credit and collection of service tax from the Appellant would be a revenue neutral exercise.

Matter referred to Third Member:

Because of the difference of opinion between the two Members, the matter is to be referred to Third Member to decide the following points of difference:

1. "Whether on the facts and in the circumstances of the case, the appellant permitted by Reserve Bank of India (RBI) to carry out air transport activity in India was a branch in India and was recipient of "online Database Access or retrieval Service" from CRS service provider abroad and liable to service tax in terms of section 65(105)(zh) read with section 65(75) of Finance Act, 1994 on reverse charge mechanism basis u/s 66A of the said Act w.e.f . 18.4.2006 or exempt in terms of section 66A (2) thereof".

2. "If service tax is payable by the appellant in respect of the service provided by the CRS companies, whether longer limitation period under provision to section 73(1) finance Act, 1994 would be available to the Department for recovery of tax and whether penalty on the appellant u/s 78 ibid would be attracted?"

(See 2013-TIOL-1117-CESTAT-DEL + 2013-TIOL-1116-CESTAT-DEL)