By TIOL NEWS SERVICE

MUMBAI, JULY 06, 2014 : APPELLANT'S submission before CESTAT -

+ Reliance placed on the decision of Tribunal in the case of United Telecom Ltd. Vs. CST, Bangalore - 2009-TIOL-595-CESTAT-BANG wherein it was held that the ownership of data is a very relevant factor and whenever there is information and data retrieval, the ownership definitely becomes very relevant. Reliance was also placed on the decision of Tribunal in the case of Philips Electronics Ltd. vs. CST - 2013-TIOL-1655-CESTAT-MAD wherein it was held that when the data retrieved/accessed was owned by the recipient, the taxing entry of "Online Information and Database Access or Retrieval Service" would not be attracted. It was also argued that the CRS Companies are having offices in India and therefore, they are liable to pay service tax as service providers in terms of Rule 2(1)(d)(iv) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 as per which the liability to pay service tax would fall on the resident service recipient only where the non-resident service provider does not have an office in India.

+ Reliance is also placed on the decision of the Income Tax Appellate Tribunal in the case of Amadeus Global Travel Distribution S.A. Vs. DCIT [113 TTJ 767] and Galileo International Inc. Vs. DCIT [MANU/ID/5178/2007]. Since the term "permanent establishment" is not defined under the Finance Act, it is permissible to refer to legislations which are pari material on the subject matter in question. Inasmuch as the service providers have offices in India, the reverse charge mechanism would not apply and consequently, the appellant is not liable to discharge service tax on the services received from abroad.

Observations & decision of the Tribunal: [See 2014-TIOL-473-CESTAT-MUM ]

++ in an identical case of Thai Airways International Public Company Ltd. 2013-TIOL-1117-CESTAT-DEL both the Members of the Tribunal concurred on the point that the said services fell under the category of online database access or retrieval services and the ratio of the above decision applies to the present case as the facts are more or less identical;

++ however, in the referred case, while the Member (Judicial) held that the Indian office would be liable to discharge service tax on the services received in India, the Member (Technical) was of the view that since the payment was made for the services rendered by the head office located abroad, the head office should be considered as service recipient and not the Indian Branch of the head office and therefore, he held that the Indian office is not liable to service tax. To consider this limited question, the matter has been referred to the third member;

++ otherwise, with regard to the classification of the service, the service rendered by the CRS companies to the airlines was held to be classifiable under the category of "online database access and/or retrieval services;

++ in the present case also services received by Jet from CRS companies fall under the category of online database access and/or retrieval service. Since the service provider is situated abroad, in terms of Section 66A the appellant is liable to discharge the service tax liability on reverse charge basis and we hold accordingly;

++ in the absence of any reference to the IT Act or to the DTAA in s.66A it cannot be presumed that the definitions given in those laws would apply - well settled position in law is that the provisions of tax statute has to be strictly construed;

++ question of time bar is both a question of fact as well as a question of law and can be gone into at the time of final hearing - according to appellant, out of total ST demand of Rs.187 crores, Rs.147 crores is within normal period of limitation - appellant has not established any prima facie case on the plea of financial hardship - at best it can be considered for waiver of interest and penalties imposed and tax demand beyond normal period of limitation - appellant directed to make a pre-deposit of Rs.147 crores within eight weeks and report compliance.

Observations of High Court:

++ The Tribunal is not required to form a firm or conclusive opinion at an interlocutory stage. It's tentative and prima facie finding is enough.

++ It is not as if in this case the Tribunal could not have performed a balancing act. The Tribunal's direction to deposit a sum of Rs.147 crores out of total demand of Rs.187 crores and when the point was imminently arguable, visits the Appellants with serious consequences. It must be borne in mind that when there is a right of appeal and it maybe subjected to certain conditions, yet it is not as if by the conditions that can be imposed the right is lost or rendered illusory. If a huge demand is raised and the Tribunal directs, as in this case, a pre-deposit of Rs.147crores, then, to our mind such direction may seriously prejudice the exercise of the right created in favour of the Appellants. The appeal is still pending. The equities could have been, therefore, properly balanced.

++ When the Tribunal is exercising its discretion it ought to be present in its mind that if there are conflicting opinions and rendered by its different Benches, then, the Assessee should not be visited with such consequences as would amount to denying the right of appeal or completely prejudicing the case on merits. They ought to be given a meaningful opportunity to argue their case on merits before the Tribunal. Equally it is for the Revenue to support its demand on the basis of records and provisions of law. Though the provision of law in this case makes no reference to ownership, but there was an order passed making it a relevant test, then, such condition as is imposed in the present case cannot be said to be justified.

Held:

++ We are inclined to modify the order and direction of the Tribunal to this extent that in the event the Appellants furnish a bank guarantee of a nationalized bank in the sum of Rs.50 crores within a period of Eight weeks from the date of receipt of a copy of this order, there will be waiver of condition of pre-deposit and stay of recovery pending the hearing and final disposal of the Appeal before the Tribunal.It would be open for the Appellant to deposit part of the amount in cash and the balance could be secured by a bank guarantee as above.

++ We clarify that we have not expressed any opinion on the rival contentions and each one of them is kept open. Equally we clarify that the Tribunal should decide the Appeal on its own merits and uninfluenced by any tentative andprima facie observation and conclusion. In the event this condition is satisfied and within the time aforesaid, the Tribunal shall hear the Appeal on its own merits as expeditiously as possible and within a period of four months from the date compliance is reported. In the event compliance is not reported all consequences in law shall follow.

Appeal is allowed in these terms.

(See 2014-TIOL-1063-HC-MUM-ST)