By TIOL News Service

NEW DELHI , AUG 24, 2017: THE DGCEI gathered information that the appellant was not paying Service Tax on the consideration paid by them in convertible foreign exchange to various service providers [GSAs (General Sales Agents)] based outside India towards receipt of certain services under the categories of "Maintenance & Repairs Services" and " Business Auxillary Services" and under the cover of agreement entered into with the individual overseas companies/concerns.

A SCN dated 24/02/2009 demanding service tax of Rs. 123.82 crores was issued and the same was adjudicated by the CCE confirming the demand of Rs. 65,48,52,240/- along with interest and equivalent penalty.

The appellant is before the CESTAT.

The Stay matter was reported by us as 2013-TIOL-865-CESTAT-DEL & 2013-TIOL-362-HC-DEL-ST .

The appeal was heard recently.

After considering the elaborate submissions made by both sides, the Bench liberally extracted findings of the adjudicating authority given in paragraphs 30, 30.3 and 31.1 of the impunged order and inter alia observed –

On Merits:

++ It is clear that General Sales Agents (GSAs) on behalf of the appellant were required to perform various functions which are mainly in the nature of promotion and marketing of business of the appellant in their respective territories and towards their main function of promotion of the business of the appellant the GSAs could undertake incidental and ancillary activities related to the main function; it is clear that said functions/tasks are covered under the category of 'Business Auxiliary Services'.

++ It is an undisputed fact that the appellant is the recipient of services provided by foreign vendors for repairs of their aircrafts, engines, components etc outside India.

++ Thus, from the provisions of Section 66A, it is clear that the appellant is liable for payment of Service Tax on subject services received with effect from 18/04/2006, when the provisions of Section 66A of the Finance Act, 1994 came into force, mainly for the reason that they have their main established business, fixed establishment and permanent address in India only. The appellant  M/s Air India has paid for these services, and they are the beneficiary for these services and they cannot claim that their operations outside India are by a separate individual or by a separate entity, when under Business laws and otherwise also they are one company only.

++ The appellant is liable to pay Service Tax for the services, for which they are the recipient, even when such services have been received by them outside India as per the provisions of Section 66A of Finance Act, 1994 under the Reverse Charge Mechanism read with Taxation of Services (Provided From Outside India and Received in India) Rules, 2006.

++ There is no dispute that the appellant is located in India. There is also no dispute that the services of GSAs and the foreign vendors providing repair and maintenance service  have been received and consumed by the appellant ; the appellant paid for the same to GSAs & foreign vendors and  they are the beneficiary of the same. The fact that those services were received outside India will not change the fact that the services have been paid for by the beneficiary appellant, who is located in India and benefits have been received by the appellant,  who has got their fixed establishment and permanent address in India only.  Thus they fulfill the conditions mentioned in the provisions of Section 66A of the Finance Act, 1994 for levying the Service Tax under the reverse charge mechanism provided therein for the subject services.

Limitation, Penalty:

The appellant claimed that they are a Government entity and charge of suppression of facts to evade payment of service tax cannot be imputed to them.

To this submission, the CESTAT observed -

++ Even when the department (DGCEI) started the investigation and wrote them letters in January, 2006 itself they did not take serious note of this. They did not start making payment from 18th April, 2006, the day when the Section 66A of the Finance Act came into force. It is also in record that the appellant failed to deposit the service tax payable on taxable services within the prescribed period. Further the appellant failed to assess the liability of tax and furnish necessary returns incorporating the details of services received by them to the Department of Service Tax. Thus, they have been totally negligent, which travels to the domain of suppression of facts and cannot be called a bonafide mistake on the part of the appellant.

++ The appellant, Air India, being the commercial concern cannot be allowed to seek the relief on the ground that they are a Government concern. When as per the facts on record they have been completely negligent. In fact their non-payment of service tax has resulted into more revenue into their coffers and less tax receipts into the National Exchequer. The appellant being commercial concern cannot be allowed to plead that they are unaware of tax laws or the revenue implications for themselves. [Bharat Petroleum   Corporation  =  2009-TIOL-1850-CESTAT-MUM  relied upon]

++ The appellant has failed to prove their bonafides and when the lapse of non-payment of Service Tax cannot be attributed to any bonafide belief or genuine reason on the part of the appellant, they are not entitled to the benefit of waiver of penalty under the provisions of Section 80 of the Finance Act, 1994 also.

Services performed outside India, liability:

The appellant submitted that the subject services were performed outside India (in Hong Kong etc.), and outside India office has to be taken as the consumer of those services; that they should not be held liable for payment of service tax.

The CESTAT held -

++ The fact that services were performed outside India will not make any difference as the final  beneficiary and the ultimate consumer of the services is the appellant having their fixed establishment and permanent address in India only; therefore, they are liable to pay service tax for subject services; under the Provisions of 66A of the Finance Act read with Taxation of Services (Provided From Outside India & Received in India) Rules, 2006. [Tata Steel Ltd. =  2015-TIOL-2464-CESTAT-MUM, Microsoft Corporation (l) (P) Ltd. =  2014-TIOL-1964-CESTAT-DEL, Paul Merchants Ltd. =  2012-TIOL-1877-CESTAT-DEL relied upon]

++ It is to be made clear that service tax being destination based tax, when the destination of consumption of the service is in India, the place of performance of service though it may be outside India, will not have relevance for the present facts for the chargeability of service tax.

Sustaining the impugned order, the appeal was dismissed.

(See 2017-TIOL-3069-CESTAT-DEL)