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ST - OIDAR - Impugned order has not established the appellant to be recipient of service : CESTAT

By TIOL News Service

MUMBAI, SEPT 14, 2017: APPELLANT is an airline of the Republic of Korea and has an establishment in India to provide ticketing and cargo facilities to customers besides operating through authorized agents.

The system of M/s Korean Air, which contains complete details of 'seat inventory' of the airline, is made available to travel agents through the sole interface of 'Computer Reservation System (CRS)/Global Distribution System (GDS)'.

The consideration for making this facility available to the agents is met by the airline.

The impugned order has held that the appellant operating in India is the recipient of 'online information and database access and/or retrieval services', as defined in section 65(75) of Finance Act, 1994, which is taxable under section 65 (105)(zh) of Finance Act, 1994.

The adjudicating authority confirmed the proposal for recovery of the demand from the appellant who, being the recipient of this service, is liable for discharge of the tax liability, in terms of section 66A of FA, 1994 as the service is rendered by operators who are based outside India.

In appeal before the CESTAT, the appellant contends that they are not the recipients of the service in terms of contract, functional compulsion or as payer of consideration. Also, according to the appellant, the beneficiary of the said service is not they but the travel agents.

They also rely on the decisions in Qatar Airways, Emirates - 2016-TIOL-1263-CESTAT-MUM, which relied on an earlier decision in British Airways - 2014-TIOL-979-CESTAT-DEL and decision in Paul Merchants Ltd - 2012-TIOL-1877-CESTAT-DEL to assert that they cannot be held to be the recipient of such service.

The AR submits that the decision of the Tribunal in re British Airways has been appealed before the Supreme Court and draws the attention of the Bench to the decision in Paras Laminates Ltd- 2002-TIOL-48-SC-CUS where it is held that -

'It is, however, equally true that it is vital to the administration of justice that those exercising judicial power must have the necessary freedom to doubt the correctness of an earlier decision if and when subsequent proceedings bring to light what is perceived by them as an erroneous decision in the earlier case. In such circumstances, it is reasonable and indeed efficacious that the case is referred to a Larger Bench.'

After considering the submissions, the Member (T) writing for the Bench in his inimitable style inter alia observed thus -

“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 submissions 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 therefore 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.

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."

The appeal was allowed by setting aside the impugned order.

(See 2017-TIOL-3332-CESTAT-MUM)