By TIOL News Service

NEW DELHI, APRIL 13, 2018: THE assessee is having their registered Head Office in France. They have office establishment in India which is registered with Service Tax Department. Air France Head Office at France entered into contractual arrangement with companies like Amadeus, Galileo and Abacus who were providing centralized reservation system (CRS) for airline travel.

The dispute in the present case is with reference to tax liability of assessee office in India for such services received by them under category of "Online Information and Data Base Excess or Retrieval Service".

The period of dispute is from 01/04/2006 to 31/03/2013.

The demands were confirmed and, therefore, the assessee is before the CESTAT.

Both sides agreed that for the period prior to 01/07/2012 the tax liability of assessee on reverse charge basis in terms of Section 66A has been resolved in favour of assessee in the case of British Airways 2014-TIOL-979-CESTAT-DEL and Korean Air 2017-TIOL-3332-CESTAT-MUM.

However, the AR submitted that the legal position post 01/07/2012 has to be examined in detail. Inasmuch as it is his submission that Rule 2 of Place of Provision of Services Rules, 2012 defines "location of Service Provider" and "location of Service Receiver" and read together with rule 3 makes it clear that the assessee having a separate establishment in India and having benefited by CRS arrangement with the service provider should correctly be taxed on reverse charge basis. He further submitted that notification 30/2012-ST only provides for proportion of tax liability to be discharged in case taxable services are provided by a person located in non-taxable territory and received by person located in taxable territory. The AR also submitted that tax liability should not be determined based on the person who is paying the consideration and should be based on the person benefitted by such service. In the present case, the assessee in India has benefitted by the CRS arrangement entered into by the Headquarters Office.

The CESTAT observed that in view of the decisions cited (supra), the tax liability of the appellant for the period prior to 01/07/2012 as confirmed by the impugned order cannot be sustained.

For the period post 01/07/2012, the Bench examined the changed legal position and observed -

+ Section 66A has been made inapplicable from that date.

+ However, the statutory provisions available in the said Section has been made applicable through different legal provisions, more specifically, the changed Section 68(2), Section 65B (44) explanation 3 read with explanation 4 and Section 66C read with Place of Provision of Services Rules, 2012.

+ In these provisions, we note that Section 65B(44) explanations 3 and 4 cover the position regarding establishment of a person in taxable territory and also how to deal with a branch or agency office located in any territory.

+ These are almost similar to the provision which were existing in the earlier Section 66A.

+ Rule 3 mentioned the place of provision generally. However, Rule 9 of the said Rules gives more specific instances which are not in line with Rule 3.

+ Rule 9 reads -

9. Place of provision of specified services.-

The place of provision of following services shall be the location of the service provider:-

(a) x x x;

(b) Online information and database access or retrieval services;

(c) x x x;

(d) x x x.

+ Admittedly, in the present case the services in dispute are "Online Information and Data access or Retrieval Services". Such services are to be considered as provided in a place where the service provider is located. Admittedly again, the service provider in the present dispute is located in non-taxable territory (abroad).

+ The physical location of the service provider as well as by deeming provision of Rule 9 it is clear that CRS Service Provider is located outside taxable territory of India.

+ The revenue contended that the recipient of service is the appellant in India. In fact, in British Airways (supra) the Tribunal category held that the appellant in India did not make any payment for the services so procured by the head office in UK. The consideration for such services were paid by the UK head office to the CRS Companies. The appellant therein only appointed IATA agents and collected sale proceeds for the tickets sold by them. The said proceeds were transmitted to the head office. The appellant therein never used any services or CRS directly and as such the Tribunal held that they cannot be considered as recipient of such service attracting service tax liability.

+ The facts in the present case are identical to the decided case. As such, we find that even for the period post to 01/07/2012 there is no material change to attract service tax liability on the part of the appellant. No statutory changes or change in fact were brought in w.e.f. 01/07/2012 in order to vary the finding for this period.

In fine, the impugned order confirming service tax liability was set aside and the appeal was allowed.

(See 2018-TIOL-1181-CESTAT-DEL)