Service received by foreign Head office of company having branch in India, from service providers abroad. Is branch in India liable to pay ST?
CONCEPT of export and import of services has been a confusing one for more than a decade. When you export services, the Department would like to classify it as import and levy Service Tax. Take the case of commission for sales promotion of a foreign product. I get a commission for canvassing the goods of a foreign manufacturer - I get the payment in foreign exchange; I actually provide service to a foreigner and get paid in foreign exchange. The department wants me to pay Service Tax as I have provided the service in India. But for the Department the converse is not true. If I pay a foreign company a commission to sell my goods abroad, do I have to pay Service Tax? Many in the department believe that in both the cases, I have to pay Service Tax. For them, export and import are same as far as liability to pay Service Tax is concerned.
Eight years ago, addressing a seminar, I had said, "If you go abroad and have a hair-cut in Paris or London, you may have to pay service tax for it in India"
But suppose a foreign company gets service from some foreign service providers and the service recipient has an office in India, is the Indian office liable to pay Service Tax? This was the issue before the CESTAT recently.
Thai Airways International Public Ltd., Bangkok, Thailand has a branch office in India. Thai airways, Bangkok has entered into agreements with several computerized reservation system companies ('CRS' Companies) who will 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 this service, Thai airways pays the CRS companies a remuneration. 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.
The Service Tax department believes that the Indian branch office of Thai Airways is liable to pay Service Tax on the remuneration received by the CRS companies from Thai Airways headquarters in Bangkok.
The Commissioner confirmed a demand of over Rs. 16 crores with attendant penalties and interest. There is a similar demand on Austrian Airways.
In the CESTAT, the Member (J) upheld the order of the Commissioner, including extended period of limitation, as there was deliberate breach of law to cause evasion.
However the Member (T) held that no Service Tax was payable in India for the service rendered by CRS companies to the Headquarters of the Indian branch. He also held that longer limitation was not available to the department as even if they were required to pay tax, they would have got CENVAT credit and so the entire exercise is revenue neutral.
The Learned Commissioner who passed the order is certainly aware of all the facts and law that the Member (T) explained. But being a Commissioner, he thinks his job is to collect Revenue by any means and land the issue in a grand litigation which will run for the next twenty years.
Because of the disagreement between the two Members, the matter was referred to a Third Member.
We will bring you this case tomorrow.