AirAsia India Ltd vs Commissioner Of Central Tax, Bangalore North

The present appeal is directed against the impugned order dt. 17/10/2019 passed by the Commissioner of Central Tax (Appeals), Bangalore

whereby the appeal of the appellant was rejected by upholding the Order-in-Original.

Briefly, the facts of the present case are that the appellant is engaged in the business of providing airlines operation and is registered with the

Service Tax department. The appellant had received services of Back End Operations such as payrolls and finance input services from its related

party AirAsia Global Shared Services (AGSS, for short) which is located outside India and hence subjected to service tax under reverse charge

mechanism. Based on objections of CERA audit party, appellants were issued a show-cause noticed dt. 15.10.2018 proposing to demand service tax

amount of Rs.39,64,772/- along with interest and penalty. Appellant filed reply to the show-cause notice rebutting the demand on the ground of

revenue neutrality citing various previous judgments covering the issue in favour of the appellant. Appellant also submitted that in the present case,

remittance of tax on reverse charge mechanism has been made post-service tax regime and hence cenvat credit for the same cannot be availed,

based on the said provisions, the appellant requested that his reply may also be treated as application for refund of such service tax paid as per Section

142(6) of the CGST Act, 2017. After following the due process, the Assistant Commissioner vide his Order-in-Original dt. 30.01.2019 restricted the

demand only to the extent of tax already paid by the appellant. The original authority dropped the demand for interest and penalty by following the

principle of revenue neutrality. The original authority rejected the plea of the appellant for refund of service tax paid after 1st July 2017 by stating that

the assessee was free to take cenvat credit subject to the procedure and fulfillment of conditions of CENVAT Credit Rules, 2004. Aggrieved by the

said order, appellant filed appeal before the Commissioner(Appeals) who vide the impugned order dt. 17/10/2019 rejected the appeal.

Heard both sides and perused the records.

Learned counsel for the appellant submitted that the impugned order is not sustainable since the same has been passed without properly

appreciating the facts and the law and the binding judicial precedent. He further submitted that the appellant has discharged service tax liability under

Reverse Charge Mechanism on services received from AGSS to the extent of Rs.20,91,847/- only on 24.07.2018. He further submitted that the

appellant could not transfer the credit under TRAN1 because they had already filed TRAN1 application on 09/10/2017. He further submitted that the

entire exercise is revenue neutral since any tax payable by it would in turn be available to them as cenvat credit within the provisions of CENVAT

Credit Rules, 2004. Since the service of VAT, operation such as payroll and finance received by them from their related overseas party would qualify

as input service. He further submitted that in the impugned order, the learned Commissioner(Appeals) relied upon by the ratio laid down in Balwant

Singh Vs. Jagdish Singh [2010(262) ELT 50 (SC)] and also the decision in the case of International Auto Products (P) Ltd. Vs. CCE [1999 (35) RLT

58 (CEGAT)]. The learned counsel further submitted that in both these cases relied upon by the learned Commissioner(Appeals) are distinguishable

and irrelevant to the facts and circumstances of the present case as Balwant Singh case dealt with condonation of delay and the case in International

Auto Products (P) Ltd. was regarding determination of assessable value of goods while the present case deals with the concept of revenue neutrality

with regard to service tax remitted by way of reverse charge mechanism. He further submitted that the learned Commissioner(Appeals) has not

considered the relevant judgment in the case of Jet Airways (India) Ltd. Vs. Commissioner [2016(12) TMI 934 â€" CESTAT, Mumbai] which was

upheld by the Hon’ble Supreme Court as reported in 2018(1) TMI 210 â€" Supreme Court. He further submitted that the legal reasoning given in

the case of Jet Airways (India) Ltd. is squarely applicable to the present case due to similar facts between the two cases. He further submitted that

the decision in the case of Jet Airways (India) Ltd. is binding on the authorities below but the learned Commissioner(Appeals) did not take note of the

said decision and has completely ignored the ratio of the said judgment. Learned counsel further submitted that the interest and penalty has already

been dropped in the Original-in-Original on the basis of revenue neutral rationale laid down by various decisions. He further submitted that the legal

reasoning should have been applied as a whole amount including service tax instead of selective application of the same only for interest and penalty.

Learned counsel also submitted that the demand has been confirmed by invoking the extended period of limitation and in the facts and circumstances,

the extended period of limitation cannot be invoked because the appellant has not suppressed any material facts with intention to evade payment of

service tax. He further submitted that the Department has not established any of the ingredients which are required in order to invoke the extended

period of limitation. In support of his submission, he relied upon the following decisions:-

i. Pushpam Pharmaceuticals Vs. CCE, Bombay [1995(78) ELT 401 (SC)]

ii. Pahwa Chemicals Private Ltd. Vs. CCE, Delhi [2005(189) ELT 257 (SC)]

iii. CCE Vs. Chempar Drugs & Liniments [1989(40) ELT 276 (SC)]

iv. India Colour Lab Vs. CCE [2006(3) STR 180 (Tri. Del.)]

4.2. The learned counsel has also filed the additional written submissions and has referred to Section 142(3), Section 142(6) and Section 142(8) which

prescribes refund in various scenario and submitted that the appellant is entitled to refund of the amount paid after the implementation of the GST.

On the other hand, the learned AR reiterated the findings in the impugned order.

6.1. After considering the submissions of both the parties and perusal of the material on record, I find that the issue before me is whether the demand

of service tax is sustainable when the issue is revenue neutral. In the present case, it is not disputed that the appellant is receiving the services of

back-end operation such as payroll and finance from their related party AGSS which is located outside the taxable territory of India. It is also not

disputed that the services received by the appellant is an input service and service tax is paid under reverse charge mechanism. Further I find that the

appellant submitted a certificate dt. 01.10.2018 of M/s. MOJ & Associates, Chartered Accountants certifying the remittance of taxes under reverse

charge mechanism for the receipt of services from AGSS for the financial years 2013-14 to 2017-18. The said certificate mentions that the payment

of service tax on business support service received from AGSS made on accrual of invoices. Further I find that the show-cause notice was issued on

the basis of CERA audit objection by invoking extended period. In the Order-in-Original, the Assistant Commissioner dropped the demand of interest

and penalty by accepting the principle of revenue neutrality laid down in various judgements relied upon by the appellant. Both the authorities have not

considered the ratio of the decision in the case of Jet Airways (India) Ltd. decided by the Tribunal which was upheld by the Hon’ble Apex Court

as cited supra which is clearly applicable in the facts and circumstances of the present case. I also find that the Commissioner(Appeals) in the

impugned order has wrongly relied upon the ratio laid down by the Apex Court in the case of Balwant Singh vs. Jagdish Singh and International Auto

Products Ltd. wherein the facts of those cases are entirely different from the facts of the present case. The decision of Balwant Singh deals with the

condonation of delay and International Auto Products case was regarding determination of assessable value while the present case deals with the

concept of revenue neutrality with regard to service tax remitted under reverse charge mechanism. Here it is pertinent to reproduce the relevant

findings in the case of Jet Airways (India) Ltd. in paras 10.1, 10.2, 10.3, 10.4, 10.07, 10.8 and 10.9.

10.1 We find that the arguments put forth by learned Sr. Counsel on the Revenue neutrality may merit acceptance for more than one reason.

10.2 Firstly, it is undisputed that the service tax liability on the payments made by appellant to CRS Companies is on reverse charge

mechanism as if the appellant is a service provider. The said service tax liability has arisen on the tickets issued by the CRS Companies to

various customers of appellant. It is also undisputed that the appellant herein has discharged the service tax liability as an output service

provider in respect of the services rendered by the appellant under the category of, “transport of passenger by air and other servicesâ€.

If that be so, appellant is eligible to avail the Cenvat credit on all the services on which service tax is paid and utilized for rendering such

output service.

10.3 Secondly, it is nobody’s case that the service tax liability on “online information and database access or retrieval service†is

paid by the appellant in respect of the tickets issued which are directly linkable to the output services provided by the appellant.

10.4 In our considered view the appellant could have availed Cenvat credit of the service tax paid on reverse charge mechanism as they are

liable to pay tax on output service hence, Revenue neutral situation arises wherein appellant pays the tax and takes the credit. We note that

the issue as to confirmation of service tax liability arose on the payment made to CRS Company, as decided by majority decisions, in three

cases namely British Airways, Thai International Public Co. Ltd. and Austrian Airways wherein the question of revenue neutrality arose,

which was answered in favour of assesses therein. It is trait law that question of Revenue Neutrality is a good ground, more so when the tax

liability is being discharged under reverse charge mechanism. This very plea of revenue neutrality in an identical issue was raised in British

Airways case and decided also. It is settled law when an issue is raised and decided in a judgement, the ratio applies.

10.7 In our considered view, we have to read the order holistically, i.e., British Airways case; on merits is against the appellant in this case

while on the issue of revenue neutrality the order of British Airways supports appellant’s case. The ratio of the Bench applies clearly to

the case in hand accordingly respectfully following to ratio, we have to hold that the appellant has made out a case in their favour on the

question of revenue neutrality. In view of a direct decision on the self same issue, we are not recording any findings on other case laws

relied upon by both sides on the question of revenue neutrality.

10.8 As regards the submissions made by the learned Commissioner (A.R.) as to the services rendered by the appellant being exempted, we

find that since identical issue was before the Tribunal in the case of British Airways the ratio laid down needs to be followed by us for all

the issues raised and decided.

10.9 The above said view of the Tribunal has been followed by this Bench in the case of Jain Irrigation System Ltd. - 2015 (40) S.T.R. 752

wherein the situation of revenue neutrality was claimed on the tax payable under reverse charge mechanism and was held in favour of the

assessee.

The decision of the CESTAT in Jet Airways (India) Ltd. was upheld by the Hon’ble Apex Court as cited supra. Therefore, this decision is

applicable in the present case. Further I find that the extended period of limitation has wrongly been invoked by the Revenue in the present case

because the appellant has not concealed any material fact and has been filing the return regularly and paying the service tax under reverse charge

mechanism and has been cooperating with the Department by providing various information and documents. Therefore by relying upon the ratio of the

various decisions cited by the appellant, I am of the view that invocation of extended period of limitation is not sustainable in law.

6.2. Further I find that the issue of revenue neutrality has also been clarified by the CBEC vide Circular No.354/148/2009-TRU dt. 16/07/2009

wherein it has been clarified that the service tax paid by a service recipient on reverse charge basis would also qualify as input service for availment

of cenvat credit.

In view of my above discussion and by following the ratio of the decision in the case of Jet Airways (India) Ltd. cited supra, I am of the considered

view that the case of the appellant is squarely covered by doctrine of revenue neutrality and by following the same, I set aside the impugned order by

allowing the appeal of the appellant. Further regarding the demand of the appellant seeking refund of Rs.20,91,847/- paid post-01.07.2017, both the

authorities have not considered the claim of the appellant on merits and therefore it is not desirable for me to give a finding on the request of the

appellant to grant refund. I think, the appellant has to file a refund claim as per law and in the present appeal, the refund cannot be granted to the

appellant. With these findings, I dispose of the present appeal.

(Order was pronounced in Open Court on 16/06/2021)