CESTAT Rules in Favor of Silk Air Singapore, Quashes Service Tax Demands

No Service Tax Liability on Reverse Charge Mechanism for Services Consumed Abroad, Sponsorship Expenses Also Exonerated

In a significant ruling, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Bangalore Regional Bench delivered a judgment in favor of M/s. Silk Air Singapore Private Limited, quashing the service tax demands levied under the Reverse Charge Mechanism (RCM) and sponsorship services. The tribunal ruled that Silk Air is not liable to pay service tax under the RCM since the services were consumed outside India, and there was no agreement between the appellant and the service provider, SAP Singapore.

The case, overseen by Mr. P.A. Augustian, Member (Judicial), and Mrs. R. Bhagya Devi, Member (Technical), scrutinized the demand for maintenance services and sponsorship services levied on Silk Air for the period 2010-14. The tribunal found that the maintenance services related to imported software were consumed entirely in Singapore by Silk Air Singapore, thereby rendering the Indian branch of Silk Air exempt from service tax under the RCM provisions of the Finance Act, 1994.

The tribunal drew parallels with the precedent set in British Airways v. CCE (2015), where it was concluded that service tax, being a destination and consumption-based tax, cannot be imposed on a non-consumer of the services. The tribunal reiterated that since the service agreement was between SAP Singapore and Singapore Airlines, and the services were consumed in Singapore, the Indian branch of Silk Air could not be held liable for service tax.

The ruling also addressed the issue of sponsorship services. Silk Air had already discharged service tax on expenses incurred for conducting events, which included payments for hotel expenses for guests. The tribunal found no grounds for the service tax demand on these expenses, as they were not for sponsoring events. Consequently, the tribunal annulled the service tax demands on sponsorship services.

Additionally, the tribunal dismissed the invocation of the extended period of limitation by the Revenue. It was determined that there was no suppression of facts by the appellant, and ST-3 returns were duly filed for the disputed period. Hence, the demand for an extended period was unsustainable.

This judgment provides clarity on the applicability of service tax under the RCM for services consumed outside India and reinforces the principle that service tax is a consumption-based tax. The decision is expected to have significant implications for other companies facing similar disputes.

Bottom Line:

Service Tax - No liability under Reverse Charge Mechanism (RCM) if the service provider and service recipient are outside India, and the services are consumed abroad.

Statutory provision(s): Finance Act, 1994 Section 73(2)

M/s. Silk Air Singapore Private Limited v. Commissioner of Central Excise, Customs and Service Tax, (CESTAT)(Bangalore)(Regional Bench) : Law Finder Doc Id # 2819857