2013 (9) TMI 105 - Commissioner - Service Tax

Air Travel Agent's Tax Appeal: Incentives Taxable under Business Auxiliary Service? Commissioner Rules in Favor

M/s. International Travel House Pvt. Ltd. Versus The Assistant Commissioner of Service Tax, I Division, Service Tax Commissionerate.

The appellant, an Air Travel Agent, received incentives from CRS developers, contended to be taxable under 'Business Auxiliary Service.' The Adjudicating ... Business Auxiliary Service u/s 65 (105) (zzb) - Air Travel Agent Service - the appellant used central 'Computer Reservation Systems' (CRS) software - Department revealed that the appellants as Air travel agents have been receiving incentive/commission from CRS developers and it appeared that this incentive/commission received was taxable with effect from 01.07.2003 under the category of 'Business Auxiliary Service' - Held that:- There was no reason to demand Service Tax on the incentives received by the appellant from CRS developers under the category of 'Business Auxiliary Service' - The amount collected as incentive was in no way connected to the service rendered by the appellants to their clients in providing the service of booking air tickets nor it was billed to the clients - The appellant were not liable to pay service tax on the amount collected as incentives - As the demand itself was not sustainable, the question of imposing penalty does not arise - Relying upon COMMISSIONER OF C. EX., AURANGABAD Vs BALAKRISHNA INDUSTRIES [2006 (8) TMI 182 - SUPREME COURT OF INDIA] and RAJASTHAN SPINNING & WEAVING MILLS LTD. VsCOMMR. OF C. EX., JAIPUR-II-[2004 (8) TMI 578 - CESTAT, NEW DELHI]. Department had not made any effort to establish that there was Service provider/ receiver relationship between the appellant and CRS developer - When such relationship was not there, there was no service involved between them - Department had also failed to prove that the amount received by the appellant was a consideration for the service provided to the CRS developers - The amount was given by the CRS developer to the appellant as a loyalty incentive for using their software for booking tickets - classifying the activity of the appellant under the category of 'Business Auxiliary Service' was untenable – Following Kerala Publicity Bureau Vs. CCE [2007 (5) TMI 151 - CESTAT, BANGALORE ] – order set aside - Decided in favour of Assessee. Issues:1. Taxability of incentives received by the appellant from CRS developers under the category of 'Business Auxiliary Service.'2. Appellant's liability to pay service tax on the incentives received.3. Imposition of penalties under Sections 76 & 77 of the Finance Act, 1994.---Analysis:Issue 1: Taxability of IncentivesThe appellant, an Air Travel Agent, received incentives/commissions from CRS developers. The Department contended that the incentives are taxable under 'Business Auxiliary Service' from 01.07.2003. The Adjudicating Authority confirmed the tax liability but dropped the penalty proposal under Section 77. The appellant challenged this in the appeal.Issue 2: Service Tax LiabilityThe appellant argued that they are engaged in providing 'Air Travel Agents Service' and discharge service tax accordingly. They contended that the incentives cannot be taxed under 'Business Auxiliary Service' as there is no service provider-client relationship with the CRS developers. The Commissioner found in favor of the appellant, citing a consistent view that the incentives are not liable for service tax.Issue 3: Imposition of PenaltiesThe Department alleged that the appellant, by using the software, promotes the CRS developers' business and is liable to pay service tax on the incentives. However, the Commissioner found no evidence of a service provider-receiver relationship or that the incentives were consideration for services. Citing a relevant case law, the Commissioner concluded that the incentives were not connected to services provided to clients, hence not taxable under 'Business Auxiliary Service.'Precedents and ConclusionsThe Commissioner referred to various judgments where penalties were not imposed when the demand itself was not sustainable. Citing cases like Commissioner of C. Ex., Aurangabad Vs. Balakrishna Industries, it was held that penalties are not warranted when the demand is not sustainable. Similarly, where the demand is reduced to NIL, no interest can be demanded. Based on the facts and discussions, the Commissioner set aside the impugned order, allowing the appeal with any consequential relief.This detailed analysis of the judgment highlights the issues of taxability of incentives, service tax liability, and imposition of penalties, providing a comprehensive understanding of the legal reasoning and conclusions reached in the case.