2007 (8) TMI 72 - AT - Service Tax

Tribunal overturns tax demand on Air Travel Agent, emphasizing compliance with regulations

The Tribunal allowed the appellant's appeal, finding the disallowance of adjustments made for cancelled tickets to be contrary to the circular dated ... Adjustment of service tax on cancelled tickets - liability of air travel agents for service tax on commission - Board circular dated 26-6-1997 - option to discharge service tax on basic fare in lieu of tax on commission - penalty not leviable where demand is set asideAdjustment of service tax on cancelled tickets - Board circular dated 26-6-1997 - liability of air travel agents for service tax on commission - Whether adjustments of service tax on account of cancelled tickets made by the air travel agent are permissible and whether the demand based on disallowance of such adjustments is sustainable. - HELD THAT: - The Tribunal examined the Board's circular of 26-6-1997 which explains that service tax liability of air travel agents is measured by commission received from airlines, and that agents report cancellations in their fortnightly returns and adjust commission accordingly; since commission is adjusted automatically and service tax is paid on net commission received, a separate refund claim is unnecessary. The impugned order disallowed such adjustments contrary to the circular. The Tribunal held that the appellant had correctly discharged tax liability after taking cancellation adjustments and that the order disallowing those adjustments was contrary to the Board's instruction. Consequently the appeal of the assessee was allowed with consequential relief, and the demand set aside. [Paras 4, 5]Adjustments for cancelled tickets permitted in terms of the Board circular; demand based on disallowance of such adjustments set aside and assessee's appeal allowed.Penalty not leviable where demand is set aside - Whether the Revenue's appeal for enhancement of penalty is maintainable after the demand has been set aside. - HELD THAT: - The Tribunal noted that Revenue's appeal sought enhancement of penalty arising from the same order. Having set aside the tax demand itself, there remained no basis for sustaining or enhancing the penalty. Therefore the question of penalty did not arise and the Revenue's appeal was rejected. [Paras 7]Revenue's appeal for enhancement of penalty rejected as the underlying demand has been set aside.Final Conclusion: The assessee's appeal is allowed and the demand arising from disallowance of cancellation adjustments is set aside in accordance with the Board circular of 26-6-1997; the Revenue's appeal for enhancement of penalty is rejected. Issues:1. Taxability of commission received on the sale of air tickets under service tax.2. Disallowance of adjustments made by the appellant on tax paid for cancelled tickets.3. Contradiction between the impugned order and circular dated 26-6-1997 of the Board.4. Revenue's appeal seeking enhancement of penalty.Analysis:1. The appellant, an Air Travel Agent, was discharging the tax liability on the commission received for air ticket sales. Adjustments were made for cancelled tickets towards subsequent tax liabilities. However, under the impugned order, these adjustments were disallowed, resulting in a tax demand of approximately Rs.3 lakhs along with penalties imposed.2. The appellant argued that the order contradicted the circular dated 26-6-1997 of the Board, which permitted such adjustments. Reference was also made to a similar view taken in the appellant's own case in the jurisdiction of Jaipur. The circular clarified the tax collection responsibility of air travel agents based on the commission received from airlines for ticket bookings, allowing for adjustments for cancelled or modified tickets.3. The Tribunal found the order to be contrary to the provisions of the circular. It acknowledged that the tax payments made by the appellant, after adjustments, were correct. Consequently, the appeal of the assessee was allowed with consequential relief. The Revenue's appeal seeking penalty enhancement was rejected since the demand itself was set aside.4. Both appeals were ordered accordingly, with the Tribunal emphasizing the alignment of the impugned order with the circular's guidelines. The judgment highlighted the importance of adhering to established regulations and circulars in determining tax liabilities for service providers like Air Travel Agents.