Court modifies pre-deposit order, reduces amount to Rs. 15 lakhs, emphasizes financial hardship consideration.

ARAFAATH TRAVELS PVT. LTD. Versus UNION OF INDIA

ARAFAATH TRAVELS PVT. LTD. Versus UNION OF INDIA - 2015 (38) S.T.R. 934 (Mad.) , [2015] 85 VST 174 (Mad) Issues Involved:
1. Justification of pre-deposit direction by the Tribunal.
2. Double taxation on commission and incentives.
3. Inclusion of incentives in taxable value.
4. Limitation period for issuing show cause notice.
5. Applicability of Export of Services Rules, 2005.
6. Location of service receiver and service usage.
7. Treatment of overriding commission as foreign currency.
8. Calculation of taxable value under Section 67(1)(i) of the Finance Act.

Detailed Analysis:

1. Justification of Pre-deposit Direction by the Tribunal:
The appellant contended that the Tribunal's order directing pre-deposit was onerous and did not consider the prima facie case and financial hardship. The court noted that the Tribunal should have considered the factors of undue hardship and financial constraints of the appellant. The pre-deposit order of Rs. 35 lakhs was deemed excessive and reduced to Rs. 15 lakhs.

2. Double Taxation on Commission and Incentives:
The appellant argued that the commission and incentives earned by IATA agents had already been subjected to Service Tax under Business Auxiliary Services, leading to double taxation. The court found merit in this argument, noting that the amounts already taxed at the hands of IATA agents should be excluded from the appellant's taxable value.

3. Inclusion of Incentives in Taxable Value:
The Tribunal's direction to include incentives paid to cargo agents in the taxable value was challenged. The court observed that the issue was debatable and required a detailed examination on merits, which the Tribunal failed to do.

4. Limitation Period for Issuing Show Cause Notice:
The appellant contended that the show cause notice for the period April 2008 to March 2009 was issued beyond the stipulated period of one year, making the demand barred by limitation under Sections 73(1) and 73(6)(i)(c) of the Finance Act. The court acknowledged this contention but did not provide a detailed ruling on this issue in the judgment.

5. Applicability of Export of Services Rules, 2005:
The appellant argued that the services rendered under the Passenger Sales Agreement and Cargo Sales Agreement were export services and thus not taxable. The court referred to Rule 3 of the Export of Services Rules, 2005, which exempts services provided from India and used outside India from Service Tax, supporting the appellant's claim.

6. Location of Service Receiver and Service Usage:
The appellant claimed that since the service receiver (SAA) was located outside India and the benefits accrued outside India, the services should be considered export of services. The court agreed, citing Circular No. 111/05/2009-S.T., which clarifies that services benefiting entities outside India are considered export services.

7. Treatment of Overriding Commission as Foreign Currency:
The appellant argued that the overriding commission should be treated as foreign currency, as it was deducted while remitting sale proceeds to the overseas service recipient. The court found this argument valid under Rule 3(3) of the Export of Services Rules, 2005, which exempts such services from Service Tax.

8. Calculation of Taxable Value under Section 67(1)(i) of the Finance Act:
The appellant contended that the incentives and commissions paid to IATA agents should not be included in the taxable value under Section 67(1)(i) of the Finance Act. The court noted that the Tribunal did not adequately consider this provision and its implications on the appellant's taxable value.

Conclusion:
The court modified the Tribunal's pre-deposit order, reducing the amount to Rs. 15 lakhs, and directed the appellant to deposit this sum within four weeks. The court emphasized the need for the Tribunal to consider the appellant's financial hardship and the merits of the case more thoroughly. The appeal was restored to the Tribunal's file, and the balance amount demanded was waived during the pendency of the appeal.