2018 (4) TMI 837 - AT - Service Tax

Airlines Win Tax Case: PSF & EBT Charges Not Taxable

The Tribunal ruled in favor of the airlines operator in a case concerning the liability of service tax on Passenger Service Fee (PSF) and Excess Baggage ... Passenger Service Fee collected on behalf of Airport Authority not liable to service tax - Excess baggage charges form an integral part of air passenger transportation and are not separately taxable - Classification of composite services: essential character test under section 65A - Limitation: demand barred where confirmed beyond normal limitation period for tickets sold prior to 1.5.2006Passenger Service Fee collected on behalf of Airport Authority not liable to service tax - Whether Passenger Service Fee (PSF) collected by the appellant on behalf of the Airport Authority is includible in the taxable value for levy of service tax. - HELD THAT: - The Tribunal held that PSF was collected by the appellant as an intermediary on behalf of the Airport Authority and subsequently paid to that authority; the appellant did not provide any taxable service in relation to the mere collection and deposit of PSF. The issue is squarely covered by earlier Tribunal decisions relied upon by the appellant. Consequently, PSF cannot be included in the taxable value for payment of service tax.PSF collected on behalf of the Airport Authority is not exigible to service tax and cannot be included in the taxable value.Excess baggage charges form an integral part of air passenger transportation and are not separately taxable - Classification of composite services: essential character test under section 65A - Whether excess baggage charges collected by the appellant from passengers are taxable separately or form part of the taxable service of transportation of passengers by air. - HELD THAT: - The Tribunal analysed the nature of excess baggage charges and concluded that such charges arise only in the context of carrying passengers by air and are therefore an integral part of the main service of transportation of passengers. Applying the classification principle in section 65A, where a service comprises more than one element it must be classified according to the element giving it its essential character; here that essential character is transportation of passengers by air. Prior Tribunal decisions, upheld by the Supreme Court in the cited appeal, support the view that excess baggage charges cannot be separately taxed under another category of service.Excess baggage charges are integral to the air passenger transportation service and are not separately taxable.Limitation: demand barred where confirmed beyond normal limitation period for tickets sold prior to 1.5.2006 - Whether service tax can be demanded on tickets sold prior to 1.5.2006 but used thereafter, and whether the demand in the present case is barred by limitation. - HELD THAT: - While the Tribunal observed that, in absence of a specific exemption, tax liability arises on sale of tickets sold before 1.5.2006 but used after that date, it relied on earlier authority which held that confirmation of such liability must be within the normal period of limitation and that the extended period cannot be invoked in the absence of relevant justification. In the present case the demand was confirmed beyond the normal statutory period; therefore the demand is time-barred and cannot be sustained on limitation grounds.Tax demand in respect of tickets sold prior to 1.5.2006 but used thereafter is barred by limitation where confirmed beyond the normal period.Final Conclusion: The Tribunal set aside the impugned adjudication order: PSF and excess baggage charges are not liable to service tax separately, and the demand in respect of tickets sold prior to 1.5.2006 but confirmed beyond the normal limitation period is time-barred; appeal allowed in favour of the appellant. Issues:1. Liability of service tax on Passenger Service Fee (PSF) and Excess Baggage Ticket (EBT) collected by the airlines.2. Applicability of service tax on tickets sold before 1.5.2006 but used by passengers after that date.Analysis:Issue 1: Liability of service tax on PSF and EBT:The case involved the appellant, an airlines operator, who collected total fare from passengers but deposited service tax only on the base fare and fuel surcharge. The service tax department initiated proceedings seeking confirmation of service tax demand for non-included PSF and EBT. The appellant argued that PSF collected on behalf of the airport authority and EBT charges were not taxable services. The Tribunal held that PSF collected for the airport authority did not attract service tax as the appellant acted as an intermediary. The Tribunal also ruled that EBT charges, collected for excess baggage, were integral to the main service of transporting passengers by air and should not be separately taxed under any other category.Issue 2: Applicability of service tax on tickets sold before 1.5.2006:Regarding tickets sold before 1.5.2006 but used by passengers after that date, the appellant contended that the show cause proceedings were time-barred. The Tribunal referred to previous decisions and held that the appellant was liable to pay tax on the tickets used after 1.5.2006. However, the demand confirmed beyond the normal period was barred by limitation, and the extended period of limitation could not be invoked. Therefore, the demand for service tax on tickets used after 1.5.2006 was not sustainable due to the limitation of time.In conclusion, the Tribunal set aside the impugned order, ruling in favor of the appellant, based on the non-taxability of PSF, EBT charges integral to the main service, and the time-barred nature of the demand for service tax on tickets sold before 1.5.2006 but used thereafter.