Air travel agents' target incentives not taxable under 'business auxiliary service' per section 65A of Finance Act.

The Tribunal determined that air travel agents are promoting their own business rather than that of airlines or CRS Companies, and thus, target-based incentives paid to them are not subject to service tax under 'business auxiliary service' (BAS). The classification of services falls under "air travel agent" services, not BAS, as per section 65A of the Finance Act. The Tribunal concluded that incentives based on achieving targets do not constitute taxable services, as they are not tied to specific service transactions. Consequently, the demand for service tax on these incentives was not upheld.

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Issues Involved:
1. Whether service tax can be levied on target-based incentives paid to travel agents by airlines under the category of 'business auxiliary service' (BAS).
2. Whether the commission paid by CRS Companies to travel agents can be subjected to service tax under BAS.
3. Whether a demand can be confirmed without specifying the sub-clause of BAS under which the activities are covered.
4. Whether demand of service tax can be confirmed under BAS in the absence of three parties – service provider, service receiver, and targeted audience.
5. Whether service tax liability can be fastened without specifying the consideration for service as provided under section 67 of the Finance Act, 1994.
6. Whether service tax liability can be fastened in the absence of the relationship of service provider and service receiver.

Detailed Analysis:

1. Target-Based Incentives and Service Tax:
The Tribunal concluded that the air travel agent is promoting its own business and not the business of the airlines. The travel agents provide options to passengers, and the passenger determines the airline for travel. The incentives paid by airlines to travel agents are based on achieving a pre-determined number of bookings and do not constitute promotional services for the airlines. The Tribunal referred to the Madras High Court decision in Airlines Agents Association vs. Union of India, which held that air travel agents render services to passengers and not to airlines, and thus, the commission paid to them is not for promoting the business of airlines.

2. Commission by CRS Companies and Service Tax:
The Tribunal held that the air travel agent is not promoting the business of CRS Companies. The CRS commission is paid to a travel agent if an agreed level of segments is booked. The passenger is unaware of the CRS Company used by the travel agent, and the travel agent's choice of CRS system is for its own business enhancement. The Tribunal referred to a Circular issued by the Central Board of Excise and Customs, which clarified that shared expenses between insurance companies and re-insurers do not constitute BAS as the customer is unaware of the re-insurer's role.

3. Demand Without Specifying Sub-Clause of BAS:
The Tribunal did not address this issue directly as the show cause notice and the adjudicating order had confirmed the demand under section 65(19)(ii) of the Finance Act.

4. Demand of Service Tax Without Three Parties:
The Tribunal held that a passenger cannot be deemed to be an audience for the promotion of the business of CRS Companies. The passenger cannot directly use the CRS software to book an airline ticket, and thus, the travel agent is not promoting the CRS Company's business to the passenger.

5. Service Tax Liability Without Specifying Consideration:
The Tribunal concluded that incentives paid for achieving targets are not leviable to service tax. Section 67 of the Finance Act specifies that service tax is chargeable on the gross amount charged by the service provider for the service provided. Incentives are not transaction-specific and are based on general performance, not on any particular service transaction. The Tribunal referred to the Supreme Court decision in Union of India vs. Intercontinental Consultancy and Technocrats, which held that service tax is on the value of services actually rendered.

6. Service Tax Liability Without Relationship of Service Provider and Receiver:
The Tribunal did not address this issue directly as the primary findings resolved the matter.

Conclusion:
The Tribunal concluded that:
- The air travel agent is promoting its own business, not the business of the airlines.
- The air travel agent is not promoting the business of CRS Companies.
- The classification of the service would fall under "air travel agent" service and not BAS in terms of section 65A of the Finance Act.
- Incentives paid for achieving targets are not leviable to service tax.

Answers to Referred Issues:
1. Incentives received by a service recipient from a service provider cannot be subjected to service tax.
2. This issue does not arise as the show cause notice and adjudicating order had confirmed the demand under section 65(19)(ii) of the Finance Act.
3. A passenger cannot be deemed to be an audience for the promotion of the business of CRS Companies.
4. Fourth, fifth, and sixth issues do not arise for consideration and are not answered.

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