Tribunal rules in favor of ETA Travel Agency on taxability of commission & Cenvat Credit

The Tribunal ruled in favor of the appellant, M/s. ETA Travel Agency Pvt. Ltd., Chennai, in a case concerning the taxability of overriding commission and eligibility of Cenvat Credit on input services. The Tribunal held that the overriding commission received by the appellant amounted to export of service and was not liable to service tax. Additionally, the Tribunal concluded that the expenses on which the appellant availed credit were integrally connected with their business activities and thus eligible for Cenvat credit. The Tribunal allowed all three appeals, setting aside the demand for service tax and recognizing the eligibility of Cenvat credit on the input services.

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Issues Involved:
1. Taxability of overriding commission received by the appellant.
2. Eligibility of Cenvat Credit on input services such as Car hire charges, Insurance charges, Staff welfare expenses, and Travelling expenses.

Issue-wise Detailed Analysis:

1. Taxability of Overriding Commission:
The appellant, M/s. ETA Travel Agency Pvt. Ltd., Chennai, functioned as a General Sales Agent for M/s. Travel Pie LLC, Arizona (Alaska Airlines), USA, and received overriding commission for services provided. The primary contention was whether the services provided qualify as export under Rule 3(3) of Export of Service Rules, 2005 (ESR, 2005). According to the rule, services are considered as export if they are provided in relation to business or commerce and the recipient is located outside India. The department argued that since the tickets were sold in India and the recipients of the service were in India, the condition of provision to a recipient outside India was not fulfilled, thus demanding service tax on the overriding commission.

The appellant contended that the services were indeed used by the foreign company (Travel Pie LLC, Arizona) and the payments were received in convertible foreign currency. They relied on the Tribunal's decision in Arafaath Travels Pvt. Ltd. Vs. Commissioner of Service Tax, which held that services provided under a General Sales Agency agreement to a foreign airline constituted export of service, even if the payment was received in Indian rupees, as it was akin to receipt of money in convertible foreign exchange.

The Tribunal, referencing the decision in Arafaath Travels and the Supreme Court's dismissal of the department's appeal in Suprasesh General Insurance Services, concluded that the overriding commission received by the appellant amounts to export of service and is not liable to service tax. Thus, the demand for service tax on the overriding commission was set aside.

2. Eligibility of Cenvat Credit on Input Services:
The second issue pertained to the eligibility of Cenvat Credit on input services like Car hire charges, Insurance charges, Staff welfare expenses, and Travelling expenses. According to Rule 2(1) of Cenvat Credit Rules, 2004 (CCR, 2004), "input service" includes services used in relation to business activities such as advertisement, sales promotion, market research, storage, and activities related to business like accounting, auditing, and financing.

The department contended that the expenses on which the appellant availed credit were not connected to the provision of output services (Air Travel Agent Service and Business Auxiliary Service). However, the appellant argued that these expenses were essential for providing their output services and relied on the Bombay High Court's decision in Ultra Tech Cement Ltd., which held that input services include all services integrally connected with the business of the assessee.

The Tribunal, referencing the inclusive definition of "input service" under Rule 2(1) of CCR, 2004, and the Bombay High Court's decision, concluded that the denial of Cenvat credit on input services was not legally maintainable. The Tribunal recognized that the services in question were integrally connected with the business and thus eligible for Cenvat credit.

Conclusion:
The Tribunal allowed all three appeals, setting aside the demand for service tax on the overriding commission and recognizing the eligibility of Cenvat credit on the input services in question. The order was pronounced in the Open Court on 20.02.2023.

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