Commissioner's valuation of air travel agent services overturned for incorrectly including fuel surcharge in commission calculation

CESTAT NEW DELHI held that the Commissioner's valuation of air travel agent services was incorrect. The appellant produced BSP statements proving that airline commission was calculated only on the air fare, not on air fare plus fuel surcharge. The Commissioner failed to properly determine the commission base despite clear evidence and previous tribunal directions. The Commissioner's finding that commission included fuel surcharge was unsustainable and set aside. The appeal was allowed, making examination of extended limitation period unnecessary.

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Issues Involved:
1. Non-payment of service tax on gross value including fuel surcharges.
2. Wrong availment of CENVAT credit on input service invoices issued at unregistered premises.

Summary:

1. Non-payment of service tax on gross value including fuel surcharges:

The appellant, an IATA-approved agent, challenged the order confirming the demand of service tax by including fuel surcharge in the "basic fare" under rule 6(7) of the Service Tax Rules, 1994. The appellant argued that they paid service tax only on the air fare on which commission is normally paid by airlines, as defined in rule 6(7). The department's audit and subsequent show cause notice alleged that the basic fare should include the fuel surcharge based on intelligence gathered.

The Tribunal, in a previous decision, remanded the matter to the Commissioner to verify if the commission was paid only on the air fare. However, the Commissioner, after remand, concluded that the commission was paid on both air fare and fuel surcharge based on an arithmetical calculation showing a fixed trend of 3% commission when fuel surcharge was added. This conclusion was reached without substantial evidence from the department to prove that airlines paid commission on fuel surcharge.

The Tribunal found that the Commissioner's finding was based on an incorrect assumption that the rate of commission should be uniform and not on concrete evidence. The BSP statements provided by the appellant showed that commission was calculated solely on the air fare, not including the fuel surcharge. Thus, the Tribunal set aside the Commissioner's order, concluding that the appellant had correctly paid service tax on the air fare alone.

2. Wrong availment of CENVAT credit on input service invoices issued at unregistered premises:

The Commissioner had initially denied the CENVAT credit availed on invoices issued to the appellant's unregistered Mumbai office. However, it was noted that there was no dispute about the receipt and accounting of the services in the appellant's books. The Commissioner, therefore, held that the appellant was entitled to the benefit of proviso to Rule 9(2) of the CENVAT Credit Rules, 2004, and dropped the demand on this account.

Conclusion:

The Tribunal allowed the appeal, setting aside the Commissioner's order dated 30.01.2017, and held that the appellant had correctly discharged the service tax liability on the air fare alone, as defined in rule 6(7) of the Service Tax Rules, 1994. The issue of extended period of limitation was not examined due to the primary issue being resolved in favor of the appellant.

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