2024 (3) TMI 458 - AT - Service Tax

Chartered flight services classified as passenger air transport, not tangible goods supply

CESTAT Ahmedabad held that chartered flight services provided by aircraft operators constitute transport of passenger by air service, not supply of ... Classification of service - providing chartered flights to various organization - to be classified under Transport of Passenger by Air Service or supply of tangible goods services? - reverse charge mechanism - levy of service tax on Banking and Financial Services and Management, Maintenance and Repairs services, received from the parties located aboard - Tax paid before issuance of SCN - Extended period of limitation. Transport of Passenger by Air Service or supply of tangible goods services? - HELD THAT:- For the service to be taxable under the category of ‘transport of passengers by air service’, such service should be provided by an aircraft operator, i.e., any person who provides the service of transport of goods or passenger by aircraft and the service should be in relation to scheduled or non-scheduled air transport service provided to any passenger embarking in India for domestic journey or international journey. The appellants are registered with the Director General of Civil Aviation (DGCA) as an aircraft operator for providing the service of transport of passengers by aircraft. Further, ‘Air transport service’ is defined in Rule 3(9) of the Aircraft Rules, 1937 as a service for the transport by air of persons, mails or any other thing, animate or inanimate, for any kind of remuneration whatsoever, whether such service consists of a single flight or series of flights - The Civil Aviation Requirements (‘CAR’) dated 1-6-2010 also provides a similar definition of ‘Air transport service’ both for Scheduled and Non-Scheduled services. The charter operation is a sub-category of non-scheduled aircraft operations. The definition of charter operations is contained in that part of the CAR which pertains to Minimum Requirement for grant of permit to operate non-scheduled Air Transport Services. Hence, charter operations do not cease to be aircraft operations by reason of the fact that the entire aircraft is chartered by the client from the aircraft operator - it is seen that the services rendered by the appellants fall within the category of non-scheduled air transport services. Further, the appellant is in the business of providing service to its customers embarking in India for domestic journey. Hence, the conditions for coverage under the ‘transport of passengers by air service’ are satisfied. Therefore, in our view the service provided by the appellant is covered under the taxable service category of ‘transport of passengers by air service’ defined under clause (zzzo) of sub-section 65(105) of the Finance Act, 1994. It is well settled law when an activity becomes taxable from a particular date, it is to be treated as non-taxable for the previous period, therefore, for the period prior to 1-7-2010, the appellant’s activity can not be treated as supply of tangible goods service covered by Section 65(105)(zzzzj), that since the cost of operation of the Aircrafts such as maintenance, cost of the crew, fuel expenses, parking fee etc. are borne by the appellants, and since the main remuneration received by the appellant is on the basis of flying hours, trips, per seats the appellant’s activity can not be treated as supply of tangible goods, but has to be treated service of transportation of passengers in India by air. When there is an entry specifically for taxing ‘transport of passenger by aircraft’, the activity cannot be brought under a more general entry like ‘supply of tangible goods’. Levy of service tax on Banking and Financial Services and Management, Maintenance and Repairs services, received from the parties located aboard - Tax paid before issuance of SCN - HELD THAT:- In this regard appellant has accepted their liability and paid the entire service tax alongwith interest before the issuance of show cause notice and appellant only argued that since the service tax amount in dispute was paid along with interest before issuance of showcausenotice, benefit of sub-section (3) of Section 73 of Finance Act, 1994 should be available to the appellant. Accordingly, the issuance of show cause notice and imposition of penalty in respect of the said demand is unsustainable in law. The Division Bench of the Karnataka High Court in the case of COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX VERSUS M/S ADECCO FLEXIONE WORKFORCE SOLUTIONS LTD [2011 (9) TMI 114 - KARNATAKA HIGH COURT] had held that assessee is not liable to pay any penalty under such circumstances. Whether the hiring of charter aircrafts by M/s KAPL from Kellet and Singleton Aviation is liable to service tax under the category of ‘Supply of Tangible Goods Service’ and appellant being recipient of these service is liable pay service tax under reverse charge mechanism as per Rule 2(1)(d)(iv) of Service tax Rules, 1994 read with Section 66A of the Finance Act, 1994? - HELD THAT:- The said hiring of charter aircrafts was of air transport services from Ahmedabad to Moscow and Back. As already discussed, the said service is appropriately classifiable under the category of ‘Transportation of Passengers embarks in India for International Journey by Air Services’ defined under Section 65(105)(zzzo) and not under the category of ‘Supply of Tangible Goods Services’ Even if it is assumed that the appellant provided supply of tangiblegoods for use, liability to Service Tax is not attracted since as per the principles set out in, as the goods are not in India during the entire period of use. Reliance is placed on the above decision of this Tribunal in the case of PETRONET LNG LTD VERSUS COMMISSIONER OF SERVICE TAX [2013 (11) TMI 1011 - CESTAT NEW DELHI] wherein the phrase ‘during the period of use’ was interpreted and it was held that to come within the scope of SOTG, the tangible goods must be located in India during the entire period of use - In the present case since the Aircrafts was used for transport to Moscow and back, it was not within India during the entire course of its use. The appellant cannot be held liable for payment of service tax under the reverse charge mechanism in respect of Aircrafts not located in India during the entire period of their use. The impugned orders are set aside - Appeals are allowed. Issues Involved:1. Classification of services provided by the appellants.2. Liability of service tax on Banking and Financial Services and Management, Maintenance, and Repairs services received from abroad.3. Applicability of service tax on hiring of charter aircrafts from Kellet and Singleton Aviation.Summary:1. Classification of Services Provided by the Appellants:The primary issue was whether the activity of providing chartered aircrafts by the appellants falls under 'Supply of Tangible Goods Services' (Section 65(105)(zzzzj)) or 'Air Transport of Passengers Services' (Section 65(105)(zzzo)). The Tribunal found that the appellants are registered with the DGCA as aircraft operators and provide non-scheduled air transport services, which include charter operations. The Tribunal held that charter operations are a sub-category of non-scheduled aircraft operations and are essentially aircraft operations, not supply of aircraft. Therefore, the services provided by the appellants fall under 'Air Transport of Passengers Services' and not under 'Supply of Tangible Goods Services'. The Tribunal noted that the appellants were paying service tax under Section 65(105)(zzzo) from 1-7-2010, when domestic air travel became taxable, and hence, for the period prior to 1-7-2010, the activity cannot be subjected to tax under Section 65(105)(zzzzj).2. Liability of Service Tax on Banking and Financial Services and Management, Maintenance, and Repairs Services Received from Abroad:The appellant M/s KAPL had accepted their liability and paid the entire service tax along with interest before the issuance of the show cause notice. The Tribunal held that in terms of Section 73(3) of the Finance Act, 1994, the proceedings were not required to be initiated against the appellant, and therefore, the penalty imposed on the appellant was set aside. The Tribunal referenced the Karnataka High Court's decision in CCE & ST, LTU, Bangalore v. Adecco Flexione Workforce Solutions Limited, which held that no penalty is liable when service tax and interest are paid before the issuance of a show cause notice.3. Applicability of Service Tax on Hiring of Charter Aircrafts from Kellet and Singleton Aviation:The Tribunal found that the hiring of charter aircrafts from Kellet and Singleton Aviation was for air transport services from Ahmedabad to Moscow and back, which falls under 'Transportation of Passengers embarking in India for International Journey by Air Services' (Section 65(105)(zzzo)) and not under 'Supply of Tangible Goods Services' (Section 65(105)(zzzzj)). Even if considered under Section 65(105)(zzzzj), the service is not taxable as the aircrafts were not located in India during the entire period of use. The Tribunal referenced the decision in Petronet LNG Ltd. v. Commissioner of Service Tax, which held that for service tax to apply under the reverse charge mechanism, tangible goods must be located in India during the entire period of their use.Conclusion:The Tribunal set aside the impugned orders and allowed the appeals with consequential relief, if any, as per law.