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 tangible goods service. The appellant, registered with DGCA as aircraft operator, provided non-scheduled air transport services for domestic journeys, satisfying conditions under Finance Act 1994. For pre-2010 period, activity was non-taxable. Regarding banking and financial services from abroad, since service tax was paid before show cause notice issuance, penalty was unsustainable. For charter aircraft hiring from foreign parties, reverse charge mechanism was inapplicable as aircraft wasn't located in India during entire usage period. Appeals allowed, impugned orders set aside.

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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.

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