2024 (3) TMI 596 - AT - Service Tax

Travel agent incentives from airlines not subject to service tax as trading activity not service provision

The CESTAT NEW DELHI held that incentives received by air travel agents from airline companies are not subject to service tax as they constitute trading ... Levy of service tax - Business Auxiliary Service - incentives received from the airline companies - Department has filed the cross appeal on the bifurcation of the income under the category as ‘Commission’ and ‘Incentive’ and further the bifurcation of incentives to ‘incentive’, ‘discount’ and ‘market price adjustments’ on which demand has been dropped. HELD THAT:- The amount received as ‘Commission’ is distinguishable from the amount received as ‘Incentive’ for the simple reason that ‘Commission’ has direct nexus to the service which the appellant is providing, i.e. booking of space with the airlines whereas ‘Incentive’ as explained by the appellant is the profit which they earn from the difference in the amount which they generally charge from their clients which is higher than the price they have negotiated with the airlines. Therefore, the amount received by way of incentive is not on account of rendering any services but on account of trading activity which is not taxable under the Act - The findings of the adjudicating authority that ‘incentive’ received by the appellant is also another form of ‘consideration’ given by the airlines for providing the service for promotion of their business needs to be set aside in view of the decision of the Larger Bench, where it was specifically concluded that by booking air tickets the air travel agent is promoting its own business and is not promoting the business of the airlines. The terms ‘incentive’, ‘discount’ or ‘market price adjustment’ used in the CSR has been considered differently by the adjudicating authority which has been challenged both by the assessee as well as by the revenue. No service tax can be levied on ‘incentive’. In so far as the appeal filed by the revenue against the demand being dropped on ‘discount’ and ‘market price adjustment’ is concerned the same has been dropped as they are directly linked to freight which has been held to be non-taxable by the adjudicating authority and the same has not been challenged by the Revenue. The learned Authorized Representative has relied on the decision in M/S. APL LOGISTICS INDIA (PVT) LTD. VERSUS COMMISSIONER OF SERVICE TAX, CHENNAI [2018 (2) TMI 317 - CESTAT CHENNAI] however there are no relevance of the same in the present context, though the Tribunal observed that there was no merit in the Revenue’s case that the appellant has provided Business Auxillary Service. The impugned order set aside - appeal of Revenue dismissed. Issues:The issues involved in the judgment include the challenge against the imposition of service tax on 'incentives' received from airline companies under the category of 'Business Auxiliary Service,' as well as the department's cross-appeal on the bifurcation of income under the categories of 'Commission' and 'Incentive,' and the further bifurcation of incentives into 'incentive,' 'discount,' and 'market price adjustments.'Imposition of Service Tax on Incentives:The case involved a challenge to Order-in-Appeal No. 08-Commr./CGST Audit-I/2018, where the assessee contested the imposition of service tax on incentives received from airline companies under the Business Auxiliary Service category. The department issued a show cause notice based on discrepancies in ST-3 returns, 26AS statements, and balance sheets, resulting in a demand for differential service tax amounting to Rs. 9,44,87,513/- along with interest and penalty. The adjudicating authority dropped the demand related to freight in the value of Clearing and Forwarding Agent service but confirmed a demand of Rs. 11,47,957/- for service tax on incentives for the period from October 2013 to March 2015.Interpretation of Business Auxiliary Service:The adjudicating authority considered the elements of 'commission' and 'incentive' separately under the Business Auxiliary Service category. While the appellant had paid service tax on commission, the dispute arose regarding the taxability of incentives. The appellant argued that incentives, discounts, and market price adjustments were trading activities not subject to tax, while the Revenue contended that these amounts were payment for services rendered in promoting business. The judgment analyzed the definitions of Business Auxiliary Service and taxable service under the relevant sections and concluded that incentives, being profits from trading activities, were not subject to service tax.Classification of Incentives and Related Terms:The terms 'incentive,' 'discount,' and 'market price adjustment' used in the Cargo Sales Report were scrutinized. The appellant's business model clarified that incentives were part of trading activities and not service-related payments. The judgment emphasized that incentives received were not consideration for services provided, aligning with a previous decision that incentives do not constitute consideration and are not subject to service tax. The appeal challenging the dropping of demands on discount and market price adjustments linked to freight was dismissed.Conclusion:The tribunal set aside the imposition of service tax on incentives, interest, and penalty, allowing the appellant's appeal while dismissing the Revenue's appeal. The decision was pronounced on 13th March 2024.