2024 (7) TMI 1402 - AT - Service Tax

Travel agency wins appeal as outbound tour charges and Amadeus software incentives ruled non-taxable under service tax

International Travel House Limited Versus Commissioner of CGST & Central Excise, Chennai

CESTAT Chennai set aside service tax demands against appellant travel agency on two grounds. Following precedent in Weldon Tours case, the tribunal held ... Levy of service tax - Tour Operator Services on charges received for outbound tours - Business Auxiliary Services on incentives received for use of Amadeus software - extended period of limitation. Whether the appellant is liable to pay service tax under Tour Operator Services on charges received for outbound tours? - HELD THAT:- The Division Bench of the Tribunal, in the case of M/s Weldon Tours & Travels Pvt. Ltd. [2024 (5) TMI 371 - CESTAT NEW DELHI] had occasion to consider the demand of service tax raised on outbound tours for the period prior to 01.07.2012. After considering the observations made by the Hon’ble Apex Court, in the case of All India Federation of Tax Practitioners [2007 (8) TMI 1 - SUPREME COURT] and also the decision of the Larger Bench dated 19.10.2023. It was observed that since the tour is happening outside India, the charges received for operating and arranging outbound tours is not subject to levy and collection of service tax. The Coordinate Bench of the Tribunal set aside the demand raised on outbound tours. By judicial discipline, following the decision in the case of M/s Weldon Tours & Travels Pvt. Ltd. [2024 (5) TMI 371 - CESTAT NEW DELHI], the demand of service tax for the disputed period on outbound tours cannot sustain and requires to be set aside. Whether the appellant is liable to pay service tax under Business Auxiliary Services on incentives received for use of Amadeus software? - HELD THAT:- The said issue is settled by the Lager Bench in the case of M/s. Kafila, Hospitality & Travels Pvt. Ltd. [2021 (3) TMI 773 - CESTAT NEW DELHI (LB)] where it was held that 'Consideration, which is taxable under Section 67 of the Finance Act, should be transaction specific. Incentives, on the other hand, are based on general performance of the service provider and are not to be related to any particular transaction of service. It needs to be noted that commission, on the other hand, is dependent on each booking and not on the target. If the air travel agent does not achieve the predetermined target, incentives will not be paid to the travel agents.' The decision in the case of M/s. Kafila, Hospitality & Travels Pvt. Ltd., was followed by the Tribunal in the case of Asveen Air Travel (P) Ltd., versus Commissioner of GST & CE, Chennai [2022 (4) TMI 1035 - CESTAT CHENNAI]. After appreciating the facts and following the decision of the Larger Bench in the case of M/s. Kafila, Hospitality & Travels Pvt. Ltd., it is opined that the demand of service tax on incentives/charges for use of Amadeus Software for booking air tickets cannot sustain under Business Auxiliary Services, and requires to be set aside. The impugned orders are set aside - appeal allowed. Issues Involved:1. Liability to pay service tax under Tour Operator Services on charges received for outbound tours.2. Liability to pay service tax under Business Auxiliary Services on incentives received for using Amadeus software.Detailed Analysis:Issue 1: Liability to Pay Service Tax under Tour Operator Services for Outbound ToursFacts and Arguments:The appellants are engaged in providing Tour Operator Services and have obtained service tax registration for such services. They conduct outbound tours (tours to foreign countries) and receive service charges from clients in Indian currency. The Department issued show cause notices proposing to demand service tax on these charges, arguing that planning, scheduling, and organizing of the tours occur within India.Appellant's Contention:The appellants argued that the entire tour begins and terminates in a foreign country, and thus, there cannot be a liability to pay service tax for outbound tours. They cited various Trade Notices and Circulars clarifying that services rendered for outbound tourism do not attract service tax. They also referred to the Export of Service Rules 2005 and the decision of the Hon'ble Supreme Court in All India Federation of Tax Practitioners, which emphasized that service tax is a destination-based consumption tax.Tribunal's Findings:The Tribunal noted that the service provided is a tour outside India, and the customer is interested only in the tour happening outside India. The Larger Bench in M/s. Cox & Kings Limited observed that taxability has to be looked into on the facts of each case. The Division Bench in M/s Weldon Tours & Travels Pvt. Ltd. held that charges received for operating and arranging outbound tours are not subject to levy and collection of service tax within India. Following judicial discipline, the Tribunal set aside the demand of service tax for the disputed period on outbound tours.Issue 2: Liability to Pay Service Tax under Business Auxiliary Services on Incentives Received for Using Amadeus SoftwareFacts and Arguments:The Department raised a demand for service tax on incentives received by the appellant from M/s. Amadeus India Pvt. Limited for booking air tickets using their software. The appellants contended that these incentives are loyalty incentives and not consideration for any service provided to Amadeus, and thus should not be subject to service tax.Appellant's Contention:The appellants argued that the activity of booking air tickets is covered under air travel agent services and does not classify under Business Auxiliary Services. They cited the decision of the Larger Bench in Khafila Hospitality and Travels Pvt Ltd, which held that incentives received for using online portals of CRS companies to book air tickets cannot be subject to service tax.Tribunal's Findings:The Tribunal referred to the decision in Khafila Hospitality and Travels Pvt Ltd, which clarified that incentives are generally given to encourage performance and are not transaction-specific. Therefore, such incentives cannot be construed as 'consideration' under Section 67 of the Finance Act. Following this decision, the Tribunal set aside the demand of service tax on incentives received for using Amadeus software under Business Auxiliary Services.Conclusion:The Tribunal concluded that the demands for service tax under both Tour Operator Services for outbound tours and Business Auxiliary Services for incentives received from Amadeus software cannot be sustained. The impugned orders were set aside, and the appeals were allowed with consequential reliefs.(Order pronounced in the open court on 22.07.2024)