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

CESTAT Chennai set aside service tax demands against appellant travel agency on two grounds. Following precedent in Weldon Tours case, the tribunal held that charges for outbound tours occurring outside India are not subject to service tax levy. Additionally, relying on the Larger Bench decision in Kafila Hospitality case, the tribunal ruled that incentives received for Amadeus software usage are performance-based rather than transaction-specific, thus not taxable under Business Auxiliary Services. Both demands were deemed unsustainable and the appeal was allowed.

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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 Tours

Facts 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 Software

Facts 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)

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