Airline commission service tax dispute resolved in favor of appellant under section 67 Finance Act

The CESTAT NEW DELHI ruled in favor of the appellant regarding service tax on airline commission. The tribunal held that the appellant rendered air travel agent services to sub-agents/customers, not airlines, making the commission taxable under section 67 of the Finance Act. The PSA Agreement from 1994 could not include service tax as air travel agent services became taxable only from 1997. The appellant legitimately collected service tax from sub-agents as service recipients, making section 73A(2) inapplicable. The adjudicating authority's order was set aside and appeal allowed.

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Issues Involved:
1. Whether the commission received by the appellant from the airlines was inclusive of service tax.
2. Whether the appellant rendered air travel agent services to the airlines or to the sub-agents/customers.
3. Whether the department is justified in recovering the amount of service tax collected by the appellant from the sub-agents under section 73A(2) of the Finance Act.

Detailed Analysis:

1. Whether the commission received by the appellant from the airlines was inclusive of service tax:

The department contended that the commission received by the appellant from the airlines was inclusive of service tax, relying on clause 9 of the PSA Agreement which stated that the remuneration paid by the airlines to the appellant would form full compensation for the services rendered to the airlines. However, the appellant argued that this clause could not be construed to mean that the commission included service tax, especially since the PSA Agreement was signed in 1994, before air travel agent services became taxable in 1997. The appellant also produced a certificate from airlines stating that no service tax was included in the commission paid to the appellant. The Tribunal concluded that the commission paid to the appellant did not include service tax, and the phrases "full compensation" or "inclusive of all taxes" did not automatically mean that tax had been recovered.

2. Whether the appellant rendered air travel agent services to the airlines or to the sub-agents/customers:

The department alleged that the appellant provided services to the airlines and received consideration/commission from the airlines for this service. The appellant contended that it did not provide any service to the airlines and that the commission received was for the service provided to the sub-agents. The Tribunal referred to the decision of the Madras High Court in Airlines Agents Association vs. Union of India, which held that air travel agents rendered services to the passengers, and the commission paid by the airlines had a direct nexus to the services rendered to the passengers. The Tribunal also noted the valuation provisions under section 67 and the Service Tax (Determination of Value) Rules, which included the commission received from the airlines as part of the consideration for services provided to the sub-agents. Thus, the Tribunal concluded that the appellant rendered services to the sub-agents/customers and not to the airlines.

3. Whether the department is justified in recovering the amount of service tax collected by the appellant from the sub-agents under section 73A(2) of the Finance Act:

Section 73A(2) of the Finance Act applies to cases where any person, not being a service provider, has collected an amount from another person representing as service tax. The department invoked this provision, alleging that the appellant collected service tax from the sub-agents without rendering any service to them. However, the Tribunal found that the appellant rendered services to the sub-agents and was justified in collecting service tax from them, which was deposited with the government. Therefore, section 73A(2) was not applicable in this case.

Conclusion:

The Tribunal concluded that:
1. The commission received by the appellant from the airlines did not include service tax.
2. The appellant rendered air travel agent services to the sub-agents/customers, not to the airlines.
3. The appellant was justified in collecting service tax from the sub-agents, and section 73A(2) of the Finance Act was not applicable.

The impugned order dated 30.05.2018 passed by the adjudicating authority was set aside, and all 27 appeals were allowed.

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