2024 (11) TMI 57 - AT - Service Tax

CRS incentives not taxable but outbound tour services attract service tax, export exemption denied

CESTAT New Delhi ruled that service tax is not leviable on CRS incentives received by the appellant, following the precedent in Kafila Hospitality Travels ... Service tax leviable on the CRS incentive - dispute pertains to outbound tours and BAS - HELD THAT:- Issue whether service tax is leviable on the CRS incentive has been decided by Tribunal in the case of Kafila Hospitality & Travels Pvt. Ltd [2021 (3) TMI 773 - CESTAT NEW DELHI (LB)] in favour of the assessee holding that mere selection of software or exercising of a choice would not result in any promotional activity and the department has not pointed out any activity undertaken by an air travel agent that promotes the business of the CRS company and therefore, the incentives received by service recipient from a service provider cannot be subjected to service tax. The principle of law settled by the Larger Bench squarely applies to the facts of the present case and hence no service tax can be levied on the appellant on account of incentives received from the CRS companies. Activity of providing services in relation to outbound tour in locations outside the territory of India - whether the appellant was involved in rendering the other services as scheduled in the definition of the “tour operator service”, which will result in the liability to discharge the service tax under the Act? - The nature of services provided by the appellant are not restricted to the tour itself but are extended to include other activities which in terms of the amended definition of “Tour Operator Service” are taxable. Moreover, the claim made by the appellant that the services rendered by them being executed outside the country would amount to export of services under the Export of Service Rules, 2005 is not sustainable as the same has not been found favoured with the Larger Bench in M/s. Cox & King [2023 (10) TMI 1388 - CESTAT MUMBAI - LB] In the present case, more importantly one of the prerequisites for determining a service to be export service is that payment for rendering such service is received in convertible foreign exchange is not satisfied. Adjudicating authority has categorically recorded a finding that the appellant is not receiving the payment against the provision of outbound tours in foreign exchange and therefore the provisions of Export of Service Rules, 2005 are not applicable. Thus, we conclude as under: (i) that no service tax is leviable on the CRS incentives received by the appellant. (ii) the services of planning, scheduling, organising, or arranging tours, arrangements for accommodation, sightseeing, or other similar services as to operator service rendered by the appellant are chargeable to service tax under the Act. Having held that, the appellant is liable to pay service tax on outbound tours service which they have not paid/short paid during the period, 2010-12, they are liable to pay interest in terms of section 75 of the Act. Extended period of limitation - The facts of the present case shows that that Adjudicating Authority has recorded a finding that the appellant had contravened the provisions of the Service Tax Act and the Rules. Referring to the various provisions of the Act, it was noticed that the obligation cast on the appellant by the statutory provisions required them to file proper periodical returns and discharge the service tax liability accordingly, which the appellant had failed to do so. The present case had initiated because of the enquiry conducted by the officers of the department and in the absence thereof, the evasion of tax would not have come to light. The extended period as provided under the proviso to Section 73(1) of the Act has been rightly invoked and no interference is called for therein. In view of these facts, the penalties imposed under section 76, 77 & 78 respectively in the two appeals is also affirmed. The impugned order is, therefore, modified to the extent indicated above. We remand the matter back to the adjudicating authority to compute the service tax liability of the appellant in view of our decision above Issues:- Service tax leviable on CRS incentives received by the appellant.- Taxability of services in relation to outbound tours provided by the appellant.- Liability for interest and penalties due to contravention of statutory provisions.Analysis:Service Tax on CRS Incentives:The appellant, engaged in providing travel services, received incentives from CRS companies for booking air tickets. The Tribunal referred to the decision in Kafila Hospitality & Travels Pvt. Ltd and held that such incentives do not attract service tax. The Tribunal emphasized that the incentives do not change the nature of services provided by the appellant, falling under 'air travel agent' services rather than Business Auxiliary Service (BAS). Therefore, no service tax is leviable on the CRS incentives as per the established legal principles.Taxability of Outbound Tour Services:Regarding the appellant's provision of services for outbound tours, the Tribunal considered the definition of 'tour operator service' post the amendment in 2004. The appellant organized tours outside India, offering services like international hotel bookings, car services, and visa services. The Tribunal applied the decision in M/s Cox and Kings Ltd and concluded that these activities fall within the scope of taxable services under the 'tour operator service.' The Tribunal rejected the appellant's argument of export of services citing non-receipt of payments in convertible foreign exchange. Consequently, the appellant is liable to pay service tax on outbound tour services not paid or underpaid during the relevant period.Liability for Interest and Penalties:The Tribunal upheld the extended period of limitation invoked by the Adjudicating Authority due to the appellant's failure to comply with statutory obligations. The appellant's non-compliance with filing returns and discharging service tax liabilities led to the initiation of the case. As a result, interest under section 75 and penalties under sections 76, 77, and 78 were affirmed. The Tribunal remanded the matter to the adjudicating authority to calculate the appellant's service tax liability based on the Tribunal's decision. The impugned order was modified accordingly, and the appeal was disposed of.In conclusion, the Tribunal ruled that no service tax is leviable on CRS incentives, but the appellant is liable to pay service tax on outbound tour services. The appellant faces interest and penalties due to non-compliance with statutory provisions. The decision provides clarity on the tax treatment of travel-related services and emphasizes the importance of fulfilling tax obligations to avoid penalties and interest.