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 case which held that mere software selection does not constitute promotional activity. However, the tribunal held that outbound tour services including planning, scheduling, organizing tours and accommodation arrangements are taxable under service tax provisions. The appellant's claim for export service exemption was rejected as payment was not received in foreign exchange. The extended limitation period was validly invoked due to tax evasion discovered through departmental inquiry. Penalties under sections 76, 77, and 78 were upheld. Matter remanded to adjudicating authority for service tax computation.

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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.

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