2024 (12) TMI 942 - HC - Central Excise

Delhi HC waives mandatory pre-deposit under Section 35F for appeal citing strong prima facie case on incentive payments

Just Click Travels Private Limited Versus union of India & Ors.

Delhi HC waived mandatory pre-deposit under Section 35F of Central Excise Act, 1944 for filing appeal. The court exercised extraordinary jurisdiction ... Waiver of the mandatory pre-deposit under Section 35F of the Central Excise Act, 1944 for filing an appeal - direction to hear the petitioner's said appeal on merits without insisting on pre-deposit and to condone the delay - HELD THAT:- Undisputedly, the statute no longer confers any discretion on the first appellate authority or the CESTAT to waive the condition of pre-deposit. It is in the aforesaid backdrop that the writ petitioner has approached this Court to submit that the facts of the present case would reveal that this is one of those rare and deserving cases where the Court would be justified in invoking its jurisdiction conferred by Article 226 of the Constitution. Tthe principal demand appears to have come to be created by virtue of certain incentive payments which were received by the petitioner in connection with the use of the Computer Reservation System and which enabled it to access the online computer booking network - undisputedly the legal position insofar as incentives are concerned and those earned by members of the IATA is no longer res integra and stands authoritatively settled in Kafila Hospitality [2021 (3) TMI 773 - CESTAT NEW DELHI (LB)] - the petitioner appears to have a strong prima facie case and that the test of “likelihood of success” is liable to be answered in its favour. Whether circumstances exist warranting this Court invoking its extraordinary jurisdiction under Article 226 of the Constitution and waiving the condition of pre-deposit as imposed by Section 35F of the Act? - HELD THAT:- On evaluating whether the condition of pre-deposit is liable to be waived, it is necessarily needed have to approach the issue bearing in mind the decision of the Larger Bench of the CESTAT insofar as incentive payments are concerned. Viewed in that light, there are no hesitation in coming to the conclusion that insofar as this part of the demand is concerned, it would clearly qualify the test of rare and exceptional cases. Petition allowed, subject to the petitioner discharging its service tax liability with respect to the demands which stand created and quantified in the Order-in-Original, and more particularly as specified in paragraph 20 thereof, the other liabilities which may stand raised in light of the findings returned by the Adjudicating Authority and pertaining to incentive income shall stand waived for the purposes of quantifying the pre-deposit that is to be made. Issues Involved:1. Challenge to the Order-in-Original dated 10 March 2023 by the Commissioner, CGST, Audit-1, Delhi (North).2. Waiver of the mandatory pre-deposit under Section 35F of the Central Excise Act, 1944.3. Tax liability concerning commission income and incentive payments related to the Computer Reservation System (CRS).4. Application of the judgment in Kafila Hospitality & Travels Pvt. Ltd. concerning service tax on CRS incentives.5. Invocation of the High Court's jurisdiction under Article 226 of the Constitution for waiving pre-deposit conditions.Issue-wise Detailed Analysis:1. Challenge to the Order-in-Original:The petitioner contested the Order-in-Original dated 10 March 2023, which imposed liabilities related to service tax on commission income and incentive payments. The Adjudicating Authority noted that the petitioner admitted to short-paying service tax on commission income amounting to INR 1,39,32,179/-. The principal demand arose from incentive payments received for using the CRS, which the Authority deemed taxable under Section 66B of the Act.2. Waiver of Mandatory Pre-deposit:The petitioner sought a waiver of the mandatory pre-deposit required under Section 35F of the Central Excise Act, 1944, for filing an appeal against the Order-in-Original. The statute no longer permits the first appellate authority or CESTAT to waive this condition. The petitioner argued that the case was rare and deserving, justifying the Court's intervention under Article 226 of the Constitution.3. Tax Liability on Commission and Incentive Payments:The Adjudicating Authority considered incentive payments related to CRS as taxable income. The CRS companies provided a system enabling travel agents to access airline data for ticket bookings. Incentives were paid to agents to promote CRS usage, which the Authority classified as commission income, thus attracting service tax. The petitioner disputed this classification, citing a lack of documentary evidence to support the Authority's conclusions.4. Application of Kafila Hospitality Judgment:The petitioner relied on the CESTAT's Larger Bench decision in Kafila Hospitality, which held that CRS incentives paid to IATA agents do not qualify as business auxiliary services and are not subject to service tax. The CESTAT concluded that travel agents promote their own business, not that of airlines or CRS companies, and incentives for achieving targets are not taxable.5. High Court's Jurisdiction under Article 226:The High Court examined whether it could invoke its extraordinary jurisdiction to waive the pre-deposit condition. The Court referred to previous judgments affirming its power to dispense with pre-deposit requirements in rare and exceptional cases. The Court found that the petitioner's case met the criteria for such intervention, particularly concerning the incentive payments, which aligned with the Kafila Hospitality precedent.The Court concluded that the petitioner had a strong prima facie case, and the likelihood of success favored the petitioner. It allowed the writ petition, waiving the pre-deposit condition for the incentive-related demand, subject to the petitioner fulfilling other service tax liabilities as specified in the Order-in-Original. The Court clarified that its observations were limited to the pre-deposit issue and did not affect the merits of the case, keeping all rights and contentions open for further proceedings.