Commission from branch ticket bookings not taxable under Business Auxiliary Service as head office and branches are one entity

The CESTAT Mumbai held that commission earned by the head office from its branch offices for ticket bookings does not attract service tax under Business Auxiliary Service, as the head office and branches are not separate entities. The tribunal relied on the precedent set in a similar case by CESTAT New Delhi. The impugned order confirming service tax demands was found to lack merit and was set aside. The appeal was allowed.

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ISSUES:

Whether commission earned by a General Sales Agent (GSA) from other GSAs for booking airline tickets is liable to service tax under the category of "Business Auxiliary Service" (BAS).Whether commission received by a principal office from its own branch offices for booking airline tickets constitutes a taxable service under BAS.The correct classification of services rendered by GSAs and sub-agents in relation to airline ticket booking-whether under "Air Travel Agent Services" or "Business Auxiliary Services."Whether payment of service tax under Rule 6(7) for air travel services precludes imposition of service tax under BAS on commissions received.

RULINGS / HOLDINGS:

The commission earned by GSAs from other GSAs for booking airline tickets does not attract service tax under "Business Auxiliary Service" as it falls within the category of "Air Travel Agents Services." The Tribunal held that "the services rendered by a sub-agent of an IATA agent comes under 'Air Travel Agents Services' or 'Business Auxiliary Services'" and the ratio of the Hon'ble High Court of Madras applies.Commission received by the principal office from its own branch offices is not taxable as a service under BAS because "the head office and the branch offices of one corporate entity cannot be termed as separate persons" and "in the absence of any provider - receiver of service relationship, the commission amount shared by the branch office is with the head office cannot be subjected to tax."The impugned order confirming service tax demands under BAS was set aside, and the appeal was allowed, concluding that the demand raised by the revenue under BAS is "unsustainable."Payment of service tax under Rule 6(7) for air travel services accepted by the department during the disputed period precludes the department from imposing service tax under a different category (BAS) on commissions received by the appellants.

RATIONALE:

The Tribunal relied on prior decisions including the Final Order No. 50116/2024 and the decision in M/s Zuari Travel Corporation, which established that services rendered by GSAs and their sub-agents fall within "Air Travel Agents Services" rather than BAS.The Tribunal applied the principle that a corporate entity and its branches constitute a single taxable person; hence, transactions between them do not qualify as taxable services under service tax law.The legal framework includes the classification of services under the Finance Act and applicable service tax rules, particularly Rule 6(7) related to air travel agents.The Tribunal emphasized consistency with earlier rulings and rejected any contradictory stand by the department, reinforcing the settled position that commissions earned in the described manner are not taxable under BAS.

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