2025 (9) TMI 1086 - AT - Service Tax

Service tax payable by sub-agents as recipients of appellant's services; Section 73A(2) held inapplicable, appeal allowed

CESTAT New Delhi - AT held that the sub-agents are the recipients of services rendered by the appellant, permitting recovery of service tax from the ... Levy of service tax - appellant is providing service to the sub-agents or the sub-agents are providing service to the appellant - HELD THAT:- This Tribunal in its decision in the case of Riya Travels & others vs Commissioner of Service Tax, [2024 (9) TMI 1595 - CESTAT NEW DELHI] had examined identical facts where it was held that 'Once it is established that the sub-agents are the recipient of services rendered by the appellant, there can be no illegality in recovering service tax from the sub-agents. Section 73A(2) of the Finance Act would, therefore, not be applicable.' The impugned order is set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the appellant (an IATA-accredited travel agent) rendered 'air travel agent' services to airlines or rendered such services to sub-agents/customers. 2. Whether recovery of an amount described as 'service tax' from sub-agents by the appellant was lawful where the appellant had discharged service tax liability under the Basic Fare Model/Commission Model. 3. Whether Section 73A(2) (penalty/recovery from a person not being a service provider who collected an amount representing service tax) of the Finance Act was correctly invoked against the appellant, or whether Section 73A(1) (relating to service provider/service recipient relationships) was the applicable provision. 4. Whether interest/penalty under Sections 73A/73B is payable where the appellant filed returns, discharged service tax on commission/basic fare model, and there was no suppression of facts or withholding of tax. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Characterisation of recipient/provider: Did the travel agent render services to airlines or to sub-agents/customers? Legal framework: Definition of 'air travel agent services' under the Finance Act/Service Tax Rules and the contractual matrix (Passenger Sales Agency (PSA) Agreement and Productivity Linked Bonus (PLB) agreements) governing IATA agents; treatment under Basic Fare and Commission Models (section 68 and Rule 6(7) of Service Tax Rules). Precedent treatment: The Tribunal relied on its earlier decision addressing identical facts and also referred to the Madras High Court decision in Airlines Agents Association v. Union of India and the larger bench decision in Kafila Hospitality, which held that travel agents render services to customers/sub-agents and commission/incentives paid by airlines do not convert the transaction into a service to airlines. Interpretation and reasoning: Examination of the PSA/PLB agreements and the billing/settlement mechanism (IATA/BSP) shows that an accredited agent sells tickets to sub-agents/customers and performs activities (advising on carriage, tariffs, itineraries, availability) for customers/sub-agents. Commission received from airlines has a direct nexus to services rendered to sub-agents/customers rather than being consideration for services to the airlines. The Tribunal distinguished any contractual clause stating that remuneration constitutes full compensation to the carrier as not meaning that service tax is included in that remuneration. Ratio vs. Obiter: Ratio - travel agent commission from airlines is consideration for services provided to sub-agents/customers, not a service rendered to the carrier; thus the travel agent is the service provider vis-à-vis sub-agents/customers. Observations on contractual wording clarifying that remuneration clause does not import tax liability are supportive ratio statements, not mere obiter. Conclusion: The Tribunal concluded that the travel agent rendered air travel agent services to sub-agents/customers, not to the airlines. Issue 2 - Lawfulness of collecting 'service tax' from sub-agents when the appellant discharged service tax under Basic Fare/Commission Models Legal framework: Tax liability under the Basic Fare Model (Rule 6(7)) and the Commission Model (section 68) - both contemplate that the travel agent may discharge service tax on prescribed bases; the incidence of tax is borne by the service recipient. Precedent treatment: The Tribunal's prior orders (same bench's Riya Travels decision) and cited High Court/Tribunal authorities support the proposition that, where services are rendered to sub-agents/customers, collection of service tax from those recipients is permissible and aligns with the statutory models under which the agent may discharge tax. Interpretation and reasoning: If the appellant is the service provider to sub-agents, then sub-agents are service recipients and it is legitimate for the appellant to invoice and collect service tax from them. The appellant had been discharging service tax either under the Basic Fare Model or Commission Model and had borne the tax incidence; invoices/BSP statements reflected handling charges/commission passed to sub-agents. The Department's characterization of the transactions as separate (appellant-airline and appellant-sub-agent) that forbids recovery of tax from sub-agents is rejected where the contractual and commercial reality show the appellant provides services to sub-agents. Ratio vs. Obiter: Ratio - it is lawful for the travel agent to collect service tax from sub-agents where the agent has rendered travel agent services to those sub-agents and has discharged tax in accordance with the statutory models. Conclusion: Recovery/collection of amounts described as service tax from sub-agents by the appellant was justified and not illegal, provided the appellant was the service provider to the sub-agents and the tax was deposited with the exchequer. Issue 3 - Applicability of Section 73A(2) vs Section 73A(1) Legal framework: Section 73A(1) targets cases involving a service provider/service recipient relationship where excess tax was collected by the provider; Section 73A(2) targets persons who are not service providers but collect amounts representing service tax from others. Precedent treatment: The Tribunal applied its earlier reasoning in identical fact patterns to delineate the two limbs and to determine which limb applies depending on whether a service provider/recipient relationship exists. Interpretation and reasoning: Since the Tribunal found that the appellant provided services to sub-agents (i.e., a provider/recipient relationship exists), the facts fall squarely under the ambit of Section 73A(1) rather than Section 73A(2). Section 73A(2) applies only where the collector is not a service provider vis-à-vis the payer; that condition is absent here. Consequently, invocation of Section 73A(2) was improper. Ratio vs. Obiter: Ratio - where a person collecting an amount from another is in fact a service provider to that person, Section 73A(2) is inapplicable and recovery under that sub-section cannot be sustained. Conclusion: Section 73A(2) was wrongly invoked; the factual matrix fits within the provider/recipient paradigm contemplated by Section 73A(1), and thus the demand under Section 73A(2) could not be sustained. Issue 4 - Liability for interest/penalty and limitation where returns were filed and tax discharged Legal framework: Interest and penalty provisions (including Section 73B) are attracted where tax is due and not paid or where incorrect claims/suppression exist; limitation and mens rea (suppression/withholding) affect the imposition of interest/penalty. Precedent treatment: The Tribunal noted that the appellant had filed returns, maintained books, and discharged service tax under the prescribed models; prior show cause notices for earlier periods raised no contrary demand. Interpretation and reasoning: Given the Tribunal's finding that the appellant was the service provider to sub-agents and had deposited tax with the government, the basis for invoking interest/penalty under Sections 73A/73B was undermined. Where there is no suppression of facts and tax has been discharged either under Basic Fare or Commission Model, the imposition of interest/penalty becomes unsustainable to the extent premised on an incorrect characterization of transactions and an erroneous application of Section 73A(2). Ratio vs. Obiter: Ratio - interest/penalty under Sections 73A/73B cannot be sustained where the foundational proposition that the collector was not a service provider is disproved and where tax has been deposited in accordance with statutory models; observations on previous departmental awareness and returns are supportive findings rather than standalone dicta. Conclusion: Interest and penalty to the extent premised on the incorrect invocation of Section 73A(2) were not payable; the impugned demand including interest was set aside in light of the correct legal characterisation and payment record. Cross-references The conclusions on Issues 1-3 are interdependent: the finding that the appellant provided services to sub-agents (Issue 1) dictates the lawfulness of collecting service tax from sub-agents (Issue 2) and determines the applicability of Section 73A(1) rather than Section 73A(2) (Issue 3); Issue 4 on interest/penalty flows from the conclusions on the preceding issues. Final Disposition (Court's conclusion) The Tribunal set aside the impugned demand/order and allowed the appeal on the grounds stated above, applying its earlier decision on identical facts and relevant judicial authorities to hold that the appellant rendered services to sub-agents/customers, lawfully collected and deposited service tax, and that Section 73A(2) was inapplicable.