TaxTMI 
TaxTMI 
2021 (3) TMI 773
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....) S.T.R. 429 (Tri.-Del.) and accordingly, has referred the matter to a Larger Bench of the Tribunal for determination of the six issues mentioned in the order. 2. Certain essential facts need to be stated for appreciating these issues. The appellant is an approved agent of International Air Ticketing Association, IATA and is engaged in providing air tickets. The travel industry basically comprises of five key players namely airlines, travel agents, Central Reservation System, CRS Companies, sub-agents and passengers. The airlines provide air transport services to passengers and discharge their service tax liability in terms of section 65(3b) read with section 65(105)(zzzo) of the Finance Act, 1994, Finance Act. The travel agents accredited by IATA are authorized to sell the air travel services provided by airlines to customers/sub-agents in the form of airline tickets. CRS Companies provide an online portal for booking of tickets offered by various airlines. They enter into agreements with airlines for rendering 'online information data access and retrieval', OIDAR services, wherein they collate data such as ticket availability, price, duration of journey, etc, for access by sub....
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....re promoting and marketing the business of the airlines; and (ii) CRS commission paid by the CRS Companies to travel agents under the category of BAS by alleging that the travel agents are promoting and marketing the business of the CRS Companies. 6. The Commissioner, New Delhi, the Commissioner, while adjudicating the show cause notice, noted that two basic issues were involved, namely :- "1. Whether the noticee has promoted the business of M/s Amadeus, Galileo & Abacus by using their CRS (Central Reservation System) and accordingly, the incentive/commission received against such activity are taxable under "Business Auxiliary Services" as defined in Section 65(19)(ii) a "Promotion or marketing of service provided by the client; or" read with section 65(105)(zzb) of the Act. 2. Whether the Air Tickets purchased through other IATA Air Travel Agents is an activity of promoting the business activity of said Air Travel Agent and accordingly commission received for such activity from the said IATA Air Travel Agents are also taxable under "Business Auxiliary Services" as defined in Section 65(19)(ii) as "Promotion or marketing of service provided by the clie....
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...., by order dated May 16, 2013, confirmed the demand of service tax by invoking the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act. 10. At the time of hearing of the appeal before the Division Bench, the learned Authorized Representative of the Department placed the decision rendered by a Division Bench of the Tribunal in D. Pauls. However, the Division Bench hearing this appeal expressed doubts on the proposition of law laid down in the earlier Division Bench decision of the Tribunal in D. Pauls and framed the following six issues to be decided by the Larger Bench :- "(i) Whether the Incentive received by service receiver from service provider, on appreciable performance, can be subjected to service tax. (ii) Whether a demand can be confirmed without specifying the sub clause of BAS under which the activities are covered? (iii) Whether demand of service tax can be confirmed under the taxable category of BAS in absence of three parties - service provider, service receiver and targeted audience? (iv) Whether in cases where value of service is fixed under an option provided under the Rules, such o....
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.... Tribunal and in support of this contention reliance has been placed upon the decision of a Larger Bench of the Tribunal in Subhash Projects & Marketing Ltd. vs. Commissioner of Customs, Cochin, 2009 (239) E.L.T. 440 (Tri.-LB). 14. Shri J.P. Singh, Shri Vivek Pandey and Shri R.K. Maji, learned Authorized Representatives of the Department at Delhi have raised a preliminary objection regarding the admissibility of the reference to the Larger Bench. It has been pointed out that though the Division Bench hearing this appeal may have expressed doubts about the law laid down by the earlier Division Bench of the Tribunal in D. Pauls, but the records would indicate that not only had the appellant therein filed a Civil Appeal before the Supreme Court against the decision of the Tribunal, but the Supreme Court had also disposed of the Civil Appeal on February 12, 2018. The contention, therefore, is that all the issues decided by the Tribunal in D. Pauls have attained finality, except the issue relating to invocation of the extended period of limitation and since the order of the Tribunal in D. Pauls has merged with the order of the Supreme Court on disposal of the Civil Appeal, the refere....
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....l (Procedure) Rules 1982 do not provide for moving an intervention application. As noticed above, any decision taken by the Larger Bench on the issues referred to it would bind the Division Benches when the appeals filed by the applicants are heard. Rule 41 of the aforesaid 1982 Rules confers power on the Tribunal to make such orders or such direction as may be necessary to secure the ends of justice. Justice, in the present case, requires that the applicants be heard, otherwise they would have a complaint that the issues involved in their appeals have been decided by the Larger Bench of the Tribunal without hearing them. 19. The Larger Bench decision of the Tribunal in Subhash Projects & Marketing Ltd. will not help the Department. The applicants therein who had filed the intervention applications were not parties in any appeal pending before the Tribunal. They were merely a manufacturer association of the domestic industry. The Larger Bench recorded a categorical finding that the applicants were not an aggrieved party since only an assessee who is a party to proceedings is an aggrieved party. In the present case, the applicants are appellants in the appeals pending before the ....
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....to examine the merits of the order passed by the Tribunal in D. Pauls. The Supreme Court granted permission to the appellant to move the Tribunal and accordingly, disposed of the Civil Appeal. 25. An appeal lies to the Supreme Court against the decision of the Tribunal and an appeal was filed, though with a delay which was condoned by the Supreme Court. The Supreme Court merely granted permission to the appellant to move the Tribunal for reconsideration of the impugned order in so far as the issue relating to the invocation of the extended period of limitation was concerned. The Supreme Court did not examine the merits of the order passed by Tribunal. 26. It is in this light that the contention advanced on behalf of the Department is required to be examined. 27. Learned Authorized Representatives of the Department have placed reliance upon the decision of the Supreme Court in Kunhayammed to contend that upon disposal of a Civil Appeal by the Supreme Court, the order of the High Court or the Tribunal would merge in the order of the Supreme Court and so can no longer be reconsidered by the Tribunal. In this case a review petition was filed before the High Court after the Spe....
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....upreme Court upon disposal of the Civil Appeal by the Supreme Court. 30. It needs to be noted that Justice R. C. Lahoti (as His Lordship then was) had observed in Kunhayammed, which was decided on July 19, 2000, that the decision of the High Court or the Tribunal would merge in the order of the Supreme Court upon dismissal of the Civil Appeal, but subsequently in 2002, His Lordship in S. Shanmugavel Nadar vs. State of Tamil Nadu and Another, (2002) Supp 8 SCC 361 explained in detail what part of the order would actually merge in the order of the Supreme Court when an appeal is dismissed by the Supreme Court. It would, therefore, be apt to refer to this decision of the Supreme Court in Nadar at length. Incidentally, the issue of admissibility of a reference before the Full Bench of the High Court was in issue in Nadar. The constitutional validity of the Madras City Tenants Protection (Amendment) Act, 1994 (Act No. 2 of 1996) was assailed in several writ petitions before the Madras High Court. When the matter came up for hearing before a Division Bench of the High Court, reliance was placed by the respondents on an earlier Division Bench decision of the Madras High Court in M. Var....
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....ourt noted that the earlier order dated September 10, 1986 of the Supreme Court did not go into the question of constitutional validity of Act No. 13 of 1960 nor did the Supreme Court apply its mind to the correctness or otherwise of the view taken by the High Court in Pillai. The Supreme Court also noted that the appeals had been dismissed as not properly constituted and hence incompetent as the State of Tamil Nadu, which was a necessary party, had not been impleaded. The appeals were, therefore, disposed of without adjudication on merits. The Supreme Court then explained in detail the doctrine of merger and observed that the earlier order dated September 10, 1986 of the Supreme Court can be said to be a declaration of law only on two points, namely that in a petition involving an issue concerning the constitutional validity of any State Legislation, the State is a necessary party and in its absence the issue cannot be gone into and that a belated prayer for impleading a necessary party may be declined. The Supreme Court also observed that by no stretch of imagination can it be said that the reasoning or the law contained in the decision of the Division Bench of the Madras High Co....
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....judgment, order or decision of a superior forum is often employed, as a general rule the judgment or order having been dealt with by a superior forum and having resulted in confirmation, reversal or modification, what merges is the operative part, i.e. the mandate or decree issued by the Court which may have been expressed in positive or negative forum. For example, take a case where the subordinate forum passes an order and the same, having been dealt with by a superior forum, is confirmed for reasons different from the one assigned by the subordinate forum what would merge in the order of the superior forum is the operative part of the order and not the reasoning of the subordinate forum; otherwise there would be an apparent contradiction. However, in certain cases, the reasons for decision can also be said to have merged in the order of the superior court if the superior court has, while formulating its own judgment or order, either adopted or reiterated the reasoning, or recorded an express approval of the reasoning, incorporated in the judgment or order of the subordinate forum. 11. Secondly, the doctrine of merger has a limited application. In State of U.P. v. Mohamm....
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....nd not by applying the doctrine of merger. Article 141 speaks of declaration of law by the Supreme Court. For a declaration of law there should be a speech, i.e., a speaking order. In Krishen Kumar v. Union of India and Ors., [1990] 4 SCC 207, this Court has held that the doctrine of precedents, that is being bound by a previous decision, is limited to the decision itself and as to what is necessarily involved in it. In State of U.P. and Anr. v. Synthetics and Chemicals U.P. and Anr., [1991] 4 SCC 139, R.M. Sahai, J. (vide para 41) dealt with the issue in the light of the rule of sub-silentio. The question posed was: can the decision of an Appellate Court be treated as a binding decision of the Appellate Court on a conclusion of law which was neither raised nor preceded by any consideration or in other words can such conclusions be considered as declaration of law? His Lordship held that the rule of sub-silentio, is an exception to the rule of precedents. "A decision passes sub-silentio, in the technical sense that has come to be attached to that phrase, when the particular point of law involved in the decision is not perceived by the court or present to its mind." A court is not b....
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....e issues must nave been decided by this Court at least by implication. ******* 14. It follows from a review of several decisions of this Court that it is the speech, express or necessarily implied, which only is the declaration of law by this Court within the meaning of Article 141 of the Constitution. xxxxxxxxx xxxxxxxxx xxxxxxxxx 16. In the present case, the order dated 10.9.1986 passed by this Court can be said to be declaration of law limited only to two points - (i) that in a petition putting in issue the constitutional validity of any State Legislation the State is a necessary party and in its absence the issue cannot be gone into, and (ii) that a belated prayer for impleading a necessary party may be declined by this Court exercising its jurisdiction under Article 136 of the Constitution if the granting of the prayer is considered by the Court neither necessary nor proper to allow at the given distance of time. By no stretch of imagination can it be said that the reasoning or view of the law contained in the decision of the Division of the High Court in M. Varadaraja Pillai 's case had stood merged in the order of this court dated 10.9.1986 ....
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....ja Pillai's case and either affirming or overruling the view of law taken therein leaving the operative part untouched so as to remain binding on parties thereto. 20. Inasmuch as in the impugned judgment, the Full Bench has not adjudicated upon the issues for decision before it, we do not deem it proper to enter into the merits of the controversy for the first time in exercise of the jurisdiction of this Court under Article 136 of the Constitution. We must have the benefit of the opinion of the Full Bench of the High Court as to the vires of the State legislation involved." 21. For the foregoing reasons, the appeals are allowed. The impugned judgment of the High Court is set aside. All the appeals shall stand restored before the Full Bench of the High Court and shall be heard and decided in accordance with law. (emphasis supplied) 33. What is important to note is that though in Pillai the Supreme Court had dismissed the appeals for the reason that the State, which was a necessary party, had not been impleaded and the prayer for impleadment was made at a belated stage, but in D. Pauls, while deposing of the appeal, the Supreme Court had not examined any i....
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.... be strongly relied upon. In paragraph 7 of the said decision, this Court observed as follows: (SSC p. 699). "7. The principle behind the majority of the decisions is thus to the effect that where an appeal is dismissed on the preliminary ground that it was not competent or for non- prosecution or for any other reason the appeal is not entertained, the decision cannot be said to be a 'decision on appeal' nor of affirmance. It is only where the appeal is heard and the judgment delivered thereafter the judgment can be said to be a judgment of affirmance." 24. Keeping these principles as enunciated by this Court in the aforesaid three decisions in mind and applying the said principles in the facts of this case, we have no hesitation in our mind to conclude that the High Court in the impugned order did not at all consider that in the earlier revision order of the High Court, revisional application was rejected not on merits but only on the ground of delay. Therefore, it must be held that since earlier revision application was not rejected on merits, the said order rejecting the same on the ground of delay cannot be said to be the order of affirmance and that being the....
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....peal so as to pursue the matter before that Tribunal for reconsideration of the impugned order in so far as the issue with regard to invocation of the extended period of limitation was concerned. The effect of withdrawal of an appeal was examined by the Supreme Court in Rani Choudhury vs. Suraj Jit Choudhury, (1982) 2 SCC 596 and it was observed that when an appeal is disposed of as withdrawn, merits of the appeal are not adjudicated upon. 39. This view was also expressed by the Madras High Court in Shasun Drugs & Chemicals and relevant observation is reproduced below :- 22. The reliance of paragraph No. 22 of the above Rule by the learned Additional Solicitor General cannot further his point of merger. In that paragraph, while concurring by the two judges Bench of the Apex Court in V.M. Salgoacar and Brothers Private Limited v. C.I.T. [2000 (5) SCC 373], the Supreme Court has observed that when a special leave petition was dismissed, the Court did not comment on the correctness or otherwise of the order from which leave to appeal is sought. What the Court meant was that it did not consider it to be a fit case for exercising its jurisdiction under Article 136 of the Con....
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....ecision in D. Pauls did not render any finding as what would be the gross value of service charged from the CRS service provider and did not even specify the sub-category of BAS under which the demand was confirmed. 43. Shri Badri Narayan learned counsel for the interveners made the following submissions :- (i) The air travel agents are not promoting or marketing the services of airlines/CRS Companies; (ii) The air travel agent is promoting its own business and not to business of the airlines. In support of this contention reliance has been placed upon the decision of the Madras High Court in Airlines Agents Association vs. Union of India, 2003-TIOL-143-HC-MAD-ST; (iii) The air travel agent is not promoting the business of CRS Companies. Infact, the CRS portal used by the air travel agent is immaterial to the passengers. In this connection reliance has been placed upon the Circular dated April 16, 2010 issued by the Central Board of Excise and Customs, New Delhi; (iv) The services rendered by air travel agents are more specifically classifiable under "air travel agents" services in view of the provision of section 65A of the Finance Act; ....
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....f a subscriber, who exercises his choice for a preferred software system. If the appellant is not acting as "air travel agent" under the contracts, then option of rule 6(7) of the 1994 Rules is not available for this transaction. 45. The submissions advanced by the learned Counsel for the appellant, learned Counsel appearing for the interveners and the learned Authorized Representative for the Department have been considered. 46. To appreciate the submissions advanced on behalf of the parties, it would be appropriate to reproduce a chart that has been enclosed by the interveners in their written submissions and it is as follows :- 47. A perusal of the aforesaid chart would show that for sale of tickets, the IATA agents, apart from the commission that they receive from the airlines, also receive Performance Linked Bonus, PLB incentives, which is linked to guaranteed booking of a minimum number of airline tickets. This incentive is indicated at A in the aforesaid chart. In certain cases, the sub-agents also book airlines tickets through IATA agent and where sub-agents achieve a pre-determined target on booking through a particular IATA agent, the IATA agent also pays an ince....
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....interveners, the air travel agents are rendering services to passengers by providing options relating to travel routes, accommodation, booking of tickets and so any increase in the number of bookings would automatically result in an increase in the business of the air travel agents. It is their submission that this may also incidentally result in the increase in the business of the airlines, but it cannot be treated as promotion and marketing services. 55. For an activity to be considered as promotional, it is necessary that a service provider must "promote" or "endorse" the service of the client. It has, therefore, to be seen whether in the present case the travel agent is encouraging a passenger to purchase a ticket of a particular airline. The facts reveal that the travel agent is only providing options to the passenger and it the passenger who determines the airline for travel. It is only when the target of having achieved the pre-determined number of bookings is achieved that the airline pays an incentive to the travel agent. It cannot, therefore, be said that the travel agent is promoting the services of any airline. Incidentally, the airlines may benefit if more tickets a....
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....is entirely depended on and connected with the passage they book for the customers. It cannot, therefore, be said that the commission that the air travel agents get from the airlines is independent of and distinct from the services that they provide to the air-travellers and are relatable to the business that they provide to the airlines. On the other hand, since there is no guarantee money given or no fixed commission given, which has no nexus with the bookings that an air travel agent achieves for the airlines, it has to be said that the air travel agent's commission is integrally connected with the booking that he makes and is the process the services that he gives to the customers. Once this hurdle is cleared, the very basis of the argument on behalf of the petitioner' case goes away. From the specific language of the provisions, particularly of Section 65(3) and Section 65(48)(1), the nature of the service, which is taxed, is absolutely clear. It in only on the basis of the service that is provided which is made taxable. In our opinion, therefore, the commission that the air travel agents get is on account of this service because in the absence of this service being given to t....
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....he appellant's contention, because, admittedly, the respondent is engaged in booking tickets and making arrangements for travel of passengers under agreement with a well-known travel agency, M/s. Akbar Travels. For services rendered, respondent is paid commission, mainly by Akbar Travels. The Tribunal on facts, found that the service rendered by the respondent is essentially travel agency service as agents of the main travel agency, M/s. Akbar Travels. In the eye of the Tribunal, the respondent assessee is engaged in travel agency business. We do not think that the respondent could be assessed under business auxiliary service. Counsel for the respondent also submitted that the respondent has taken the is- sues for payment of tax for the travel agency service and in fact, excess tax paid is refunded by the Department. In the circumstances, we do not find any merit in the appeal by the Department against the order of the CESTAT Consequently, we dismiss the appeal. However, it is for the appellant to assess and levy tax for the travel agency service carried on by the respondent as well as by M/s. Akbar Travels. However, the standing counsel submitted that there is nothing on recor....
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....f Section 101A (Part IV-A) of the Insurance Act, 1938, every insurer dealing in insurance business is required to re-insure a specified percentage of sum assured with another insurance Company. 2. The insurance Company pays premium to the reinsuring Company for this service. However, a part of such premium is deducted and kept by the insurance Company for meeting the administrative expenditure. In other words, the insurance Company and the re-insurance Company jointly bear the expenses for running the insurance/reinsurance business. This shared expense is commonly known as 'commission' though strictly it is not in the nature of a commission. It may be pertinent to mention that the customer/beneficiary deals only with the insurance Company and may not even be aware of the role of re-insurer and the backroom operations between the insurance Company and the reinsurer. 3. As per the provision of the Finance Act, 1994, insurance as well as reinsurance are subject to service tax. The Board has received representations that notices have been issued demanding service tax on the amounts deducted by the insurance Company (in other words paid by the reinsurance Company) on t....
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....mpany. The contention, therefore, of the learned Authorized Representative is that an air travel agent has an option to choose amongst the various CRS Companies and the exercise of such choice is the occurrence of the event of promotion. 65. Mere selection of software or exercising of a choice would not result in any promotional activity. The Department has not pointed out at any 'activity' undertaken by an air travel agent that promotes the business of the CRS Company. 66. The Department has also contended that in the present case, the demand under BAS is justified as three parties are identifiable, namely, the CRS Company, travel agent and a passenger. 67. The passenger cannot be deemed to be an audience for promotion of the business of CRS Companies, for the passenger can neither book directly through a CRS Company nor can a passenger be influenced by any travel agent to book through a particular CRS Company. Section 65A of the Finance Act 68. In the alternative, learned counsel for the appellant and the learned Counsel for the interveners placed reliance upon section 65A of the Finance Act to contend that even if it is assumed that the air travel agents are incid....
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....the airlines/CRS Companies. Thus, in terms of the provision of section 65A (2)(a) of the Finance Act, the classification of the service would fall under "air travel agent" services and not BAS. Whether Incentives paid for achieving targets are taxable? 72. The contention advanced by learned counsel of the interveners is that incentives cannot be construed as "consideration" and if it is so, no service tax can be levied on this amount because under section 67 of the Finance Act, service tax is leviable on "consideration", which is the gross amount charged by the service provider for rendering a particular taxable service. 73. It would, therefore, be appropriate to examine the scope of the term "incentives". Incentives are generally given to encourage performance of a party. The factual position described above, reveals that incentives have been paid by the airlines or CRS Companies to travel agents when they achieve a pre-determined target of sales. 74. The relevant portion of section 67 of the Finance Act, on which reliance has been placed by learned counsel for the appellant, is reproduced below :- "67.(1) Subject to the provisions of this Chapter, where servi....
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.... Consideration, which is taxable under section 67 of the Finance Act, should be transaction specific. Incentives, on the other hand, are based on general performance of the service provider and are not to related to any particular transaction of service. It needs to be noted that commission, on the other hand, is dependent on each booking and not on the target. If the air travel agent does not achieve the pre-determined target, incentives will not be paid to the travel agents. 78. In this connection it will be appropriate to take note of the decision of the Federal Court of Australia AP Group. The Federal Court of Australia held that in order to levy tax, the payment must be attributable to a particular supply and not to supplies in general and so the target incentives paid by a motor vehicle manufacturer to a dealer would not qualify as consideration as the incentives would be in relation to all supplies and not in relation to a particular supply. The relevant portion of the decision of the Federal Court is reproduced below:- "17. Insofar as the Ford "retail target incentive" payments are concerned, Ford agreed with its dealers to pay certain sums of money to dealers w....
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....always wish its ordering arrangements to be the most efficient and economically beneficial to it. The manufacture will have the same objectives. It is this context which underpins the Tribunal's conclusion that the payments are not for the supply of anything by the dealer. As the Tribunal said at [86] the dealer (which must be inferred to act in an economically rational manner in the ordinary course) will always want to run the business in this way. The fact that the dealer receives a payment as an incentive when certain thresholds associated with running the business in this way does not mean that the dealer is supplying a service to the manufacturer for consideration. If the incentive payment were not available there is no basis to infer that the dealer would not behave in the same way for free. For these reasons there cannot be said to be any supply for consideration in these arrangements." (emphasis supplied) 79. Reference can also be made to the decision of this Tribunal in Rohan Motors Limited vs. Commissioner of Central Excise, Dehradun, 2020 (12) TMI 1014 - CESTAT NEW DELHI. The Tribunal held that incentives are not leviable to service tax. The relevant paragraph is r....
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....vation System (CRS) of M/s Galileo India, Amadeus India and Calleo Distribution to encourage their business, for which they have been paying the incentives against the segment booked by the assessee-appellants during the disputed period from 01st October, 2003 to 31st December, 2008. The lower authorities has observed that the services provided by the assessee-appellants fall under the category of "Tour Operator's Services" as defined under Section 65(11)(o) of the Act. Being aggrieved, the assessee-appellants have filed the present appeal. 3. xxxxxxxxxx 4. xxxxxxxxxx 5. After hearing the rival submissions and on perusal of record, it appears that the assessee-appellants are travel agent and providing the tickets for air as well as railways. They also act as the "Rail Travel Agent's Service" which is covered under Section 65(87) of the Finance Act, 1994 and liable to pay the Service Tax. Regarding the commission/incentive received from GDS/CRS, it may be stated that the said GDS/CRS companies are providing adequate free of cost computers with essential accessories and software to the travel agents at their premises. These computers are connected worldwide....
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....ss of the airlines or the CRS Companies have been dealt with in the earlier portion of this order. The order also discusses whether the classification of service would fall under "air travel agents" services or under "BAS" and whether incentives paid for achieving the targets are taxable. 84. The inevitable conclusion, therefore, that follows from the above discussion is as follows :- (i) the air travel agent is promoting its own business and is not promoting the business of the airlines; (ii) the air travel agent is not promoting the business of the CRS Companies; (iii) in any view of the matter, the classification of the service would fall under "air travel agent" service and not "BAS" in terms of the provisions of section 65A of the Finance Act; and (iv) the incentives paid for achieving the targets are not leviable to service tax. 85. In this view of the matter, it would not been necessary to decide that once the IATA agent has discharged his service tax liability in terms of section 67 of the Finance Act or rule 6 (7) of the 1994 Rules, no further service tax could be demanded on the amount paid to or passed on by the IATA agent. 86....