TaxTMI 
TaxTMI 
2024 (5) TMI 1604
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....d by the Directorate General of Civil Aviation (DGCA), New Delhi. During the disputed period, the appellants entered into agreements dated 15.01.2008 and 24.01.2008 with Reliance Industries Ltd. (RIL) to render domestic and international air transportation service to the executives, personnel, nominees of RIL on a 'right to first refusal' basis by providing this service of air transportation on certain specified aircrafts. On the basis of intelligence indicating that the appellants are engaged in providing services taxable under the category of 'Supply of Tangible Goods for Use' (STGU) service, but were not discharging their service tax liability in respect thereof, investigations were initiated by the Department. On completion of the investigation conducted by the Department, it was found that the appellants were rendering the services of STGU to RIL, as the transactions involved were of actual hiring of aircrafts on time basis, and the services are taxable under Section 65(105) (zzzzj) of the Finance Act, 1994. The investigation concluded that the services provided during 16.5.2008 to 31.03.2009 and during 2009-2010, 2010-2011are liable to service tax as air chartering service un....
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....to examine the permit under which RCDL operates. Clause B of the preamble to the agreement provides that Director General of Civil Aviation ('DGCA') has vide permit No. 02/2008 dated 15th January, 2008, granted permission to RCDL to operate Non-Scheduled air transport services (passenger). The DGCA has in exercise of powers under Rule 133A and 134(3) of the Aircraft Rules, 1937, notified the minimum requirements for grant of permit to operate Non-Scheduled Air Transport Service vide Civil Aviation Requirement- Section 3 Air Transport Series 'C' Part III Issue II, 1st June 2010 ('CAR').In terms of Rule 134(3), no air transport service, other than Scheduled Air Transport Service, shall be operated by an Indian Air Transport Undertaking, unless it holds a Non-Scheduled Operator's Permit ('NSOP') granted by the Central Government. The expression 'Non-Scheduled Operator's Permit' has been defined in Para 3.5 of CAR to mean a permit authorizing an operator to carry out Non-Scheduled Air Transport Services subject to conditions as may be specified in the permit. The NSOP permit issued to RCDL explicitly stipulates that the aircrafts annexed to the permit, can be operated under the permit ....
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....xt of applicability of reverse charge on services of renting of motor vehicle for transport of passengers. The CBIC has clarified that passenger transport services are generally availed of for specific journeys or voyages, while, renting of transport of vehicles is for a specified period. Under the agreement, RIL intimates RCDL that it wants to transport its nominees from location A to location B on a specified date and at a given time. Based on the same, RCDL in consultation with RIL renders services of transportation of passengers by air. The agreement does not envisage or provide that the aircraft is available at the disposal of RIL for a specified period of time, say a month or a year. Therefore, he stated that as clarified by the Circular, RCDL is rendering air transport services to the nominees of RIL, and is not providing any rental of aircraft services. 3.4. Learned Advocate also stated that by applying the principles laid down in the various judgements relied upon by them, it is evident that the services provided by RCDL are that of transportation of passengers by air and not hiring/renting of aircraft inasmuch as: (i) RCDL has identified a particular aircraft ....
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....ngible Goods for Use' inasmuch as the appellants are providing the aircraft to RIL which means supply of goods; the right of first refusal implies that an extra consideration has been negotiated for the exclusive chartering services provided to RIL; there is no document submitted by appellants for issue of tickets showing specific journey. Thus, learned AR claimed that the services cannot be treated as 'Transport of Passenger by Air service'. 4.2 In support of their stand, learned AR submitted that the impugned order is supported by the following case laws: (i) Global Vectra Helicop Ltd.Vs. Commissioner of S.T., Mumbai-II - 2016 (42) E.L.T. 118 (Tri. - Mumbai) (ii) Karnavati Aviation Pvt. Ltd. Vs. Commissioner of Service Tax, Ahmedabad - 2013 (30) Service Tax Rules 89 (Tri-Ahmd.) Thus, by supporting the impugned order, he stated that the appellants are liable to pay service tax on STGU services. 5. The submissions advanced by the learned Advocate appearing for the appellants and the learned Authorized Representative of the Department have been considered by us. We have also perused the records of the case and the additional written submissions given in th....
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.... their choice without entering into any contract with individuals travelling in the aircraft. Thus M/s RCDL is only providing the necessary operational and logistical support as per the requirements of M/s RIL, there being no option for M/s RCDL or the individual passengers to decide any details except as per the needs of M/s RIL. The destination is chosen by M/s RIL, the service receiver, and not by service provider. The persons to travel in the aircraft are also decided by M/s RIL. M/s RCDL have no choice to take any passenger even if the aircraft is going empty. What is being paid for, is the usage cost. As a charter service provider M/s RCDL is not concerned with the number of persons travelling. The amount agreed is determined with reference to the agreement with service receiver (M/s RIL) and not with reference to the number of persons travelling." 7. We find that the issue for consideration before us is to determine the following: (i) whether services provided by the appellants are classifiable under the category of,- (a) services of transportation by air for domestic/international journey of passengers, or (b) services of 'Supply of Tangible Go....
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....er, by an aircraft operator, in relation to scheduled or non-scheduled air transport of such passenger embarking in India for international journey, in any class other than economy class. Explanation 1.-For the purposes of this sub-clause, economy class in an aircraft meant for scheduled air transport of passengers means,- (i) where there is more than one class of travel, the class attracting the lowest standard fare; or (ii) where there is only one class of travel, that class. Explanation 2.-For the purposes of this sub-clause, in an aircraft meant for non-scheduled air transport of passengers, no class of travel shall be treated as economy class; Section 65(105) (zzzzj): (zzzzj) to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances; Section 65 (77c): Post 01.07.2010: "passenger" means any person boarding an aircraft in India for performing domestic journey or international journey; Upto 30.06.2010: '(77....
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....ided with different aircrafts. The essence of the above contacts indicate that the appellants have agreed to undertake specific journey, voyage as requisitioned by RIL for transporting its executives, personnel and its nominees. In specific, the contract is for providing Non-Scheduled Air Transport Services as per the permit granted by DGCA, for transportation of persons from one place of origin to another place of destination. 8.4 Learned Commissioner had given findings that the provision for payment of a refundable deposit by RIL to the appellants towards the right of first refusal implies that an extra consideration has been negotiated for the exclusive chartering services provided by the appellants. Since the agreement provide for supply of aircraft with crew, pilots at the required level of standard to maintain the aircraft in accordance with the rules and regulations of DGCA, for optimum and effective use of aircrafts, it is in the nature of supply of tangible goods for use by RIL. Further, learned Commissioner had held that the appellants were not issuing any tickets to passengers, for carrying out specific journey and thus cannot be considered as rendering of Air Transpo....
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....assengers being decided by the RIL, maintenance of the aircraft with pilots and crew for maintaining the CAR requirements by the appellants are not valid grounds to deny the classification of service as Non-Scheduled Air Transport Services (Passenger). Therefore, in our prima facie view, on the basis of the above facts, the services provided by the appellants would be covered by the taxable category of sub-clause (zzzo) of sub-section (105) of Section 65 of the Finance Act, 1994. 9.1 In this regard, we find that on the basis of the decision taken by the Larger Bench of the Tribunal, the Co-ordinate Bench of the Tribunal in the Final Order No. 50820-50821/2022 dated 24.08.2022 in the appellants' own case had decided certain common issues concerning the Non-Scheduled Operation (Passenger)-NSOP service. We also find that these basic issues concerning NSOP service, though dealt with reference to customs case is entirely relevant in the present service tax case, as the issues concerning the dispute are same. In this case, the Tribunal has held that the appellants have used the aircraft in accordance with the scope of Non-Scheduled (Passenger) services and there is no violation on the....
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....atisfy all the following three conditions: (i) It must be undertaken between the same two or more places; (ii) It must be operated according to a published time table or the flights must constitute a recognizable systematic series; and (iii) Each flight must be open to use by members of the public. 57. If any of the aforesaid three conditions is not satisfied in respect of a passenger air transport service, the same cannot be termed as 'scheduled air transport service' and, therefore, would be a non-scheduled (passenger) service as defined in clause (b) of the Explanation to Condition No. 104 of the exemption notification. In the present case, the aforesaid conditions are not satisfied and, therefore, the air transport service rendered by the appellants would be other than scheduled (passenger) air transport service. 58. Thus, both the requirements of clause (b) of the Explanation are satisfied. It is also not in dispute that the appellants have been granted non-scheduled operator permits, which permits have been renewed from time to time without any objection from the DGCA. 59. It has now to be seen whether the appellants have ....
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....The expression "air transport service" covers service for the transport by air of person for any kind of remuneration whatsoever. The service may be individually for each seat or by chartering the entire aircraft and the remuneration may be of any kind whatsoever, such as seat-wise or daily or weekly or monthly or annual basis. There is no restriction on the mode and manner of fixing or charging the remuneration either in the exemption notification or in the Aircraft Rules; (b) "Scheduled (passenger) air transport service" only means that air transport service which has the essential features mentioned in the definition in rule 3(49) of Aircraft Rules, namely, it must be undertaken between the same two or more places, operated according to a time table or with flights so regular or frequent that they constitute a recognizable systematic series, each flight being open to use by the 'members of the public'; and (c) If a service is covered by "air transport service" defined in rule 3(9) and is other than "scheduled (passenger) air transport service" defined in rule 3(49), it is a "non-scheduled (passenger) service" within the meaning of clause (b) of the Explanation ....
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.... rule 3(9A) to mean an undertaking whose business includes the carriage by air of passengers or cargo for hire or reward. It would follow from the aforesaid definitions that where the aircraft is used for carriage of persons for a remuneration it is a public transport aircraft and not a private aircraft. There is no stipulation in the said definitions that if tariff is not published, the use of aircraft would be as a private aircraft. Admittedly, in the present case, the appellants have used the aircraft for carriage of persons for remuneration. Further, where the business of an undertaking includes carriage by air of persons it would be an air transport undertaking and if such an undertaking also uses the aircraft to effect carriage of persons without remuneration, it would still be public transport aircraft and not a private aircraft. Therefore, even assuming that some flights are conducted for carriage of persons without remuneration, it would be still be a public transport aircraft and not a private transport aircraft. 87. Even otherwise, the purpose of having a published tariff is to apprise the public of the rates at which the aircraft would be available. The appella....
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....d to publish time schedule and issue tickets to passengers. There is, therefore, no obligation on the part of the appellants to issue tickets to passengers. ** ** **" (Emphasis Supplied) "Analysis of the division bench decisions 119. The division bench of the Tribunal in King Rotors held that since the flight operations are not open to the public, the aircraft would not be considered to have been used for non-scheduled (passenger) services. This view, as discussed above, proceeds on an incorrect appreciation of the definition of non-scheduled (passenger) services. 120. The division bench of the Tribunal in East India Hotels held that published tariff to the public is a mandatory requirement of a non-scheduled (passenger) service and so if the tariff is not published, the use of the aircraft would be as a private aircraft. It was also held that it is the customs department that has to ensure compliance of the undertaking. These views, for the reasons stated above, are not correct views. 121. This apart, both Sameer Gehlot and King Rotors have been distinguished by the division bench in East India Hotels for the reason that both t....
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....e of the view that the same is not applicable to the present case. 9.3 We also find that the order of the Tribunal the case of Karnavathi Aviation (supra), is in the context of stay/dispensation of the deposit, on the observations that the services provided to various companies, who chartered the aircraft for specific time or for specific journey, without issue of tickets to passengers, cannot be covered by the service of transport of passengers by air. The above observations are not determinative as the issues in dispute and the agreement, nature of transaction and other details were left open to be considered by the Tribunal at the time of final hearing. Thus, the aforesaid decision does not have any bearing on the present case. 10.1 Section 65(105) (zzzo) of the Finance Act, 1994 provide that service provided to any passenger, by an aircraft operator, in relation to scheduled or non-scheduled air transport of such passenger embarking in India for domestic journey or international journey is a taxable service under that entry. On examination of the case records, we find that in providing air passenger service on the basis of Non-Scheduled Operator Permit granted by DGCA to ....
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.... for the use and hire of the ship. The character of the payment cannot change according to the use to which the charterers put the ship or according as to whether the ship is loaded with goods in a port in India. What is payable as hire charges for the use of the ship cannot transform itself into an amount payable on account of the carriage of goods, by reason of the circumstance that the ship was loaded with goods in India." The above judgement of the Hon'ble Supreme Court has clearly laid down the principle that if the charterer is liable for payment of ship owner irrespective of whether they carry the goods or not, then the payment is not on account of carriage of goods but for the use and hire of the vessel (i.e. time charter). In the facts of the present case, it is an undisputed fact that the invoice for the charges could be raised by the appellants - NSOP permit owner and aircraft operator and payment is effected for the same by RIL, only when the voyage/journey performed. Further, it is only when the voyage is completed by transportation of RIL's executives, personnel, nominees or passengers based on the flying hours, the charges are received. The appellants were not ent....
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....terms of the contract and other material facts. This could be ascertainable from the fact whether or not VAT is payable or paid." The above instructions clearly provide that such levy under STGU is only in respect of transactions of allowing another person to use the goods, without giving legal right of possession and effective control, by treating the same as service. In the present case before us, the factual matrix indicates that the aircrafts are used to provide the services of transportation of RIL's executives, personnel, nominees or passengers. Further, in no manner the aircrafts are used by RIL themselves without taking either possession or control, to call the transaction as supply of tangible goods. It is not the case of Revenue, that RIL had held any permit of DGCA to use or operate the aircraft owned by RCDL. Furthermore, aircrafts are not covered in the illustrative nature of tangible goods explained in the instructions. Hence, we find that on the facts of the case and on the detailed examination of the services provided by the appellants, we do not find it feasible to categorise the same as 'Supply of Tangible Goods for use' in order to subject the transaction for ....
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....t 2010-11 vide D.O.F. No.334/1/2010-TRU dated 26.02.2010, the extract of which is given below: "Alteration and expansion in the scope of existing services and other significant changes in the Finance Act, 1994: xx xx xx xx 4. Transport of passengers by air service: 4.1 The taxes on transport of passengers traveling by air were in operation in the past. These were not in the nature of service tax but operated through separate legislations. Inland Air Travel Tax [@ 15%] was levied on domestic travel in 1989. Foreign Travel Tax [@ Rs. 500 per trip, except to neighboring countries for which the rate was Rs. 150 per trip] was levied on international travel in 1979. These taxes were withdrawn in the interim Budget 2004. In 2006, tax was imposed on international air travel by a passenger embarking in India and traveling in higher [other than economy] classes. This tax continues. 4.2 The taxable service is being suitably amended to extend this levy to cover all domestic and international air passengers embarking in India. The, modalities of working out the tax amount including exemptions, abatement etc. would be prescribed at the appropriate tim....