Custom, Excise & Service Tax Tribunal
Ms Tsi Yatra Pvt Ltd vs Principal Commissioner Central Excise ... on 30 March, 2026
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
CHANDIGARH
REGIONAL BENCH - COURT NO. 1
Service Tax Appeal No.60479 Of 2017
[Arising out of Order-in-Original No.DLI-SVTAX-004-COM-030-16-17 dated 22.08.2016
passed by the Commissioner of Service Tax, Audit-II, Delhi]
M/s TSI Yatra Pvt. Ltd. ..... Appellant
Plot No.272, 7th Floor, Gulf
Adiba, Phase-II, Udyog Vihar,
Gurugram, Haryana-122008
VERSUS
Commissioner of Central Goods
& Service Tax, Gurugram ..... Respondent
GST Bhavan, Plot No.36-37, Sector-32, Gurugram, Haryana 122001 WITH Service Tax Appeal No.60667 of 2018 [Arising out of Order-in-Original No.GST/GGM/COM/SM/21-25/2017-18 dated 28.02.2018 passed by the Commissioner of CGST, Gurugram, Haryana] M/s Yatra Online Pvt. Ltd. ..... Appellant Plot No.272, 7th Floor, Gulf Adiba, Phase-II, Udyog Vihar, Gurugram, Haryana-122008 VERSUS Commissioner of Central Goods & Service Tax, Gurugram ..... Respondent GST Bhavan, Plot No.36-37, Sector-32, Gurugram, Haryana 122001 AND Service Tax Appeal No.60219 Of 2019 [Arising out of Order-in-Original No.GST/GGM/COM/SM/47/2018-19 dated 31.10.2018 passed by the Commissioner of CGST, Gurugram, Haryana] M/s Yatra Online Pvt. Ltd. ..... Appellant Plot No.272, 7th Floor, Gulf Adiba, Phase-II, Udyog Vihar, Gurugram, Haryana-122008 VERSUS Commissioner of Central Goods & Service Tax, Gurugram ..... Respondent GST Bhavan, Plot No.36-37, Sector-32, Gurugram, Haryana 122001 APPEARANCE:
Shri Arjun Raghavendera, Shri Manjunath A N and Shri Aditya Sarin, Advocates for the Appellant Shri C. Dhanasekaran, Special Counsel, Authorised Representative for the Respondent 2 ST/60479/2017 & 02others CORAM: HON'BLE Mr. S. S. GARG, MEMBER (JUDICIAL) HON'BLE Mr. P. ANJANI KUMAR, MEMBER (TECHNICAL) FINAL ORDER Nos.60281-60283/2026 DATE OF HEARING: 20.11.2025 DATE OF DECISION: 30.03.2026 P. ANJANI KUMAR:
M/s Yatra Online Pvt Ltd (Appellant-1) M/s TSI Yatra Pvt Ltd (Appellant-2) are engaged in the business of booking of air tickets for various domestic and international airlines; Appellant-2 is engaged in the business of booking through their branch offices; while Appellant-1 obtained single registration under the category of "air travel agent", Appallent-2 obtained separate registrations for Head office and Branch Offices up to March 31, 2013 and a centralised registration thereafter.
Both the appellants filed the following Appeals against the impugned orders as shown below.
Appellant-1[M/s Yatra Online Pvt Ltd]
Appeal Period Date of SCN Date of Duty/
No. Impugned Penalty
order Rs
ST/6066 2007-2011 07-06-2012 28-02-2018 98,32,33,992
7/ 38,18,44,782
2018
2011-2012 27-12- 2012
2012-2013 19-05-2014
2013-2014 20-04- 2015
2014-2015 19-04- 2016
ST/6021 2015-2017 28-03-2018 31-10-2018 12,93,47,660
9/2019 1,29,34,766
Appellant-2 [M/s TSI Yatra Pvt Ltd]
Appeal Period Date of SCN Date of Duty/
No. Impugned Penalty
order Rs
ST/6047 2010-2012 18.10.2013 22.08.2016 5,22,16,086
9/2017
3 ST/60479/2017 & 02others
2. Brief facts of the cases are that the appellants are engaged in the business of booking of air tickets for various domestic and international airlines. The operation module of the appellants is that the CRS / GDS companies share details of air tickets of airlines, through the platform systems developed by them showing flight details of various airlines, availability of tickets, best available prices, etc, with the appellant travel agents on a real-time basis, when they access the portal/platforms; CRS / GDS companies provide the service at the behest of the airlines who pay them on the basis of the air tickets sold; the platform of the CRS/GDS companies acts as an interface between the airlines and the travel agents; the CRS/GDS Companies enter into contracts with travel agents to make their IT platform available to such travel agents for booking air tickets; CRS/GDS Companies do not charge any amount from the travel agents for using the said platform of the CRS/GDS companies;
instead, CRS/GDS companies pay bonuses and incentives to the travel agents to encourage them to use their system on a preferential basis; the end users/ consumers booking tickets through travel agents have no access to the said IT platform of CRS/GDS Companies. 2.1. Revenue issued Show Cause Notices as above, alleging the following.
(i). The appellants were required to pay Service Tax on the incentives extended by CRS/GDS companies, during April 2007 to March 2014, under Business Auxiliary Service' and for the period after March 2014 as an 'intermediary' between customers and CRS companies.
(ii). The appellants were required to pay Service Tax on the gross value of commission (base fare + fuel surcharge) as per Rule 6(7) of the Service Tax Rules, 1994, during the period from April 2008 to March 2012.
4 ST/60479/2017 & 02others
(iii). Appellants have wrongly availed the benefit of abatement, in terms of Notifications, No. 1/2006-ST dated 01.03.2006 and 26/2012-ST dated 20.06.2012, during the period April 2007 to March 2014.
(iv). The Appellants have short paid Service Tax for the months of September 2007, November 2007, December 2007 and March 2008 due to wrong adjustment of excess service tax paid during the months of June 2007, July 2007, August 2007 and October 2007.
(v). The Appellants were required to pay Service Tax, under the reverse charge mechanism on imported services, including tour operator services, business exhibition services, and recurring UK office expenses Non- payment of service tax, during the period 2007-08 to 2011-12.
(vi). The Appellants have wrongly availed CENVAT credit of service tax paid on gateway charges (banking and financial services) where an incentive was provided by the airlines, during the period August, 2007. Submissions on behalf of the appellant
(i). Demand of service tax on 'Business Auxiliary Service' and 'Intermediary Service'
3. Shri Arjun Raghavendra, learned counsel for the appellants, submits on the first issue, i.e. demand of service tax on Business Auxiliary Service (period April 2007 to March 2014) and Intermediary Service (2014 to March 2016), alleged to have been rendered to the CRS/GDS companies, that despite the changeover to negative list regime in July 2012, demands continued to be issued under 'Business Auxiliary Service'; Commissioner relies on CBIC circular F. No. 334/8/2016-TRU dated 29.02.2016 and Tribunal's decision in the cases of M/s Govan Travels (2017-TIOL-3866-CESTAT-DEL) and D Paul's Consumer Benefit (Final order no. 50861/2017 2017-TIOL-908-CESTAT-DEL); commissioner queerly holds that the Noticee cannot claim relief in 5 ST/60479/2017 & 02others the name of alleged inconsistencies in the aforesaid Demand -cum- Show Cause Notice as the law clearly stipulates that the demand under Section 73(1) are made on the same grounds as mentioned in the earlier notices; though tax was demanded under 'Business Auxiliary Services' during the period 2014-2016, the same was confirmed under 'Intermediary Services'; inconsistency in the impugned orders in the classification of the impugned activity without any change in the legal and factual position across the impugned period, is legally unsustainable.
3.1. Learned Counsel submits further that the issue is no longer res integra and attained finality in the light of the Larger Bench decision in the case of Kafila Hospitality & Travels Pvt Ltd 2021 (47) G.S.T.L. 140 (Tri.-LB), which overruled the decisions relied upon by the impugned order; it was held that the Commission received by travel agents from the CRS/GDS companies is not subject to service tax; this position was also reiterated by the Delhi Bench of Hon'ble Tribunal in M/s. Akbar Travels of India (P) Ltd in Service Tax Appeal No.51758 of 2018 (DB).
(ii). Issue of Inclusion of fuel surcharge for calculating the service tax in terms of Rule 6(7):
4. Learned Counsel submits that the airlines pay the Appellants a commission on every ticket booked; some airlines pay commission only on the base fare whereas some others include a fuel surcharge element along with the base fare; the appellants have paid Service Tax only on the base fare by exercising the tax payment option under Rule 6 (7) of the Service Tax Rules, 1994; the term 'basic fare' was defined for the purpose of this rule as that part of the air fare on which commission was payable to the agent by the airline. Learned Counsel takes us through the said sub- Rule 6 (7) and submits that in the instant case, Option 2 6 ST/60479/2017 & 02others i.e., payment under Rule 6 (7) was exercised by the Appellants where ST has been paid on the base fare; revenue's contends that "base fare"
includes fuel surcharge; Explanation to Rule 6(7) clarifies that the expression "basic fare" would mean that part of air fare on which commission is normally paid to the air travel agent by the airline; as per the dictionary meaning, the term 'normally' means something usual and standard; it has been interpreted to be synonymous with 'ordinarily' which means in large number of cases but not invariably in every case;
definitions in various dictionaries converge on the idea that "normally"
refers to what is customary or standard in typical situations, particularly in legal contexts where expectations and regular patterns of behaviour are important.
4.1. Learned Counsel submits further that Hon'ble Madras High Court in the case of K. Ramulu v. Director of T.N. Raffle, Govt. Estate, 1972 SCC Online Mad 3 : (1973) 86 LW 535 (Mad) noted that the word "normally" when used in a rule accorded flexibility and relaxed rigid prescription; Hon'ble Supreme Court in the case of Chackolas Spinning and Weaving Mills Ltd 2015 (322) ELT 167 (SC), relying on the word "normally" in the Central Excise (Valuation) Rules, 1975, held that the taxable value is to be determined not based on the actual profit earned but the notional profit; this ratio of Hon'ble Supreme Court is squarely applicable in the instant case too where the rule specifically uses the word "normally"; there could be cases where commission is not at all paid or commission is paid on the base fare (in line with the normal practice) or commission is paid on base fare plus fuel surcharge; irrespective of whether commission was paid or not on each transaction, the Rule 6(7) requires that basic fare on which commission is normally 7 ST/60479/2017 & 02others paid is deemed to be the notional commission and tax needs to be paid accordingly.
4.2. Learned Counsel submits also that the Hon'ble Supreme Court in the matter of J. D. Orgochem Ltd 2008 (226) ELT 9 (SC) held that the word "ordinarily" means "normally" and it meant an extraordinary reason was needed to set aside that normal practice; the phrase "normally" in the Explanation to Rule 6(7) of the Service Tax Rules clearly shows that the law makers did envisage that the different airlines may use different base for paying commission to air travel agents; however, the law makers always intended to use a common base for paying service tax irrespective of the base actually used by airlines for paying commission; the Appellants have discharged service tax liability by exercising option under Rule 6(7) of the Service Tax Rules on the base fare of the air tickets notwithstanding the receipt or non-receipt of commission from the different airlines.
4.3. Learned Counsel submits in addition that the impugned orders wrongly concluded that all domestic airlines and most international airlines include fuel surcharge for calculating commission; it is factually incorrect; during the relevant, the Appellants were working as air travel agents for approximately 70 airlines; out of these 70 airlines, approximately 20 airlines did not pay any commission at all, approximately 39 airlines paid commission only on the base fare and approximately 11 airlines paid commission on the base fare and fuel surcharge.
4.4. Learned Counsel submits further that the matter is no more res integra; Chennai bench of the Tribunal in the case of BCD Travels India Pvt Ltd (2023) 7 Centax 143 (Tri-Mad), held that the interpretation 8 ST/60479/2017 & 02others drawn by the lower authorities to include the commission on fuel surcharge in the basic fare cannot hold any water, for which reason the impugned order cannot sustain.
(iii) Denial of benefit of abatement Notifications
5. Learned Counsel for the appellants submits that service Tax of Rs 76,09,05,400 was confirmed on the allegation that the Appellant-1 has wrongly availed the benefit of abatement provided in Notifications No. 1/2006-ST dated 01.03.2006 and No. 26/2012-ST dated 20.06.2012, during the period is April 2007 to March 2014. He submits that one of the conditions to avail the benefit of abatement under the said notifications was that no CENVAT credit on inputs or capital goods or input services, used for providing such abatable taxable service, shall be taken; in cases where assesses provided 'tour operator services' and 'rent-a-cab services' where abatement is available and 'air travel agent services', where abatement was not available; the appellant used common input services like advertisement services, business support services, telephone etc; it was not possible to exactly determine the component of such input services which went towards abatable and non-abatable taxable services; law provided a formula for proportionate reversal of common CENVAT credit between taxable and exempted services vide Rule 6 of the CENVAT Credit Rules, 2004 (CCR, 2004).
5.1. Learned Counsel submits further that the formula was introduced w.e.f.01.04.2011only; no such formula existed during the impugned period; when the amendments were carried out in 2011, the Joint Secretary (TRU-II) issued explanation vide D.O.F.No.334/3/2011-TRU dated the 28th February, 2011, with the stated objective to provide a practical scheme for the segregation of CENVAT credits used in respect of 9 ST/60479/2017 & 02others final products and output services where they are partially exempted with condition that no such credits shall be taken; it is thus, clear that before the amendment, a practical scheme was absent for such proportionate segregation of credit; and this amendment brought about a practical scheme.
5.2. Learned Counsel submits also that for the the period before 01.04.2011, the appellants made reversal on a pro-rate basis considering the taxable value of the services as a reasonable basis, as no specific method was prescribed under the law; from April 1, 2011, the appellant Suo moto reversed the credit on common input services by following the method prescribed under Rule 6 of the CCR, 2004 and duly intimated the authorities about the mechanism being followed for reversal of proportionate credit on common input services. 5.3. Learned Counsel submits in addition that that demands for the period prior to 01-04-2011 were confirmed mechanically alleging that the reversal of credit made is on the basis of wrong formula; even for the subsequent periods, as SCNs were issued in the form of statements of demands under section 73(1A), on the same allegation, unmindful of the amendment; Adjudicating Authority, though takes note of the fact that the Appellant has reversed proportionate credit and that such reversal would amount to not taking the CENVAT credit, denies the benefit of the abatement for the reason that the reversal is not in accordance with the formula. He submits that the impugned orders confirmed a demand of Rs 25,61,58,672 for the period 04/ 2007 to 03/2012, invoking extended period and balance in a mechanical fashion as discussed above, due to misunderstanding of the factual and legal position. 5.4. Learned Counsel submits in addition that for the period before April 2011, the definition of exempted services did not include "taxable abated 10 ST/60479/2017 & 02others services"; only post 01.04.2011, such "taxable abated services" were included in the definition of "exempted services" for the limited purpose of the CCR, 2004. for the period before 01.04.2011 there was no specific formula provided to arrive at what is the ratio in which common input services shall be reversed when they are availed to provide both taxable abated and taxable non-abated services; whereas, for the period after 01.04.2011 the correct formula for the proportionate reversal of common CENVAT credit is governed by Rule 6(3A) of CCR 2004 given that the definition of exempted services was amended to include taxable abated services.
5.5. Learned Counsel submits that post 01.04.2011 the proportionate reversal was to done be done according to the ratio -
𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑒𝑥𝑒𝑚𝑝𝑡𝑒𝑑 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠 𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑒𝑥𝑒𝑚𝑝𝑡𝑒𝑑 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠 + 𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑛𝑜𝑛 𝑒𝑥𝑒𝑚𝑝𝑡𝑒𝑑 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠 In the instant case that would mean -
𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑎𝑏𝑎𝑡𝑎𝑏𝑙𝑒 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠 𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑎𝑏𝑎𝑡𝑎𝑏𝑙𝑒 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠 + 𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝐴𝑖𝑟 𝑇𝑟𝑎𝑣𝑒𝑙 𝐴𝑔𝑒𝑛𝑡 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠 Appellants have applied the said ratio according to the Rule and calculated the "value" as defined in the Rule once it was introduced from 01.04.2011; however, "value" at that time remained undefined, the adjudicating Authority held that value had to be calculated according to section 67 of the Act and not according to sub-rule (7) of Rule 6 of the CCR 2004; this finding is not backed by any statute; amendment in 2011 allowed value to be calculated in accordance with Rule 6(7) of CCR, 2004 shows that the legislative intent was to allow for the alternate values available to the taxpayer for payment of tax under the Service Tax Rules 1994 and not necessarily restrict the value to only section 67 of the Act; thus, the "value" as calculated by the Appellants is not wrong as held in the impugned order.
11 ST/60479/2017 & 02others 5.5. Learned Counsel submits that Given these facts of the matter, the finding of the impugned order for the periods both before and after the 2011 amendment that the "Total value of Air Travel Agent Services" was to be the value under section 67 and not the "base fare". This is an erroneous understanding and not sustainable. He submits that the condition for availing benefit of abatement, is satisfied as the appellants have reversed proportionate credit; Rule 6(3D) read with Rule 6(3) of CCR 2004 provides that such reversal is equivalent to having not availed CENVAT Credit; He relies on the following decisions.
Chandrapur Magnet Wires (P) Ltd 1996 (81) ELT 3 (SC)
2015 (323) ELT 323 (Mad.);
SPM Industries India Pvt Ltd 2016 (336) ELT 477 (AP)
Franco Italian Company Pvt 2000 (120) ELT 792 (Tri-LB)
Tree House Hotel Club & Spa 2017 (4) GSTL 39 (Tri. -Del)
Dexter Travel Solutions Pvt (2024) 17 Centax 270 (Tri. -Mad).
5.6. Learned Counsel submits that this position has also been accepted in the impugned order; therefore, proportionate reversal of credit amounting to credit not being taken, subject to correctness of the reversal, the conditions for availing the abatement notification are satisfied. He submits that the impugned order incorrectly holds that "Value" should be under section 67 without factoring in that "Value" is defined in Rule 6 of CCR 2004; as per explanation Explanation I, under Rule 6, "Value" for the purpose of sub-rules (3) and (3A), in the case of a taxable service, when the option available under sub-rules (7), (7B) or (7C) of rule 6 of the Service Tax Rules, 1994, or the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007 has been availed, shall be the value on which the rate of service tax under section 66 of the Finance Act, read with an exemption notification, if any, relating 12 ST/60479/2017 & 02others to such rate, when applied for calculation of service tax results in the same amount of tax as calculated under the option availed. 5.7. Learned Counsel submits that it is clear from the provisions that the "value" to be adopted is not the value under section 67 but a value in line with the service tax paid under Rule 6(7) of the Service Tax Rules, 1994; accordingly, appellants followed this explanation to arrive at the "value" of air travel agent services when calculating the credit to be reversed under rule 6(3A) of the CCR 2004; it is erroneous on the part of adjudicating authority to hold that "value" to be adopted was that of value under section 67 is clearly an erroneous reading of the rules; when the Rule is clear and unambiguous, the order demanding a different position in contrary to the Rules is arbitrary, erroneous and legally improper; it is a well settled position in law that while interpreting statutes, no words can be added or removed/deleted from the statute; However, during the period April 2007 to March 2011, in absence of any prescribed method for the purpose of reversal of proportionate credit, the Appellants adopted the turnover method for the purpose of reversal of proportionate credit; in the calculation of this proportion, the Appellants considered the 'basic fare' of air tickets sold as turnover from air ticket booking services as they were using basic fare as the base for paying service tax on air travel agent service.
5.8. Learned Counsel submits that the method used by the Appellants for the purpose of reversal of proportionate credit was in line with the method subsequently prescribed in the FY 2011-12 under Rule 6 of the Credit Rules for reversing credit as discussed supra; Joint Secretary (TRU-II), vide D.O.F.No.334/3/2011-TRU dated the 28th February, 2011, explaining the statutory changes brought in stated that the objective was to provide a practical scheme for the segregation of Cenvat credits 13 ST/60479/2017 & 02others used in respect of final products and output services where they are partially exempted with condition that no such credits shall be taken; it makes abundantly clear that there was no formula prescribed for segregation of such credit and that was leading to practical challenges to businesses; adjudicating authority erred in terming the methodology adopted by the appellants as a home-grown arbitrary methodology; it is a reasonable method and the value of Air Travel Agent Service considered therein is justified given the definition of "Value" in the explanation to rule 6 provided after the amendment w.e.f 01.04.2011. 5.9. Learned Counsel submits that the first impugned order is a non- speaking order as far as the period from 2011-2014, is concerned; the reasoning given by commissioner is applicable only for the period from 2007-2011; after the formula for reversal was provided from 01.04.2011, the issue ceases to exist; in spite of the amendments, the said SCNs have been mechanically issued and demands have been confirmed without application of mind; the demand for a period after 01.04.2011 was confirmed without giving any findings or observations or reasoning. consequently, demand of Rs 56,31,25,899 (out of the total of Rs 76,09,05,400) on the said issue, being cryptic and non-speaking, passed without any reasoning, is liable to be set aside as held in Tata Engineering & Locomotive Co Ltd 2006 (203) ELT 360 (SC); Penguin Electronics (P) Ltd 2005 (185) ELT 194 (T); Man Structurals Ltd 2004 (166) ELT 376 (T) and Water Trading Corporation 2003 (160) ELT 323 (T).
5.10. Learned Counsel submits that on this issue, the demand raised vide SCN dated 07-06-2012 totally and demand raised vide SCN dated 27-12-2012 partially are barred by limitation; the information regarding output services on which benefit of abatement was availed and the input 14 ST/60479/2017 & 02others services on which credit was availed was in the knowledge of the department; all the credit reversal figures were duly disclosed in the ST- 3 returns filed from time to time; the output services on which abatement was availed were disclosed in the ST-3 returns; therefore, there is no wilful suppression by the Appellant; Tribunal, in a case, of Arya Logistics (2023) 12 Centax 309 (Tri-Ahmd), with a similar denial of benefit under abatement under Notification No. 01/2006-ST, held that extended period cannot be invoked since all facts were before the department; thus, demand to the tune of Rs 25,61,58,672 is liable to be set aside. Short payment of Service tax
6. Learned Counsel submits that the impugned order confirmed a demand of Rs 36,52,954 on the ground that there was short payment of service tax, for the months of September 2007, November 2007, December 2007 and March 2008, due to wrong adjustment of excess service tax paid; the Appellant had paid service tax in excess of the tax liability in the months of June 2007 to August 2007 and in October 2007; on realizing that excess payment was done, the Appellant adjusted the excess paid amount against the actual liability arising during the months of September 2007, November 2007, December 2007 and March 2008; entire demand confirmed is barred by limitation as the department was at all times in full knowledge of the material facts; the Appellant had duly intimated the jurisdictional Superintendent about the adjustments made towards excess payment of service tax through letters dated September 5, 2007, January 3, 2008, and March 31, 2008.
6.1. Learned Counsel submits that sub-rules (3), (4) and (4B) of Rule 6 of the Service Tax Rules, 1994, provide for such adjustment; learned Commissioner finds that the Appellant failed to fulfil the requirements of Rule 6(3) of the Service Tax Rules and had contravened the provisions of 15 ST/60479/2017 & 02others Rule 6(4A) and Rule 6(4B) of the Service Tax Rules, accepting the allegation of the department that the Appellant did not intimate their jurisdictional officer about adjustment made by them under Rule 6(4A); Learned Adjudicating Authority rejected the submission of the Appellant that mere procedural / technical breach; benefit of adjustment of excess service tax paid under Rule 6(4A) of Service Tax Rules should not be denied to the Appellant merely because of the reason that they did not fulfil the technical requirements prescribed under Rule 6(4B). He submits that in a number of cases, it was held that the benefit of adjustment of excess payment of service tax cannot be denied on the grounds of procedural lapses such as non-filing of intimation, adjustment of an amount exceeding one lakh etc; he relies on General Manager (CMTS) 2014 (36) STR 1084 (Tri.-Del) L&T Sargent & Lundy Limited 2016 (43) STR 249 (Tri-Ahmd) Electrical Manufacturing Company Ltd 2017 (3) GSTL 196 (Tri- Delhi) Jubilant Organosys Ltd 2015 (38) STR 1230 (Tri-Del) Rajdeep Buildcon Pvt Ltd 2011 (21) STR 663 (Tri-Mumbai) Non-payment of service tax under RCM
7. Learned Counsel submits as far as the allegation of non-payment of service tax against certain services, viz Advertisement agency service, business support services, Online Information and Database Access or Retrieval Services, sponsorship services, Information Technology Software Services, Market Research Agency Services and Commercial Coaching or Training Services, received by the Appellant that the duty demanded was paid along with interest and there has been an error in appropriating the same properly; with respect to SCN, for the period April 2007 to March 2011, it was held that the Appellant is liable to pay INR 28,88,070, instead of INR 29,14,410 and that as the Appellant has 16 ST/60479/2017 & 02others already discharged service tax with interest, amount paid was held to be liable to be appropriated; however, while ordering appropriation, Rs 19,28,654 instead of Rs 28,88,070, was ordered to be appropriated, resulting in a net service tax demand of Rs 9,85,756, which is totally erroneous, unjustifiable and accordingly, liable to be set-aside 7.1. Learned Counsel submits that in respect of SCN dated 27-12- 2012, an amount of Rs 4,30,69,238 was confirmed without giving any reasons; there is no liability on the Appellant in respect of the three activities, as two activities, i.e. Booking of accommodation; facilitating tour of clients of the Appellant in foreign destinations and Provision of right to participate in Business Exhibitions held abroad, were performed outside India and demand on expenses relating to UK Marketing are mere reimbursement.
CENVAT credit on Gateway charges
8. Learned Counsel submits that CENVAT credit of Rs. 6,13,767, availed, in the month of August 2007, on Banking and Other Financial Services; these are charges collected by the credit card companies on the payments made by Customers who book tickets, through Credit Card; one of the Airlines, i.e. Sahara Airlines - offered an incentive at a fixed rate of 1.5 percent of the value of air tickets booked; a demand of Rs. 49,65,751 was confirmed on the grounds that the incentive so received is due to reimbursement and resultantly there was no value addition and therefore and as such the said services; moreover, the burden of service tax was not borne by the appellants and hence, notice do not qualify as "input services".
8.1. Learned Counsel submits that there is no reimbursement of gateway charges by the airlines as held in the impugned order; it is clear from the correspondence exchanged with Sahara Airlines that there is no one-to-
17 ST/60479/2017 & 02others one correlation between the amount received by the Appellant and the actual gateway charges incurred by the Appellant; the amount is in the nature of an incentive/cashback to encourage credit card usage; the impugned order wrongly holds that the Appellant accepted the credit card mode of payment at the behest of the airlines; entire demand is barred by limitation as the appellant submitted details to Audit conducted during March - April 2010; the details were again disclosed by the Appellant vide letter dated July 5, 2011; there is no suppression or willful misstatement.
8.2. Learned Counsel submits that the Appellant is eligible to claim CENVAT credit of service tax paid on such gateway charges as the same qualify as 'input service' as the Appellant used the gateway services provided by credit card companies for provision of air travel agent services to the customers; in terms of Rule 2(l) of the CENVAT Credit Rules, any service used by the provider of taxable service for providing an output service would qualify as 'input service'; in order to encourage the customers to make payment using credit cards, certain airlines initiated an incentive scheme; the incentive was in addition to the commission; as the input service is used by the provider of taxable service for provision of output service, they are eligible to avail the said credit.
8.3. Learned Counsel submits that CENVAT Credit Rules do not provide any restriction on the eligibility on input services where cost of such services is reimbursed by any third person; CENVAT Credit Rules do also not provide that credit of input services is available to a service provider only on value addition, and not otherwise.
9. Shri C. Dhanasekaran, learned Special Counsel, for the Revenue, reiterates the findings. He presents a short summary argument, on 18 ST/60479/2017 & 02others various issues on which demands are raised and proceeds to explain the stand of the Revenue as follows.
CRS/ GDS Incentives are Taxable under 'Business Auxiliary Service.
10. Learned Special Counsel submits that the incentives are directly linked to the appellant's bookings, which enhance CRS/GDS revenue and are for promoting the business of CRS/GDS companies; CBEC Circular and Tribunal rulings in Govan Travels; D' Pauls affirm that CRS incentives constitute BAS and are fully taxable. He submits that the appellant is an approved agent of the International Air Ticketing Association (IATA) and has entered into agreements with M/s Amadeus India Pvt Ltd and M/s Galileo for access to their Central Reservation System (CRS), which functions as a Global Distribution System (GDS); CRS/GDS platform maintains up-to-date information on airline schedules, fares, and seat availability and makes this information available to travel agents worldwide; the appellant accesses the centralised database through this CRS platform for booking air tickets, hotel rooms, car rentals etc;. CRS/GDS companies receive payment from airlines based on the number of tickets booked through their systems by IATA agents; therefore, the revenue earned by these CRS companies directly depends on the volume of bookings generated by such agents, including the appellant. 10.1. Learned Special Counsel submits that the argument of the appellant that they merely enter into these contracts to use the IT platform for booking air tickets or providing services to passengers and that it does not in any way promote or market the business of the CRS/GDS companies is incorrect; while it is true that the appellants use the CRS/GDS platform for booking tickets, the business of CRS/GDS companies depends entirely on the number of bookings routed through 19 ST/60479/2017 & 02others their platform by IATA agents; CRS/GDS operators receive service fees from airlines for every ticket booked and accordingly, their revenue increases in proportion to such bookings; the appellant receives incentives from these CRS/GDS operators precisely because its booking activity promotes and enhances the business of those companies and as such the payments are clearly in the nature of consideration for promoting the business of the CRS/GDS companies; the amounts received by the appellant from the CRS/GDS companies represent consideration for promoting their business and thus fall squarely within the scope of Business Auxiliary Service as defined under Section 65(105)(zzb) of the Finance Act, 1994. He relies on M/s Govan Travels (2017-TIOL-3866-CESTAT-DEL) and D Pauls Consumer Benefit Ltd, (Final Order No. 50861/2017; 2017-TIOL-908-CESTAT-DEL). Fuel Surcharge is includible in the "Basic Fare" under Rule 6(7)
11. Learned Special Counsel submits that as per the provisions of Rule 6(7) basic fare" means the fare on which commission is normally paid by each airline to the agent; statutory scheme makes it clear that air travel agent service becomes taxable on the commission received by the agent; Rule 6(7) merely provides an optional, simplified method of paying tax on a percentage of the basic fare; the appellant has conceded that several airlines had indeed paid them commission on fuel surcharge, as a normal and routine practice; once the appellant has received commission from an airline on the fuel surcharge, it cannot be claimed such commission was "not normal" merely because some other airlines did not follow such practice; the Rule ties the measure of taxability to the appellant's own pattern of receipt, not to general industry trends. 11.1. Learned Special Counsel submits that once the appellant has received commission on the fuel surcharge for domestic bookings and 20 ST/60479/2017 & 02others international bookings for the relevant airlines, there is no justification for excluding this component from the taxable value; the appellant's omission to include fuel surcharge in the calculation of the "basic fare"
directly results in short payment of service tax under Rule 6(7); the adjudicating authority rightly confirmed the demand on this issue.
Abatement under Notification 1/2006-ST is not available
12. Learned Special Counsel submits that the appellant wrongly claimed the benefit of abatement under Notification No. 1/2006-ST on tour operator and rent-a-cab services during the relevant period; the notification clearly provides that benefit is available only when the service provider does not avail CENVAT credit on inputs, capital goods, or input services; the appellant continued to avail CENVAT credit of input services that were common to multiple services, which contravenes the provisions of the notification.
12.1 Learned Special Counsel submits further that the appellants claim that they were not availing "100% credit" as they are reversing proportionate credit is not justified; further, the appellant failed to substantiate the methodology or the correctness of the amounts reversed; the SCN had clearly brings out that the formula adopted by the appellants, based on the ratio of gross tour operator/rent-a-cab turnover to the "basic fare" of the air travel agent segment, is flawed;
even in the judicial precedents relied upon by the appellant, Tribunal allowed abatement after verifying the correct reversal of proportionate credit.
12.2.Learned Special Counsel submits also that the appellant also availed full CENVAT credit on certain services falling under Rule 6(5) of the CENVAT Credit Rules, 200; though Rule 6(5) allows retention of credit even when exempted services are provided, that principle applies only in
21 ST/60479/2017 & 02others the case of exempted/taxable goods and not where a notification imposes a strict prohibition on availing any credit, in order to avail abatement; the appellant was never eligible for abatement under Notification No. 1/2006-ST, and the demand raised on this ground has been rightly confirmed along with interest.
Adjustment of Excess Service Tax under Rule 6(4A)/(4B)
13. Learned Special Counsel submits that the appellant has short-paid service tax by making unauthorised adjustments of excess tax allegedly paid in previous months; appellant adjusted amounts paid in excess during June-August 2007 and October 2007 against its service tax liability for September 2007, November 2007, December 2007, and March 2008; Rule 6(4A) of the Service Tax Rules, 1994 permits adjustment of excess payments, subject to the conditions laid down in Rule 6(4B); these conditions are mandatory and include that excess payment must not arise from issues involving interpretation of law, taxability, valuation or applicability of exemptions; except in cases of delayed receipt of details under Rule 4(2), adjustments are capped at ₹1 lakh per month or quarter; the assessee must intimate the jurisdictional Superintendent within fifteen days of making such adjustment.
13. Learned Special Counsel submits that in the instant case, none of these conditions were satisfied; the appellant made adjustments without any intimation to the jurisdictional Superintendent within the prescribed time and exceeded the monetary cap of ₹1 lakh permitted for the relevant period; moreover, the appellant has not demonstrated that their case falls within Rule 6(3), which allows adjustment only where tax has been paid on a service that was however provided, and only after refund of the value of the service and tax to the customer; there is no evidence 22 ST/60479/2017 & 02others to show that the appellant had refunded any amount to clients, nor that the excess payment fell under this category; plea that non-compliance of Rule 6(4B) is merely a "technical" or "procedural" lapse is wholly misconceived; simple disclosure of the adjustment in the ST-3 return does not take away the contraventions;
CENVAT Credit is not available on Gateway Charges
14. Learned Special Counsel submits that the appellant has wrongly availed CENVAT credit of service tax paid on gateway charges relating to credit-card transactions which, in many cases, were reimbursed in full by the airlines; the appellant took CENVAT credit on the service tax paid on such gateway charges without bearing the economic burden of the expense; in terms of Rule 3(1) of the CENVAT Credit Rules, 2004, credit can be availed only where the service is an "input service" used for providing an output taxable service; Rule 2(l) defines input service as one used for providing an output service, or one that adds value in the course of business operations; however, gateway charges reimbursed by airlines do not satisfy these conditions; the choice of accepting credit-card payments appears to rest with the concerned airline, and the entire expense, including the service tax, is reimbursed to the appellant; consequently, there is neither a value addition for the appellant's output services, nor the appellant is actually bearing the cost of the service tax paid on these gateway fees; a service, the cost and tax are borne by another party cannot be treated as an input service for the appellant; the appellants claim that airlines reimbursed ₹49,65,751 and they availed CENVAT credit of ₹6,17,767; although the appellants claim to have reversed this amount, they failed to produce any documentary proof of such reversal.
23 ST/60479/2017 & 02others
15. Heard both sides and perused the records of the case. The issues involved in this case are in a narrow compass. Revenue has issued periodical Show Cause Notices to the appellants alleging that they are liable to pay Service Tax on some issues and are not eligible to avail Cenvat Credit under some heads. The allegations of the Revenue are that
(i). The appellants are liable to pay applicable Service Tax on CRS/GDS Incentives received by the appellant under 'Business Auxiliary Service'.
(ii). Fuel Surcharge is includible in the "Basic Fare" under Rule 6(7) for the purposes of payment of Service Tax.
(iii). Abatement claimed by the appellants under Notification 1/2006-ST is not available to them as they availed Cenvat Credit on input Services etc;
(iv). Adjustment of Excess Service Tax made by the appellants themselves under Rule 6(4A)/(4B) is not permissible.
(v). CENVAT Credit is not available on Gateway Charges reimbursed by some airlines.
(vi). Appellants failed to discharge Service Tax on some items under Reverse Charge Mechanism.
15.1. Revenue also alleges that the extended period is invocable in some Show Cause Notices. Demands confirmed vide impugned orders under normal period and under extended period are as follows M/s TSI Yatra Pvt Ltd [Appellant-II Appeal No. ST/60479/2017] Issue Duty Demand Confirmed in Rs Within Normal Outside normal period period Levy of service Tax on of CRS/ GDS 22,49,199 Nil Incentives Non-inclusion of Fuel Surcharge in the 4,99,66,887 Nil "Basic Fare" under Rule 6(7) 24 ST/60479/2017 & 02others M/s Yatra Online Pvt Ltd [Appellant-I Appeal Nos. ST/606672018 and ST/60219/2019] Issue Duty Demand Confirmed Rs Within Normal Outside normal period period Levy of service Tax on of CRS/ 18,89,25,699 6,40,75,631 GDS Incentives Non-inclusion of Fuel Surcharge Nil 5,03,53,208 in the "Basic Fare" under Rule 6(7) Inadmissible Abatement under 50,47,46,728 25,61,58,672 Notification 1/2006-ST Wrongful Adjustment of Excess Nil Service Tax Paid under Rule 36,52,954 6(4A)/(4B) Inadmissible CENVAT Credit on Nil 6,13,767 Gateway Charges Service Tax demand under RCM 2,15,34,619 2,44,49,029
16. We proceed to discuss each of the issues as above, in the forthcoming Paragraphs.
17. Coming to the first issue i.e. issue at 15 (i) above, about the taxability of the incentives given CRS/CDS companies to the appellants, the appellants submit that the issue stands settled in their favour by the larger Bench of Tribunal in the case of Kafila Hospitality & Travels Pvt Ltd 2021 (47) GSTL 140 (Tri.-LB), which overruled the decisions relied upon by the impugned order. We find that larger Bench has gone in to the issue and held that the Air Travel Agents are not required to pay Service Tax on the Commission received by them from CDS/CRS companies. The larger Bench has gone in to the issue in great detail and held that the air travel agent is promoting its own business and is not promoting the business of the airlines or of the CRS Companies; a passenger cannot be deemed to be an audience for the promotion of the business of CRS Companies the 25 ST/60479/2017 & 02others incentives paid for achieving the targets are not leviable to service tax. The Larger Bench finds as follows.
59. As noticed above, the CRS Companies provide online portal through which the travel agents book the tickets of various airlines for the passengers. The contention of the appellant/interveners is that the use of CRS software is to enhance the business of the travel agents, while that of the Department is that the travel agents promote the services of the CRS Companies.
60. It is seen that the CRS commission is paid to a travel agent if he is able to attain an agreed level of segments to be booked. A passenger is not aware of the CRS Company being utilized by the travel agent for booking the segment nor can a passenger influence a travel agent to avail the services of a particular CRS Company. What is important to notice is that for an activity to qualify as "promotional", the person before whom the promotional activity is undertaken should be able to use the services. The passenger cannot directly use the CRS software provided by the Company to book an airline ticket. It cannot, therefore, be said that a travel agent is promoting any activity before the passenger.
61. The matter can be examined from another aspect. For booking a ticket, a travel agent would require a system to book the tickets. A travel agent is free to choose any CRS system. A passenger would never request a travel agent to book his ticket only through Amadeus/Galileo/Abacus system. Can it, therefore, be said that the travel agent is engaged in the promotion of a particular CRS system.
62. In this connection reliance has been placed by the Learned Counsel for the appellant/ interveners upon a Circular dated April 16, 2010 issued by Central Board of Excise and Customs relating to service tax on reinsurance commission. The relevant portion of the Circular is reproduced below: -
"In terms of Section 101A (Part IV-A) of the Insurance Act, 1938, every insurer dealing in insurance business is required to reinsure 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 26 ST/60479/2017 & 02others administrative expenditure. In other words, the insurance Company and the reinsurance 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 reinsurer 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 the ground that it is the consideration for the insurance Company providing business auxiliary service (BAS) to the reinsuring Company. The notices alleged that the insurance Companies are promoting the business of reinsurers thereby providing them the BAS.
4. The issue has been examined. As explained in para 2 above, the arrangement between the insurance Company and the reinsurer is only sharing of expenses and there is no service provided by the insurance Company to the reinsurer for a consideration. Since the policy holder may not even be aware of the operations of the reinsurer, it cannot be said that the payment made by the reinsurer to the insurance Company is for its business promotion or a service on behalf of the reinsuring Company (i.e. Business Auxiliary Service). In fact, it is the reinsurer which provides insurance service to the insurance Company. As both the insurance Company and reinsurer pay service tax on the entire amount of premium charged by them, the question of charging service tax under any other taxable service does not arise."
(emphasis supplied)
63. It is seen from the aforesaid Circular that the commission deducted by the insurance Company was being subjected to tax alleging that the insurance Company was providing BAS to the reinsurance Company by promoting the business of the reinsurance Company. The Board clarified that such an arrangement between the insurance Company and the reinsurer Company was for sharing of expenses only and no BAS was rendered as the customer of the insurance Company was only unaware of the role of the reinsurer. The Circular, therefore, 27 ST/60479/2017 & 02others reinforces that if the audience of an alleged promotional service is unaware of the service of the client, no "promotional or marketing services" can be said to have been provided.
64. Learned Authorized Representative of the Department, however, submitted that the promotion of "reservation functionality" of a particular CRS Company is not an activity which is connected to the booking of air ticket per se, because the consideration received in the form of commission is not dependent on booking of ticket but dependent upon particular functionality of a particular CRS Company which has been used to book the ticket. Thus, the service cannot fall under "air travel agent" service but would be an activity of promotion of the services provided by CRS Company. 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 incidentally rendering promotional services to the airlines/CRS Companies, then too, in the view of the provisions of Section 65A of the Finance Act, the service would be more appropriately classifiable under "air travel agent"
service.
28 ST/60479/2017 & 02others
69. To appreciate this contention, it would be necessary to examine Section 65A of the Finance Act and it is reproduced below: -
"65A (1) For the purposes of this chapter, classification of taxable services shall be determined according to the terms of the sub-clauses (105) of section 65.
(2) When for any reason, a taxable service is prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, classification shall be affected as follows: -
(a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description;
(b) composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a), shall be classified as if they consisted of a service which gives them their essential character, in so far as this criterion is applicable;
(c) when a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-
clause which occurs first among the sub-clauses which equally merits consideration."
(emphasis supplied)
70. The two competing entries are "air travel agent" service and "BAS". It would be seen from the definition of "air travel agent"
that it includes all services connected with or in relation to the booking of passage for travel by air. The services in question are booking of airlines tickets and for achieving a pre-determined target, the air travel agent also receives an additional amount in the form of incentives/commission from the airlines or the CRS Companies. The receipt of incentives/commission would not change the nature of the services rendered by the travel agent.
71. This apart, the definition of BAS would also reveal that the service provider must promote or market the service of a client. As noticed above, it is not a case where the air travel agent is promoting the service of airlines/CRS Companies. The air travel agent is, by sale of airlines ticket, ensuring the promotion of its own business even though this may lead to incidental promotion of the business of 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.
29 ST/60479/2017 & 02others 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 service tax is chargeable on any taxable service with reference to its value, then such value shall, -
(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;
(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration;
(iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner."
(emphasis supplied)
75. Section 67 of the Act deals with valuation of taxable services for charging service tax. Sub-section (1) of Section 67 provides that where service tax is chargeable on any taxable service with reference to its value, then such value shall, where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by the service provider. It is, therefore, clear that only such amount is subject to service tax which represents consideration for provision of service and any other amount which is not a consideration for provision of service cannot be subjected to service tax.
30 ST/60479/2017 & 02others
76. In this connection, it would be appropriate to refer to the decision of the Supreme Court in Union of India v.
Intercontinental Consultancy and Technocrats [2018 (10) G.S.T.L. 401 (S.C.)]. The Supreme Court observed that service tax is on the "value of taxable services" and, therefore, it is the value of the services which are actually rendered which has to be ascertained for the purpose of calculating the service tax. It is for this reason that the expression "such" occurring in Section 67 of the Act assumes importance. The Supreme Court, therefore, observed that the authority has to find what is the gross amount charged for providing "such" taxable services and so any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as the amount is not calculated for providing "such taxable service." This, according to the Supreme Court, is the plain meaning attached to Section 67, either prior to its amendment on 1 May, 2006 or after this amendment.
77. 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 be 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 predetermined 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 which achieved monthly and quarterly sales targets that Ford set based on the dealer's size and past performance. Targets were based on the number of cars sold to eligible customers in the qualifying period, not the value of the cars sold. Once a car was sold and delivered to an eligible 31 ST/60479/2017 & 02others customer the details would be entered into the vehicle information system and, in about the middle of the following month, based on the information so entered Ford would issue the dealer with a tax invoice for the incentive payment plus 10% GST and shortly thereafter pay that amount to the dealer.
30. The Tribunal reached a different view about the Ford "retail target incentive" payments. It reasoned as follows at [I06]- [I08] :
I06. The last remaining payment type is Ford's retail target incentive payment. It is clear from the "Drive for Success"
program that the payment is triggered at the time, and by reason, of the Applicant's recording of a level of new sales for a relevant period of eligible vehicles to eligible customers in excess of a specified target set by Ford. Significantly, though, and unlike the fleet rebates and the run-out model support payments, the target incentive payment has no nexus with any one particular supply. It is a payment made in connection with supplies generally, or perhaps more accurately, it is a payment made in connection with the making of supplies generally.
53. On analysis, the so-called supplies for consideration identified by the Commissioner are nothing more than the encouragement of an overall business relationship between the manufacture and the dealer to the mutual benefit of both. The relationship involves a whole raft of obligation from one to the other all, presumably, with the ultimate objective of maximizing their respective commercial positions. As the AP Group put it, the overall relationship contemplates a continuing dialogue between wholesaler and retailer in which promises are routinely exchanged, but to characterize this dialogue as involving supply after supply is unrealistic and impractical. To characterize the payment of the incentives intended to encourage the overall relationship to operate efficiently as involving supplies for consideration equally unpersuasive. A dealer will always wish to sell as many cars as practicable and to move old stock to make way for new stock. So too a dealer will 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 32 ST/60479/2017 & 02others 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 v. 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 reproduced below:-
9. The first issue that arises for consideration is whether service tax would be leviable on incentives prior to July, 2012.
10. As noticed above, the appellant purchases vehicles from MUL and sells the same to the buyers. It is clear from the agreement that the appellant works on a principal-to-principal basis and not as an agent of MUL. This is for the reason that the agreement itself provides that the appellant has to undertake certain sales promotion activities as well. The carrying out of such activities by the appellant is for the mutual benefit of the business of the appellant as well as the business of MUL. The amount of incentives received on such account cannot, therefore, be treated as consideration for any service. The incentives received by the appellant cannot, therefore, be leviable to service tax.
(emphasis supplied)
80. It, therefore, clearly transpires from the aforesaid decisions that incentives paid for achieving targets cannot termed as "consideration" and, therefore, are not leviable to service tax under Section 67 of the Finance Act.
81. The reference to this Larger Bench has arisen for the reason that the Division Bench hearing this appeal expressed doubts about the view taken by the Division Bench in D. Pauls. The appellant therein was a travel agent who had used the CRS system of Galileo, Amadeus and Abacus which had paid incentives to the appellant for the period from October 1, 2003 to December 21, 2008. The lower authorities had observed that the services provided by the appellant fell under the category of "tour operator" services as defined under Section 65(11)(o) of the Finance Act. In the appeal before the Tribunal, the Learned Authorized Representative of the Department had submitted that 33 ST/60479/2017 & 02others the services were covered under "BAS". The Division Bench hearing the appeal observed that the services provided by the appellant were rightly covered under that heading of "BAS" as defined in Section 65(19) of the Finance Act. The relevant portion of the decision is reproduced below: -
"2. The brief facts of the case are that, the assessee- appellants are registered under the category of "Air Travel Agent's Services" and they have been issuing air tickets of various airlines and paying Service Tax on the amount of basic fare. For the purpose, the assessee-appellants used Computer Reservation 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 1st 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 to the GDS/CRS, which linked to ticket sales offices of various airlines, hotels and car rental agencies spread across the world. They are by using these GDS/CRS for booking tickets, receiving incentives from the said companies for every segment booked by them. Hence, the service provided by the assessee-appellants has rightly been covered under the heading "Business Auxiliary Service" as defined under Section 65(19) of the Finance Act, 1994. Thus, we are of the view that the assessee-appellants being providing "Tour Operator's Service", the commission received by them is for "Business Auxiliary Service" under Section 73(1) of the Finance Act, 1994. The case law cited by the Learned Counsel for the assessee-appellants is not applicable in the instant case
34 ST/60479/2017 & 02others as the same was dealing with the advertising agencies. So, on the facts, the ratio laid down in the said case is not applicable to the present case is not applicable to the present case."
(emphasis supplied)
82. A perusal of the aforesaid decision would indicate that though in paragraph 2 of the decision, the Division Bench noted that the lower authorities had categorized the services rendered by the appellant as "tour operator", but in paragraph 5 of the decision the Division Bench observed that the services provided by the appellant were rightly covered under "BAS". In fact, the Division Bench also observed that since the appellant was providing "tour operator" services, the commission received by them is for "BAS" under Section 73(1) of the Finance Act. There is no discussion in the decision as to why the commission received would fall under "BAS". The decision also does not specify the particular sub-clause of Section 65(19) of the Finance Act that defines ""BAS". It also needs to be noted that on behalf of the appellant it was contented that no marketing or promotion was conducted by the appellant since it is the choice of the appellant to choose a particular CRS Company and that the customer also does not even know under which CRS system the ticket was booked, but there is no discussion on this aspect nor is there any discussion on the submission of the appellant that the amount received from the CRS Companies cannot be treated as deemed commission since it was merely an incentive and did not attract service tax.
17.1. In view of the above, we are of the considered opinion that the issue at Para 15(i). as above, is no longer res integra. In view of the decision of the larger Bench in the above case, reliance by the Revenue on the cases of D. Paul's Consumer Benefit Ltd. v. Commissioner -- 2017 (52) STR 429 (Tribunal) 2018 (12) GSTL J86 (S.C.) and Govan Travels 2018 (9) GSTL 268 (Tri. - Del.) is of no avail. We find that the demand in respect of this issue in respect of all the appeals is liable to be set aside.
18. Coming to the second issue, as at 15(ii) above, of includability of commission on surcharge in the base fare for the purposes of taxation, the appellants submit that the issue is since settled in favour of the appellants 35 ST/60479/2017 & 02others by the Chennai Bench of the Tribunal in the case of BCD Travels India Pvt Ltd (2023) 7 Centax 143 (Tri-Mad). We find that the Bench held that the Air Travel Agents need not include the commission on fuel surcharge in the basic fare for payment of Service Tax. We find that the Bench observed that 8.1 Rule 6 (7) ibid., which is extracted in the above paragraphs, clearly gives an option to the taxpayer, specifically an Air Travel Agent, to pay an amount calculated at the rate of 0.6% of the basic fare in the case of domestic bookings and at the rate of 1.2% of the basic fare in the case of international bookings instead of paying Service Tax at the rate specified in Section 66 of the Finance Act, 1994, and as per Section 66, the rate of Service Tax was a flat 12% of the value of taxable services. Section 67 ibid. provides for the assessable value to be the gross amount charged by the service provider for such service. 8.2 What is relevant from the above is that the option is given to the taxpayer to remit the Service Tax either in terms of Rule 6 (7) ibid. or Section 67 ibid., and once an option is exercised by the taxpayer, the Revenue cannot find fault with the option so exercised.
8.3 Admittedly, the appellant has chosen to pay Service Tax in terms of Rule 6 (7) ibid. and therefore, tax cannot be demanded by applying the provisions of Section 67 ibid. Hence, the ratio in M/s. Japan Airlines International Company Ltd. (supra) is not applicable.
9. An airline may pay commission inter alia on various items, apart from the basic fare, which are indicated clearly in the ticket issued to a traveller. The basic fare is clearly indicated, followed by various other charges in such ticket. Hence, in our view, when the basic fare is so specifically indicated, the authorities cannot add or delete anything to the same to say that the basic fare should also include those other things.
9.2 Rule 6 (7) has to be read, therefore, in the context of the break-ups given in the ticket wherein the basic fare stands clearly indicated and viewed thus, the interpretation drawn by the lower authorities to include the commission on fuel surcharge in the basic fare cannot hold any water, for which reason the impugned order cannot sustain.
36 ST/60479/2017 & 02others 18.1. In view of the above, we find that the issue is no longer res integra and the issue is fairly decided in favour of both the appellants. The demand on this count is liable to be set aside. We find that the Appeal filed by M/s TSI Yatra Pvt Ltd (Appellant-2) involves these two issues only i.e. as at para 15 (i) and (ii). Therefore, the impugned order in respect of appeal No ST/60479/2017, filed by M/s TSI Yatra Pvt Ltd, is liable to be set aside.
19. Coming to the third issue, as at 15(iii) above, that before, 1.4.2011, we find that revenue seeks to deny the abatement as contained under notification No 1/2006-ST dated 01.03.2006 and 26/2012-ST dated 20.06.2012 with effect from 01.07.2012, on the grounds that the appellants have availed cenvat credit and made reversal on a pro-rate basis, adopting an incorrect formula. The appellants contend that they made reversal on a pro-rate basis, considering the taxable value of the services as a reasonable basis, as no specific method was prescribed under the law and from April 1, 2011onwards, they reversed the credit on common input services by following the method prescribed under Rule 6 of the CCR, 2004 and duly intimated the authorities about the formula being adopted. The appellants contend that even after the formula was prescribed under Rule 6 of the CCR, 2004, w.e.f 01.04.2011 and definition of exempted services was amended to include taxable abated services, authorities continued to issue Show Cause Notices (demand Notices) in the same language as in old Show Cause Notices.
19.1. The appellants submit that reversal of cenvat credit amounts to not availing the Credit as held in Chandrapur Magnet Wires (P) Ltd 1996 (81) ELT 3 (SC) and other cases. They further submit that the demand for a period after 01.04.2011 was confirmed without giving any findings or 37 ST/60479/2017 & 02others observations or reasoning; consequently, demand of Rs 56,31,25,899 (out of the total of Rs 76,09,05,400) on the said issue, being cryptic and non- speaking, passed without any reasoning, is liable to be set aside as held in Tata Engineering & Locomotive Co Ltd 2006 (203) ELT 360 (SC). They also submit that the demand raised vide SCN dated 07-06-2012 totally and demand raised vide SCN dated 27-12-2012 partially, are barred by limitation; the information regarding output services on which benefit of abatement was availed and the input services on which credit was availed was in the knowledge of the department; all the credit reversal figures were duly disclosed in the ST-3 returns filed from time to time; the output services on which abatement was availed were disclosed in the ST-3 returns; therefore, there is no wilful suppression by the Appellant; Tribunal, in a case, of Arya Logistics (2023) 12 Centax 309 (Tri-Ahmd), with a similar denial of benefit under abatement under Notification No. 01/2006-ST, held that extended period cannot be invoked since all facts were before the department; thus, demand to the tune of Rs 25,61,58,672 is liable to be set aside.
19.3. We find that in the impugned case, the initial Show Cause Notice Dated 07.06.2012 seeks to deny the abatement on the grounds that the formula adopted by the appellants is incorrect. The Show Cause Notice alleges as below.
5.3 However, the assessee contended that though they were discharging the service tax liability after availing the benefit of abatement under the Notification No. 1/2006-ST dated 01.03.2006, they were not availing 100% CENVAT Credjt of Service tax paid on common input services, instead they were availing CENVAT credit on proportionate basis, attributable to input services used in relation to provision of non-abated services; that even in cases where taxable and exempted services were provided, the provisions allowed for proportionate availment of input credit; that by the same logic, the same provisions would 38 ST/60479/2017 & 02others be applicable to a company providing taxable and abated services since in this case the department was actually getting service tax at abated rates on abated services in contrast to exempted services where no service tax is collected and that to avoid the ambiguity in the primary object of CENVAT Credit, the definition of 'exempted services' had been amended by Union Budget 2011 to include abated services, in line assessee methodology of claiming input credit.
5.4 Whereas the above contention of the assessee does not appear to be tenable inasmuch as the relevant provisions of the CENVAT Credit Rules, 2004 do not provide for the method adopted by the assessee. It is observed that they have availed CENVAT credit on common input services. Though they have not revealed the formula adopted by them, it appears that the formula by them for working on CENVAT Credit attributable to Tour Operator Services/Rent a Cab Service to basic fare of air tickets under Air Travel Agent service. The Formula adopted by the assessee does not appear to be correct for the following reasons:
(i) The option for discharge of service tax liability provided under Rule 6(7)of the Service Tax Rules, 1994 is alternate method and rate specified under Section 66 of the Finance Act, 1994 is not applicable.
(ii) The measure of tax in respect of 'Air Travel Agent Service' is commission received from the airlines i.e. the value in terms of Section 67 of the Finance Act, 1994 is amount of commission received from airlines. Therefore, the value for the purpose of the CENVAT Credit Rules, 2004 and also for Section 66 of the Finance Act, 1994 is the value in terms of Section 67 of the Finance Act, 1994.
19.4. we find that the learned Adjudicating Authority confirms the demand, giving the following findings.
132.3.5 In view of the above, I find that considering the judicial pronouncements on the issue, the benefit of Notification No. 1/2006-ST should, in principle, be available to the Noticee, if they had in fact fully and correctly reversed the cenvat credit availed on the common input services used on abated services on proportionate basis. However, the vital question arises as to 39 ST/60479/2017 & 02others whether the notice has in fact correctly reversed the proportionate cenvat credit availed by them in respect of common input services used for abated services. I notice that the I find that in para 5.4 of the impugned show cause notice, it has been alleged that the formula adopted by the noticee for working out cenvat credit attributable to tour operator service/rent-a-cab service and to air travel agent service is in the ratio of gross value of tour operator service/rent-cab service to basic fare of air tickets under air travel Agent Service. It has been alleged that the formula adopted by the Noticee does not appear to be correct due to following reasons:
(i) The option for discharge of service tax liability provided under Rule 6(7) of the Service Tax Rules, 1994 is alternate method and rate specified under Section 66 of the Finance Act, 1994 is not applicable.
(ii) The measure of value for determining tax liability in respect of 'Air Travel Agent Service' is commission received from the airlines i.e. the value in terms of Section 67 of the Finance Act, 1994 is amount of commission received from airlines, and not the gross amount of basic fare of air tickets.
132.3.6 I notice that the notice has not been able to give any evidence or justification to prove that their methodology of reversal of cenvat credit on common input services proportionate basis in respect of abated services is correct and to prove that they have in fact reversed correct amount of cenvat credit on proportionate basis on this account. Therefore, I observe that even considering in principle that benefit of Notification No. 11/2006-ST should, be available to them, if they had fully and correctly reversed the proportionate cenvat credit availed on the common input services used for abated services, benefit of the said Notification in the present case cannot be made available to the Noticee as they have failed to reverse the cenvat credit on common input services correctly on proportionate basis, as discussed above.
132.3.7 I further observe that it has also been alleged in the show cause notice that the notice has availed 100% credit in respect of some of the service specified under Rule 6(5) of Cenvat 40 ST/60479/2017 & 02others Credit Rules, 2004. I find that as per Rule 6(5) of Cenvat Credit Rules, 2004 prevalent during the said period remained in force till 31.3.2011, cenvat credit availed on the services listed in the rule, used for providing exempted as well as taxable services need not to be required to be reversed. However, that is with reference to exempted and taxable service. Here in the instant case, the question is whether the noticee has availed the cenvat credit on input service. I find that the noticee has not refuted this allegation that they have availed the credit of input services listed in Rule 6(5) of Cenvat Credit Rules.
132.3.8 Thus, I find that the Noticee has in fact availed the benefit of cenvat credit in providing the tour operator services and therefore, they are not eligible for exemption provided in Notification No. l/2006-ST dated 1.3.2006. This will not be out of place to mention here that even in spite of being pointed out by the visiting audit officers and even after issuance of impugned show cause notice, the noticee failed to comply with the conditions of Notification No. 1/2006-ST dated 1.3.2006. I thus, find that the conditions of Notification No. 1/2006-ST dated 01.03.2006 are not fulfilled and the Noticee is not entitled to exemption under the said notification. The self-adjustment by using a home-grown 'methodology' for reversal of cenvat credit to suit their interest and based on wrong facts, is grossly in violation of the Law and Rules in force at the time and cannot be considered as satisfaction of the conditions for availment of the benefit of the said Notification. Hence, the demand on this account is liable to be confirmed along with interest. 19.5. We find that w.e.f. 01.04.2011, the formula prescribed for proportionate reversal of credit availed on common inputs is as per the following ratio -
𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑒𝑥𝑒𝑚𝑝𝑡𝑒𝑑 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠 𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑒𝑥𝑒𝑚𝑝𝑡𝑒𝑑 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠 + 𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑛𝑜𝑛 𝑒𝑥𝑒𝑚𝑝𝑡𝑒𝑑 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠 As there is no allegation that in the instant case, the appellants have rendered any other exempted service, the ratio can be read safely, as submitted by the appellants, as follows.
41 ST/60479/2017 & 02others 𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑎𝑏𝑎𝑡𝑎𝑏𝑙𝑒 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠 𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑎𝑏𝑎𝑡𝑎𝑏𝑙𝑒 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠 + 𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝐴𝑖𝑟 𝑇𝑟𝑎𝑣𝑒𝑙 𝐴𝑔𝑒𝑛𝑡 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠 19.6. We find that the appellants have applied the said ratio and arrived at the amount to be reversed. We find that even for the period before 1.4.2011, the appellants adopted the same formula. We find that revenue should not have any objection in adopting the formula, as no formula has been put in place, before 01.04.2011. Learned Adjudicating Authority, terms the same as a home grown and self-invented formula by the appellants. We find that this allegation is not correct, even for the period prior to 01.04.2011. It is not fair on the part of the Adjudicating authority to come to such a conclusion when the statute prescribes no formula for reversal. We find that as there was no formula prescribed, the appellants have rightly followed this formula which turns out to be in accordance with the formula or ratio introduced with effect from 01.04.2011. After the insertion of the formula and amendment to the Rule, the Appellant-1 has followed the same. Learned Adjudicating Authority held that value had to be calculated according to section 67 of the Act and not according to sub-rule (7) of Rule 6 of the CCR 2004. The finding given by the authority is not backed by any statutory provisions. The fact that the amendment in 2011 allowed value to be calculated in accordance with Rule 6(7) of CCR, 2004 shows that the legislative intent was to allow for the alternate values available to the taxpayer for payment of tax under the Service Tax Rules 1994 and not necessarily restrict the value to only section 67 of the Act. Therefore, the "value" as calculated by the Appellant-1 is not wrong as held in the impugned order. 19.7. We find that the learned adjudicating authority begins his findings by observing that the judicial pronouncement on the issue indicate that CENVAT credit reversed would amount to non-availment of CENVAT credit 42 ST/60479/2017 & 02others and the appellants are eligible for the abatement in terms of the Notification as they have reversed a proportionate CENVAT credit. Thereafter, he goes on to find that the formula, adopted by the appellants, is not correct and that the formula adopted is a homegrown self-invented formula by the appellants, conveniently ignoring the fact that there was no formula prescribed under relevant rules before 01.04.2011. Having held that reversal amounts to non-availment of CENVAT credit, learned adjudicating authority does not even bother to verify whether the formula adopted by the appellants was correct and proportionate reversal was made by the appellants as envisaged in the provisions. He proceeds to hold that the formula adopted is incorrect. What is intriguing is the fact that the authority continues to take the same stance even for the period after 01.04.2011, as in the show cause notice/demand notes, even when a formula is in place for the proportionate reversal and Joint Secretary (TRU-II) clarified, vide letter dated 28.02.2011, that the objective of the amendment was to provide a practical scheme for the segregation of CENVAT credit used in respect of final products and output services where they are partially exempted with condition that no such credit shall be taken. It appears that the authority has not appreciated the facts of the case in a proper perspective. We find that it was held in Chandrapur Magnet Wires (P) Ltd 1996 (81) ELT 3 (SC), which was followed in many cases, that reversal amounts to non availment. Also, Rule 6(3D) read with Rule 6(3) of CCR 2004 provide that such reversal is equivalent to having not availed CENVAT Credit. Revenue doesn't dispute the fact of reversal and does not even bother to verify the calculations so as to satisfy themselves as to the correctness of the amount reversed.
43 ST/60479/2017 & 02others 19.8. We find that the adjudicating authority then proceeds to hold that the value adopted by the appellants should be as per Section 67 irrespective of the provision, under Rule 6 (7) of CCR, 2004, that the value on which tax is paid, i.e. the base fare is to be considered. This is clearly beyond the scope of the Show Cause Notice, as the SCN and the demand notes issued thereafter, nowhere dispute the value taken or specify which value is to be taken whether as per Section 67 or Rule 6(7) of Cenvat Credit Rules. We further find that the authority having said that the reversal was not as per formula and that the value adopted in the formula was incorrect, proceeds to confirm the demand holding that as the appellant has availed CENVAT credit, the abatement is not admissible, so is to say that the adjudicating authority contradicts the very proposition with which is started the discussion holding that judicial pronouncements hold that reversal of CENVAT credit amounts to non- availment of CENVAT credit. The adjudicating authority makes a complete U-turn and says since the appellant has availed Cenvat Credit, abatement is not available. We find that for the period prior to 01.01.2011, learned commissioner fails to appreciate that there was no formula prescribed and for the period after 01.04.2011, he ignores the fact that a formula has been prescribed and the Rule 6(7) allows taking, for the purposes of the formula, the value on which the appellant chooses to pay duty. It appears that the adjudicating authority gives sufficient scope to conclude that the impugned order is cryptic, non-speaking, vague and beyond the scope of the SCN. We find that as per the cases relied upon by the appellants, the order cannot be sustained.
19.9. We find that Hon'ble High Court of Gujarat, in the case of Sitaram Roadways (URP) 2020 (33) G.S.T.L. 174 (Guj.), held that:
44 ST/60479/2017 & 02others
16. At this juncture reference may be made to the decision of the Supreme Court in Kranti Associates (P) Ltd. v. Masood Ahmed Khan, (2010) 9 SCC 496 = 2011 (273) E.L.T. 345 (S.C.) wherein the Court in the context of necessity to give reasons, has held thus :
"47. Summarising the above discussion, this Court holds :
(a) In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially.
(b) A quasi-judicial authority must record reasons in support of its conclusions.
(c) Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well.
(d) Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power.
(e) Reasons reassure that discretion has been exercised by the decision-maker on relevant grounds and by disregarding extraneous considerations.
(f) Reasons have virtually become as indispensable a component of a decision-making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies.
(g) Reasons facilitate the process of judicial review by superior courts.
(h) The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the lifeblood of judicial decision-making justifying the principle that reason is the soul of justice.
(i) Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants' faith in the justice delivery system.
(j) Insistence on reason is a requirement for both judicial accountability and transparency.
45 ST/60479/2017 & 02others
(k) If a judge or a quasi-judicial authority is not candid enough about his/her decision-making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism.
(l) Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or "rubber-stamp reasons" is not to be equated with a valid decision-making process.
(m) It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision-making not only makes the judges and decision-makers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in Defence of Judicial Candor.)
(n) Since the requirement to record reasons emanates from the broad doctrine of fairness in decision-making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See Ruiz Torija v. Spain, (1994) 19 EHRR 553 and Anya v. University of Oxford, 2001 EWCA Civ 405 (CA), wherein the Court referred to Article 6 of the European Convention of Human Rights which requires,"adequate and intelligent reasons must be given for judicial decisions".
(o) In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of "due process"."
17. In CCT v. Shukla & Bros., (2010) 4 SCO 785 = 2011 (22) S.T.R. 105 (S.C.) = 2010 (254) E.L.T. 6 (S.C.) the Supreme Court held thus :
"14. The principle of natural justice has twin ingredients; firstly, the person who is likely to be adversely affected by the action of the authorities should be given notice to show cause thereof and granted an opportunity of hearing and secondly, the orders so passed by the authorities should give reason for arriving at any conclusion showing proper application of mind. Violation of either of them could in the given facts and circumstances of the case, vitiate the order itself. Such rule being applicable to the administrative authorities certainly requires that the judgment of the court should meet with this requirement with higher degree of satisfaction. The order of an administrative authority may not provide reasons like a judgment but the order must be 46 ST/60479/2017 & 02others supported by the reasons of rationality. The distinction between passing of an order by an administrative or quasi-judicial authority has practically extinguished and both are required to pass reasoned orders."
18. In Tata Engineering & Locomotive Co. Ltd. v. Collector of Central Excise, Pune [2006 (203) E.L.T. 360 (S.C.)], the Supreme Court was dealing with a case where by a cryptic and non-speaking order, the Tribunal had upheld the order passed by Commissioner by applying the ratio of the decision of the Larger Bench in TISCO Ltd., without recording any findings of fact. The Court held that it is not sufficient in a judgment to give conclusions alone but it is necessary to give reasons in support of the conclusions arrived at. The Court, set aside the order of the Tribunal as the findings recorded by the Tribunal were cryptic and non-speaking, and remitted the matter back to the Tribunal for taking a fresh decision by a speaking order in accordance with law after affording due opportunity to both the parties.
19. In State of Punjab v. Bhag Singh [2004 (164) E.L.T. 137 (S.C.)], the Supreme Court was considering a case where the High Court had dismissed the appeal without giving any reasons. The Court held that reasons introduce clarity in an order. On plainest consideration of justice, the High Court ought to have set forth its reasons, howsoever brief, in its order indicative of an application of mind, all the more when its order is amenable to further avenue of challenge. The absence of reasons has rendered the High Court order not sustainable. The Court further held that right to reason is an indispensable part of a sound judicial system, reasons at least sufficient to indicate an application of mind to the matter before the Court. Another rationale is that the affected party can know why the decision has gone against him. One of the salutary requirements of natural justice is spelling out reasons for the order made, in other words, a speaking out.
20. Thus, the Supreme Court has consistently held that a quasi- judicial authority must record reasons in support of its conclusions and that reasons are an indispensable component of a decision making process. In CCT v. Shukla & Bros. (supra) the Supreme Court has held that giving reasons in support of the 47 ST/60479/2017 & 02others conclusions arrived at is an ingredient of the principles of natural justice.
21. Viewed in the light of the principles enunciated in the decisions referred to hereinabove, the impugned order is in breach of the principles of natural justice on two counts : firstly, that though the matter was kept for hearing on 28-8-2019, the second respondent passed the impugned order on 24-8-2019 without affording any opportunity of hearing to the petitioner; and secondly, because the impugned order is a totally non- speaking order which does not reflect the reason as to why the proper officer has come to the conclusion that the goods and the conveyance are liable to be confiscated, which renders the order unsustainable. The impugned order, therefore, deserves to be set aside and the matter is required to be remitted to the proper officer to decide the matter afresh in accordance with law, keeping in mind the principles discussed hereinabove, after affording reasonable opportunity of hearing to the petitioner. 19.10. Further, we find that learned Commissioner not only comes to a conclusion with a confused and contradictory finding but also travels beyond the scope of the show cause notice. We find that whereas the show cause notice is stereotyped and on the point of adopting a wrong formula pre or post 01.04.2011, learned adjudicating authority discusses all the possible scenario and comes to a conclusion, understandably, due to non-appreciation of facts and provisions of Law, that abatement is not admissible as the credit is availed. This proposition is beyond the show cause notice. Moreover, in view of the jurisprudence that evolved on the subject, a non-speaking and cryptic order is liable to be set aside. Further, it is not the case of the department that the appellants have not reversed the proportionate credit correctly. The department proceeds only on the premise that the formula adopted is wrong both even for the period pre and post 01.04.2011. It is a fact on record that there was no formula prescribed before 01.04.2011 and a formula was brought in w.e.f.
48 ST/60479/2017 & 02others 01.04.2011. We find that the adjudicating authority has ignored the settled law that the wordings of the Statute are plain and unambiguous, the same shall be read and construed strictly by the words and no intendment is allowed in interpreting the same as held in Dharmendra Textiles Processors - 2008 (231) ELT 3 (SC). 19.11. Revenue did not contradict the calculations and thus quantum of credit reversed by the appellants, before 01.04.2011, by adopting a formula, which later appears to be in accordance with the formula introduced w.e.f. 01.04.2011. There is no logic or reason in the conclusion arrived at by the adjudicating authority that post 01.04.2011 also, the formula adopted was incorrect. Given these facts of the matter, the finding of the impugned order, for the periods both before and after 2011 amendment that the formula adopted was incorrect, is an erroneous understanding and not sustainable. 19.12. During the course of the argument, learned Special Counsel for the Revenue submits that the issue may be remanded for verification of the correctness of the reversal. We find that the correctness of the reversal was never a proposition either in the show cause notice or in the impugned order, which always harped on the presumption that the formula adopted by the appellants was homegrown, self-invented and incorrect. Revenue has never alleged that the calculations were incorrect and the quantification needs to be done properly. Under the circumstances, we find that it will not be justified to remand the matter back to the adjudicating authority as the quantification of the credit reversed was never disputed. We find that the department failed to establish that the appellants failed to fulfil the conditions required to avail the benefit under abatement notification 01/2006-ST dated 01.03.2006. Therefore, we find that the appellants are eligible for the said abatement and accordingly, the impugned order is not sustainable on this count.
49 ST/60479/2017 & 02others Further, the appellants submit that they have kept the department informed of all facts in time and therefore, in view of the decision of Ahmedabad bench of the Tribunal in the case of Arya Logistics (2023) 12 Centax 309 (Tri.-Ahmd), involving similar facts, that extended period cannot be invoked since all facts were before the department; demand of Rs 25,61,58,672 is liable to be set aside.
20. Coming to the issue, as 15(iv) above, of the adjustment of excess duty paid, we find that the appellants paid service tax in excess of the tax liability in the months of June 2007 to August 2007 and in October 2007; on realizing the excess payment, they adjusted the excess amount against the liability arising during the months of September 2007, November 2007, December 2007 and March 2008. We find that the Appellant had duly intimated the jurisdictional Superintendent about the adjustments made towards excess payment of service tax through letters dated September 5, 2007, January 3, 2008, and March 31, 2008. Appellants submit that sub-rules (3), (4) and (4B) of Rule 6 of the Service Tax Rules, 1994, provide for such adjustment; learned Commissioner wrongly concludes that the Appellant failed to fulfil the requirements of Rule 6(3) of the Service Tax Rules and thus, contravened the provisions of Rule 6(4A) and Rule 6(4B) of the Service Tax Rules, as the Appellant did not intimate their jurisdictional officer about adjustment made by them; the benefit of adjustment of excess service tax paid under Rule 6(4A) of Service Tax Rules should not be denied to the Appellant merely because of the reason that they did not fulfil the technical/procedural requirements. 20.1. We find that Tribunal in the case of General Manager (CMTS) 2014 (36) STR 1084 (Tri. -Del) held that benefit of adjustment of excess payment of service tax cannot be denied on the grounds of procedural 50 ST/60479/2017 & 02others lapses such as non-filing of intimation, adjustment of an amount exceeding one lakh etc. The Bench observed that:
7. Rule 6 of the Service Tax Rules deals with the manner of payment of service tax and when the same is to be paid.
According to sub-rule (1), the service tax for a particular month shall be paid to the credit of the Central Government by sixth of the next month by the assessee, if the duty is deposited electronically through internet banking; and by the 5th day of the next month, in any other case.
7.1 Sub-rule (2) of Rule 6 prescribes the manner of payment of service tax, which according to this sub-rule is to be paid with the banks notified by the C.B.E. & C. for this purpose in TR-6 form or, in any other manner as prescribed by the C.B.E. & C. Sub-rule (3) of Rule 6 covers a situation where an assessee had received payment for certain services to be provided and had paid the service tax on it, but for some reasons, he could not provide the services wholly or partly and according to this rule, the assessee can adjust the excess payment of service tax calculated on pro rata basis against his service tax liability for subsequent period if he has refunded the value of taxable service along with service tax to the person from whom it was received. Thus, the sub-rule (3) provides for limited facility of adjustment in the cases where the amount has already been received by an assessee for the service to be provided and tax leviable thereon had been paid, but subsequently, due to some reasons, the service was not provided either in full or in part. Sub-rule (4) of the Rule 6 provides for provisional assessment, in the case where the assessee for any reason is unable to correctly estimate on the date of deposit, the actual amount payable for a particular month or a quarter, as the case may be, and according to this rule, he may request the jurisdictional Asstt./Dy. Commissioner for payment of service tax on provisional basis. Sub-rule (4A) provides that notwithstanding anything contained in sub-rule (4), where the assessee has paid to the credit of Central Government any amount in excess of the amount liable to be paid towards the service tax liability in the month/quarter, as the case may be, the assessee may adjust such excess amount paid by him against his service tax liability in subsequent month/quarter and sub-rule (4B) lays down the conditions for such adjustment. The main 51 ST/60479/2017 & 02others condition is that the excess payment is not on account of any reasons involving interpretation of law, taxability, classification, valuation or applicability of any exemption notification. The other conditions are that an assessee with centralized registration under Rule 4(2) can adjust excess payment in one month against this tax liability in other months without any limit, for other assessee, there is a monetary limit of Rs. one lakh for such adjustment. In our view harmonious construction of Rules 6(4), 6(4A) and 6(4B) would be that Rule 6(4) applies to a case where due to reasons involving interpretation of law, taxability, classification, valuation or applicability of exemption notification, the assessee is unable to correctly determine his service tax liability for a particular month/period and Rule 6(4A) read with Rule 6(4B) would apply when tax liability cannot be determined for a particular month due to other reasons. Thus sub-rule (4A) read with Rule (4B) would apply to a situation where an assessee on account of his inability to correctly determine the amount received during a particular month for the service provided, has paid service tax on the basis of his estimation and subsequently, when the exact amount received during the month, has been determined, the amount of service tax paid on the estimation basis is found to be in excess of his actual tax liability. In fact, in such a situation the excess amount paid by him is like advance payment of service tax during the month in excess of the actual service tax liability and which can always be adjusted against his service tax liability for other months as there is no unjust enrichment angle involved. For example, if against actual payments of Rs. 4 crore received by an assessee in a particular month against services provided, on which his service liability @ 10% adv. is Rs. 40 lakhs, he has paid tax of Rs. 50 lakhs on the basis of his estimated receipt of rupees five crores during the month, the excess tax payment of Rs. 10 lakh paid is like an advance payment of tax whose incidence has not been passed on to his customers. In fact, w.e.f. 1-3-2008, sub-rule (1A) of Rule 6 has been introduced by Notification No. 4/2008-S.T., dated 1-3- 2008 which also provides that without prejudice to the provisions of sub-rule (1) of Rule 6, every person liable to pay service tax may, on his own, pay an amount as service tax in advance to the credit of Central Government and adjust the amount so paid against service tax liability, which he is liable to pay in 52 ST/60479/2017 & 02others subsequent period, subject to the condition that he intimates the details of the amount paid in advance to the Jurisdictional Superintendent of Central Excise. The excess payment referred to in sub-rule (4A), read with sub-rule (4B), is like advance payment under sub-rule (1A) of Rule 6. There is no condition in Rule 6(4A) read with Rule 6(4B) providing that for availing of the adjustment facility, the assessee must have opted for centralized registration under Rule 4(2). Moreover, when an assessee during certain months, for reasons other than interpretation of law, taxability, classification, valuation or applicability of exemption, has paid service tax in excess of his actual tax liability, the Government cannot retain the excess tax paid by the assessee by refusing its adjustment against his tax liability during other months and refusing adjustment of such excess tax payment during a month against tax liability during other months and appropriation and retention of the same would amount to collection of tax without the authority of law which is contrary for the provisions of Art. 265 of the Constitution of India. As held by the Apex Court in case of Ispat Industries Ltd. v. CC, Mumbai reported in 2006 (202) E.L.T. 561 (S.C.) (paras 26 to 29) whenever there is conflict between a norm in a higher layer in the hierarchy of the laws in the legal system of the country and a norm in a lower layer in the hierarchy, the norm in the higher layer in the hierarchy will prevail. Therefore, if excess payment of tax in a month is not on account of reasons involving interpretation of law, taxability, classification, valuation or applicability of exemption notification and is purely on account of inability of the assessee to exactly determine the total amount collected during the month against the bills raised as a result of which he had determined his tax liability on estimation basis, the excess amount of tax paid during the month can be adjusted against his tax liability during other months and in this regard, there cannot be any monetary limit.
20.2. We find further that the appellants submit that entire demand confirmed is barred by limitation as the department was at all times in full knowledge of the material facts. We find that the appellants informed the department about the adjustment vide letters dated September 5, 2007, January 3, 2008, and March 31, 2008.
53 ST/60479/2017 & 02others
21. Coming to the issue, as at Para 15(v) above, we find that the appellants availed Cenvat credit, of Rs 6,13,767, in August 2007, of service Tax paid on Gateway Charges; when customers make payment for booking of air ticket using credit cards, the credit card companies charge payment gateway charges together with service tax under the category of banking and other financial services from the Appellants for the sale of air tickets through credit cards; some of the airlines reimburse these charges. We find that Revenue alleges that the expenditure being reimbursed by the Airlines and not being borne by the appellants, they are not eligible to avail Cenvat Credit. We find that the appellants submit that in terms of the Cenvat Credit Rules, Credit can be availed if the said service is an input service for the provision of output service; there is no restriction that there should be a value addition and that credit is not admissible when the charges paid are reimbursed.
21.1. We find that the Learned adjudicating authority observes as under
132.5.4 I find from the charges levelled in the impugned show cause notices that the noticee is incurring the expenditure on account of gateway services and getting the reimbursement from the airlines. Since the option for acceptance of payment by the noticee appears to be at the behest of concerned airline & the expenses are reimbursed, the gateway service (Banking & Financial service) provided in this case does not appear to be an input service, inasmuch as there is no value addition on this account to the taxable service provided by the noticee. I find that the said service was not used by the noticee for providing output service as the expenses on account of gateway charges are not part of the output services provided by them and therefore, it cannot be said that the services for which the expenditure was made was used for providing an output service. Service tax paid in such services was reimbursed by the airlines and hence, cost of service tax was not borne by the notice and accordingly, the 54 ST/60479/2017 & 02others said gateway charges are not input services for the services provided by the Noticee.
21.1. We find that the logic employed in the impugned order has no legal backing. We find that there is no restriction on the availment of Cenvat Credit if the expenses are reimbursed. The moot question is to see whether the same is an input service or not to the appellant. Either the Show Cause Notice or the impugned order does not dispute the fact that the service availed by the appellants is an input Service. That being the case, there is no way the credit can be denied to the appellants. It could at least be argued that the charges reimbursed should form part of the value of the taxable services rendered by the appellant for the sake of charging service Tax. However, the same is not the argument of the department.
The grounds on which the credit is denied have no legal standing. Further, we find that the appellants submit that the department was in the knowledge of all facts as they informed the audit party vide letter dated 5- 7-2011 and as such the entire demand is barred by limitation.
22. Coming to the last issue, as at Para15(vi) above, of the demand of duty on the foreign expenditure incurred by the appellants, on RCM basis, the appellants submit that vide Show Cause Notice dated 07.06.2012 an amount of Rs 29,14,410 was demanded; Appellant has already discharged service tax liability to that extent along with interest, appropriation of amount of service tax paid was ordered; the adjudicating authority find that the appellant is liable to pay Rs 28,88,070; However, while appropriating the duty totally paid with interest by the appellant, paid by the appellant, the adjudicating authority appropriated an amount of Rs 19,28,654 only, resulting in a net service tax demand of INR 9,85,756, which is totally erroneous, unjustifiable and accordingly, liable to set-
55 ST/60479/2017 & 02others aside. We find that as the facts stated are clear and as the appellants discharged the duty along with interest before issue of Show Cause Notice. 22.1. We find that as an amount of Rs 4,30,69,238 was confirmed in culmination of SCN dated 27-12- 2012. We find that the demand has been confirmed on (i). Booking of accommodation for facilitating touring clients of the Appellant in foreign destinations (ii). Provision of right to participate in Business Exhibitions held abroad and Reimbursement of expenses to UK Marketing. The appellants submit that demand on first two items cannot be sustained as they were performed outside India; in terms of Rule 3(ii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, these activities are taxable only if they are performed in India; the third item is not a service but mere reimbursement of expenses and no service has been identified at all. The demands have been confirmed in this case without providing any reason as to why such a liability falls on the Appellant; demand deserves to be set aside on the ground that the order is not a speaking one.
22.2. We find that Tribunal in the case of Sarup Industries Ltd 2016 (41) S.T.R. 84 (Tri. -Del) held that:
2. We have considered the contention of the appellant. It is seen that the exhibitions were held abroad and therefore the service was rendered abroad and therefore prima facie there is no import of service requiring payment of service tax by the appellant under reverse charge mechanism as per Rule 3(ii) of the Taxation of Services (Provided from Outside India) Rules, 2006. As per this sub-rule, the said service is to be performed in India or at least partly performed in India to be treated as import of service which is not the case here. Therefore, we are of the view that the appellant has prima facie good case in its favour and accordingly, we waive the requirement of pre-deposit and stay recovery of the impugned liabilities during pendency of the appeal.
56 ST/60479/2017 & 02others 22.5. In view of the above we find that demand confirmed on the expenses incurred by the appellants in booking of accommodation for facilitating touring clients in foreign destinations and in provision of right to participate in Business Exhibitions held abroad is incorrect as the activities were performed outside India and thus, are not taxable in India.
We find that service tax cannot be demanded on the reimbursed expenses and for the reason that and no service has been identified by the department. We find support for our conclusions in the cases cited above.
23. Coming to the issue of limitation, learned counsel for the appellants submits that the entire demand confirmed under the first show cause notice dated 07.06.2012 is time barred and the period from April 2011 to September 2011 is barred by limitation in the second show cause notice dated 27.12.2012. From the records of the case, it could be easily gleaned that the appellant was paying duty and was filing returns regularly. Intimations regarding adjustment of credit were intimated to the department vide letters dated 05.09.2007, 03.01.2008 and 31.03.2008; similarly, the duty paid, reversals made and the methodology adopted was informed to the department from time to time; figures of gateway charges received by the appellants were made available to the audit team during March to April 2010. We find that any commissions or omissions on the part of the appellant in the form of suppression of fact, mis-declaration, mis-representation, collusion have not been brought forth with evidence in the show cause notice. In the absence of the above, mere averment that the appellants have suppressed facts with intent to evade payment of duty is hollow and empty. We find that such an allegation cannot be sustained. Moreover, some of the issues have been raised on the basis of the audit. It was held by the Tribunal in the case of G.D. Goenka that extended period cannot be invoked on the basis of an audit report. Therefore, we 57 ST/60479/2017 & 02others are of the considered opinion that Revenue has not made out any case for invocation of extended period and therefore, the demands which are beyond the normal period are liable to be set aside. We find that the demands which are beyond the period of limitation are as follows. It is also seen that most of the issues are also decided in favour of the appellants on merits in view of the discussions and findings as above.
24. In view of the above, we find that the impugned orders are not sustainable and hence are set aside. In the result, all the three appeals are allowed.
(Order pronounced in the open Court on 30/03/2026) (S. S. GARG) MEMBER (JUDICIAL) (P. ANJANI KUMAR) MEMBER (TECHNICAL) PK