Custom, Excise & Service Tax Tribunal
Sotc Travels Services Pvt Ltd vs Principal Commissioner, Central ... on 8 June, 2022
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH COURT NO.II
SERVICE TAX MISCELLANEOUS APPLICATION NO. 50087 OF 2021
in
SERVICE TAX APPEAL NO. 50037 OF 2016
[Arising out of Order-in-Original No. 32/ST/D-I/2015 dated 30.09.2015
passed by the Principal Commissioner, Central Excise, Delhi 1].
SOTC TRAVELS SERVICES PVT LTD.
APPELLANT
Vs.
Principal Commissioner, Central
Excise, Delhi I. RESPONDENT
APPEARANCE:
Shri B L Narasimhan, & Shri Kunal Agarwal, Advocates for the Appellant Shri Harsh Vardhan, Authorised Representative for the Department CORAM:
HON'BLE MR. ANIL CHOUDHARY, MEMBER (JUDICIAL) HON'BLE MR. P V SUBBA RAO, MEMBER (TECHNICAL) Date of Hearing :8.06.2022 Date of Decision : 8.06.2022 FINAL ORDER No. 50562 /2022 PER ANIL CHOUDHARY The issue involved in this appeal in the facts - the appellant who are 'Air travel agent' accredited by the International Air Transport Association (IATA), and are registered with the Service Tax department and were paying service tax on 'air travel agent service', whether they are liable to pay service ST/M/50087/2021 In ST/50037/2016 tax under the head Business Auxiliary Service (BAS) on receipt of commission / incentive from CRS companies (computer reservation service and on Performance linked bonus (PLB) from the Airlines.
2. The brief facts are as follows:
1) The Appellant is engaged in rendering air travel agent and other tour related services. Essentially, the air travel industry comprises of the following five (5) key players:
i. The airlines, which provide air transport services to passengers. The airlines discharge their service tax liability in terms of Section 65(3b) read with Section 65(105) (zzzo) of the Act;
ii. Travel agents which have been accredited by the International Air Transport Association (IATA). These IATA agents are authorized to sell the air travel services provided by airlines customers/sub-agents the airline.
iii. CRS Companies, who provide an online portal for booking of tickets offered by various airlines and other service providers in the travel industry. The CRS companies enter into agreements with airlines for rendering 'online information data access and retrieval services' ('OIDAR services') wherein they collate data such as ticket availability, price, duration of journey, etc. The airlines compensate the CRS companies for such services.
This database maintained by CRS companies is made available to IATA agents through subscriber agreements. The IATA Agents are permitted to use the database for booking of airline tickets for passengers /sub-agents.2
ST/M/50087/2021 In ST/50037/2016 iv. Sub-agents, who purchase airline tickets from the IATA Agents for their customers (passengers);
v. Passengers, who are ultimate recipient of travel services.
2) In the present case, the Appellant operates as IATA agent.
The revenue generated by an IATA agent can be categorized as follows:
i. Revenue generated from commission received from airlines for booking of tickets. On such services, a travel Agent either discharges service tax on the quantum of the commission itself or specified percentage of basic fare value of the ticket in terms of Rule 6(7) of the Service Tax Rules, 1994 ('ST Rules'). In some cases, airlines also provide incentives to IATA agents if number bookings are achieved or targets met.
ii. Revenue generated from CRS companies. As mentioned above, the CRS companies operate a database of travel related availabilities and allow subscribers to make reservations through its database. The business of a CRS company sustains on the OIDAR services provided by them to airlines and other travel related service providers. In order to grow their business and continue providing such services, the CRS companies offer incentives and bonuses to IATA agents against achieving of predefined booking targets.
3. Heard the parties.
4. Both the parties agree that the issue herein is squarely covered by the ruling of Larger Bench of this Tribunal in the case of Kafila Hospitality & Travels Pvt. Ltd. vs Commissioner, Service Tax, Delhi reported as 2021 (47) GSTL 140 (Tri- LB)]. The decision answered the question relating to taxability of 3 ST/M/50087/2021 In ST/50037/2016 target incentives/ Performance Linked Bonus(PLB) received from airlines and commission received from CRS companies.
5. While addressing an identical issue for another IATA agent, it has been categorically held by the Larger Bench of the CESTAT, that PLB and CRS commission are not subject to service tax under the category of 'Business Auxiliary Services'. While the Department was of the view that the PLB Commission and the CRS Commission received by air travel agents were subject to service tax under the category BAS, the Larger Bench observed as follows:
"3. IATA agents are persons who have been authorized to sell airline tickets directly from the airlines to passengers/sub-agents. For sale of tickets, the IATA agents receive commission from the airlines. In addition to the said commission received for booking of airline tickets, the airlines also incentivize IATA agents by paying target-based incentives, which are linked to guaranteed booking of a minimum number of airline tickets. In certain cases, sub-agents also book airline tickets through IATA agents. In a situation where a sub-agent achieves a pre-determined target of bookings through a particular IATA agent, the IATA agent pays an incentive to the sub-agent.
4. The CRS Companies provide OIDAR services to airlines. In lieu of these services, the airlines pay consideration to the CRS Companies in the form of 'charges/commission'. The CRS Companies also allow IATA agents to subscribe to their portals for booking tickets for the passengers/sub-agents. Earlier, the IATA agents were charged by the CRS Companies for access to the portals. However, due to increasing competition in the market, the CRS Companies stopped charging the agents for booking through the portal and instead, in order to increase the flow of business, the CRS Companies started to part with a portion of their consideration (charges/commission) and paid the same to the IATA agents when the agents achieve a minimum quantum of bookings through the concerned CRS portal. This incentive is normally termed as 'CRS commission'. The three CRS Companies involved are Amadeus India Private Limited [Amadeus], Interglobe Technology Quotient Pvt. Ltd. [Galileo] and Abacus India [Abacus].
5. A show cause notice dated October 21, 2011 covering the period 2005-06 to 2009-10 was issued to the appellant as the Department sought to levy service tax on the following :-
(i) Target based incentives paid to the travel agents, under the category of 'Business Auxiliary Service' ('BAS') by alleging that the 4 ST/M/50087/2021 In ST/50037/2016 travel agents are promoting and marketing the business of the airlines;
and
(ii) CRS commission paid by the CRS Companies to travel agents under the category of BAS by alleging that the travel agents are promoting and marketing the business of the CRS Companies.
Whether the air travel agent is promoting it own business and not the business of the airlines
54. According to the appellant/interveners, the air travel agents are rendering services to passengers by providing options relating to travel routes, accommodation, booking of tickets and so any increase in the number of bookings would automatically result in an increase in the business of the air travel agents. It is their submission that this may also incidentally result in the increase in the business of the airlines, but it cannot be treated as promotion and marketing services.
55. For an activity to be considered as promotional, it is necessary that a service provider must "promote" or "endorse" the service of the client. It has, therefore, to be seen whether in the present case the travel agent is encouraging a passenger to purchase a ticket of a particular airline. The facts reveal that the travel agent is only providing options to the passenger and it the passenger who determines the airline for travel. It is only when the target of having achieved the pre- determined number of bookings is achieved that the airline pays an incentive to the travel agent. It cannot, therefore, be said that the travel agent is promoting the services of any airline. Incidentally, the airlines may benefit if more tickets are sold, but this would not mean that the travel agent is providing a service for promoting the airlines.
56. In this connection it would be pertinent to refer to the decision of the Madras High Court in Airlines Agents Association. It was sought to be contented by the assessee that air travel agents were promoting the business of the airlines and in consideration of such services the airlines were paying commission to the air travel agents. It was also the contention that the commission received from the airlines had nothing to do with the services offered by the air travel agents to the passengers. The Madras High Court did not accept this contention advanced on behalf of the assessee and it was held that the air travel agents were rendering services to the passengers. The High Court, therefore, held that the commission paid to the air travel agents had a direct nexus to the "air travel agent" services rendered to the passengers, even if it indirectly benefited the business of the airlines. The High Court, therefore, held that "air travel agent" were not promoting or marketing the business of the airlines. The relevant portion of the judgment is reproduced below :-
"14. In the first place, it will have to be seen as to whether the argument regarding the factual position involved is correct. The Learned Senior Counsel appearing on behalf of the petitioners argues that the commission that the air travel agents earn from the airlines is not on 5 ST/M/50087/2021 In ST/50037/2016 account of the services that they give to the air-travellers but because they procure business for the airlines. This is the basic submission. Now, it is obvious that the airlines give the commission to the air travel agents and undoubtedly the air travel agents provide business for the airlines. However, it has to be noted that unless the air travel agents provide a service to the customers, there would be no question of their getting a commission from the airlines. It is not as if the air travel agents get a fixed commission or income from the airlines irrespective of the passages booked by them in favour of the customers in the nature of a "retainer fee" or "guarantee money", at least that is not the case pleaded before us. Therefore, unless the air travel agents book the tickets and thereby unless they provide the services to the customers, they do not become entitled to any commission. Their commission is entirely depended on and connected with the passage they book for the customers. It cannot, therefore, be said that the commission that the air travel agents get from the airlines is independent of and distinct from the services that they provide to the air-travellers and are relatable to the business that they provide to the airlines. On the other hand, since there is no guarantee money given or no fixed commission given, which has no nexus with the bookings that an air travel agent achieves for the airlines, it has to be said that the air travel agent's commission is integrally connected with the booking that he makes and is the process the services that he gives to the customers. Once this hurdle is cleared, the very basis of the argument on behalf of the petitioner' case goes away. From the specific language of the provisions, particularly of Section 65(3) and Section 65(48)(1), the nature of the service, which is taxed, is absolutely clear. It in only on the basis of the service that is provided which is made taxable. In our opinion, therefore, the commission that the air travel agents get is on account of this service because in the absence of this service being given to the customers, an air travel agent is not to get anything. We may also say that the customer gets the service not for any extra charges. The air travel agents are not supposed to charge anything more than the value fixed for the passages by the airlines. Therefore, the commission that is earned by the air travel agent has a direct nexus with the booking that he makes for the air-travellers. If, in the process, the airlines is benefited and offers some commission that would not change the nature of the service provided by the air travel agent and it cannot be said that the service is provided only to the airlines and not to the air traveller. On the other hand, we may say that it is because the air travel agent gives services to the air-traveller that the airlines is benefited, the tax is intended and in reality is imposed as against the service provided by the air travel agent to the customer in the absence of which, there would be no question of any commission. The contention of the Learned Counsel that because of Section 67(k), the nature of the tax itself changes is incorrect."
(emphasis supplied)
6
ST/M/50087/2021
In ST/50037/2016
58. Thus, by rendering of services connected to travel by air, a
travel agent would render "air travel agent" services, which services cannot be said to be for 'promotion or marketing' for the airlines.
Whether the air travel agent is promoting the business of CRS companies
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.
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.
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 7 ST/M/50087/2021 In ST/50037/2016 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.
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.
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.
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."
6. Accordingly following the ruling of Larger Bench decision in the case of Kafila Hospitality & Travels Pvt. Ltd. (supra), we hold that the impugned order is bad and the same is set aside. Appeal is allowed with consequential benefits.
8ST/M/50087/2021 In ST/50037/2016
7. We also hold that in the facts and circumstances, the extended period of limitation is not available to the Revenue.
8. The appeal is allowed with consequential relief.
(Pronounced in the open Court) (ANIL CHOUDHARY) MEMBER (JUDICIAL) (P.V. SUBBA RAO) MEMBER(TECHNICAL) ss 9