Custom, Excise & Service Tax Tribunal
Riya Travel & Tours (India) Pvt Ltd vs Dgcei Adjudication Cell on 25 September, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH
SERVICE TAX APPEAL NO. 52774 OF 2018
(Arising out of the Order in Original- 63-89/2018-ST dated 30.05.2018 passed by
Additional Director General (Adjudication), New Delhi)
M/s. Riya Travel & Tours .....Appellant
(India) Pvt. Ltd.
119, New Delhi, House No-27,
Barakhamba Road, Connaught Place
New Delhi-110001
VERSUS
Additional Director General .....Respondent
(Adjudication)
Director General of GST Intelligence
(Adjudicating Cell), West Block-VIII, Wing-6,
2nd Floor, R. K. Puram
New Delhi- 110022
WITH
ST/52775/2018 ST/52776/2018 ST/52777/2018 ST/52778/2018
ST/52779/2018 ST/52780/2018 ST/52781/2018 ST/52782/2018
ST/527832018 ST/52784/2018 ST/52785/2018 ST/52786/2018
ST/52787/2018 ST/52788/2018 ST/52789/2018 ST/52790/2018
ST/52791/2018 ST/52792/2018 ST/52793/2018 ST/52794/2018
ST/52795/2018 ST/52796/2018 ST/52797/2018 ST/52798/2018
ST/52799/2018 ST/52800/2018
APPEARANCE:
Shri V. Lakshmikumaran, Ms. Shagun Arora and Shri Kunal Aggarwal, Advocates
for the Appellant
Shri Ajay Jain, Special Counsel for the Department with Shri Harshvardhan,
Authorized Representative of the Department
CORAM:
HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MS. HEMAMBIKA R. PRIYA, MEMBER (TECHNICAL)
DATE OF HEARING: 04.06.2024
DATE OF DECISION: 25.09.2024
FINAL ORDER NO's. 58616-58642/2024
2
ST/52774/2018 &
26 others
JUSTICE DILIP GUPTA:
Service Tax Appeal No. 52774 of 2018 has been filed by M/s
Riya Travel & Tours (India) Private Limited 1 to assail the order dated
30.05.2018 passed by Additional Director General (Adjudication) 2. This
order directs the appellant, in view of the provisions of section 73A(2) of
the Finance Act, 1994 3, to deposit the amount that was collected by the
appellant as representing service tax for the period from 01.04.2009 to
31.03.2014 from the sub-agents or customers of airlines. The remaining
26 appeals have been filed by branches of the appellant at various places
in the country to challenge the said order as they have also been directed
to deposit the amount collected by them as representing service tax. The
said branches of the appellant are separately registered with the service
tax department and were issued separate show cause notices.
2. The appellant is a travel agent accredited by the International Air
Transport Association 4. The appellant claims that it is engaged in the
business of booking air tickets of various domestic and international
airlines; the appellant and IATA entered into an agreement dated
15.05.1994 5 titled as "Passenger Sales Agency Agreement" for sale of
tickets of member airlines; the appellant also entered into various
"Productivity Linked Bonus Agreements" 6 with the airlines under which
the appellant facilitates the sale of airline tickets of member airlines by
undertaking activities, including but not limited to, advising the conditions
of carriage, tariffs, itineries, availability of tickets, and receives
1. the appellant
2. the adjudicating authority
3. the Finance Act
4. IATA
5. PSA Agreement
6. PLB Agreement
3
ST/52774/2018 &
26 others
consideration from the customers/sub-agents; being an accredited IATA
agent, the appellant is bound by the rules and regulations of IATA,
including the manner of billing and settlements through the Billing and
Settlement Plan; and the appellant receives commission from the airlines
for the sale of tickets.
3. The appellant claims that as it had to discharge service tax on the
commission received from the airlines under the category of "air travel
agent services", it had the following two options available under section
68 of the Finance Act and the Service Tax Rules, 1994 7:
(i) Commission Model under section 68 of the Finance
Act- Under this model, service tax is payable on the
"gross amount charged" received by the travel agent at
the rate prescribed in section 66/66B of the Finance Act,
which excludes the airfare of the ticket, but includes any
commission received from the airlines.
(ii) Basic Fare Model under rule 6 (7) of the Service Tax
Rules- Under this model, a travel agent has the option of
discharging service tax equivalent to a specified
percentage of the "basic fare" of the ticket.
4. The appellant claims that till 2011-12, most branches of the
appellant followed the Basic Fare Model, but w.e.f. 01.04.2012 all the
branches paid service tax under the Commission Model. In both the cases,
the service tax component was paid by the appellant.
5. During the relevant period, the appellant was selling airline tickets
to sub-agents, who further sold the tickets to their customers. The
appellant contends that booking of a ticket of an airline in the travel
7. the Service Tax Rules
4
ST/52774/2018 &
26 others
industry can be done only by IATA recognized travel agents and so sub-
agents who were not IATA accredited were required to purchase tickets
for their customers only through IATA agents, and to this extent the
appellant rendered "air travel agent" services to the sub-agents. The
appellant also contends that since the sub-agents increased the business
of the appellant, a certain amount of commission/incentive was paid by
the appellant to the sub-agents.
6. The said transaction has been explained in detail by the appellant. It
has been stated that when a sub-agent books a ticket for his customer,
the customer pays the ticket price to the sub-agent. The appellant raises
an invoice on the sub-agent for recovery of the ticket price along with
service tax for the services rendered by the appellant to the sub-agent in
respect of such booking. The invoice value, however, is reduced to the
extent of the commission extended by the appellant to the sub-agent. In
other words, the amount paid to the appellant would be equal to the ticket
price minus the sub-agent commission, but would include the service tax
component and TDS on the commission amount.
7. Investigation was, however, started by the Delhi Zonal Unit of the
Directorate General of Central Excise Intelligence and thereafter, a show
cause notice dated 09.10.2015 was issued to the appellant alleging that
the appellant was rendering services to airlines in lieu of which it received
commission from the airlines; this commission formed full consideration
for the services and was, therefore, inclusive of service tax, which was
paid by the appellant after cum-tax calculation; the sub-agents were
providing services to the appellant in relation to the booking of airline
tickets in lieu of which the appellant paid consideration in the form of a
discount to the sub-agents; however, despite being a service recipient,
5
ST/52774/2018 &
26 others
the appellant was wrongly collecting an amount representing service tax
from the sub-agents but was not depositing it with the government
exchequer. It is this amount of service tax collected from the sub-agents
that was sought to be recovered from the appellant under section 73A(2)
of the Finance Act with interest under section 73B of the Finance Act. The
relevant portion of the show cause notice is reproduced below:
"12. There is no provision in Service Tax law which
authorized M/s. RTT to collect Service Tax from
the sub-agents, who were actually providing
services to M/s. RTT. As discussed above, M/s. RTT
provided services to the airlines and received
commission from them. The commission received by
them was inclusive of Service Tax and M/s. RTT
also treated the same as inclusive of Service Tax
and accordingly, deposited the same with the
Government exchequer. They also illegally
collected an amount as representing Service Tax
from the sub-agents/customers of the airlines by
wrongly impressing upon them that they (M/s.
RTT) were providing services to them and,
therefore, they (M/s. RTT) were entitled to collect
Service Tax from them. M/s. RTT did not deposit
the amount so collected as representing Service
Tax by them, with the Government exchequer.
During investigation, M/s. RTT failed to provide any
legal justifications/statutory authority under which
Service Tax was collected by them from their sub-
agents/customers of the airlines.
In view of the above, it is evident that M/s.
RTT were unjustly benefited by their illegal acts,
as on the one hand, they collected Service Tax
from the airlines and utilized the same to
discharge their Service Tax liability and on the
other hand, they wrongfully collected amounts
from their sub-agents/customers, as representing
Service Tax and did not deposit the same in the
Government exchequer."
(emphasis supplied)
6
ST/52774/2018 &
26 others
8. The appellant filed a detail reply to the show cause notice and
pointed out that the appellant was not rendering any service to the
airlines. In fact, air travel agent services were being provided by the
appellant to the sub-agents and/or passengers, and the sub-agents were
also providing services to their ultimate passengers and not to the
appellant. The appellant, therefore, pointed out that it had correctly
collected service tax from the subjects and that the commission amount
received by the appellant from the airlines did not and could not include
the service tax element. The appellant placed the relevant agreements
and contended that the demand could not have been proposed in the
show cause notice.
9. The adjudicating authority, however, confirmed the demand by
order dated 30.05.2018, which order has been assailed in these appeals.
The relevant portions of the order are reproduced below:
"21.1 ***** The essence of these submissions is that
the Noticee are rendering service to the Sub agents,
the sub agents do not render any service to the
Noticee. They further contend that they (Noticee) do
not render any service to the Air lines and on the basis
of these contentions the Noticee goes on to contend
that the Show Cause Notice proceeded on wrong
premises. They have relied upon several case laws.
21.2 In this regard, I find that the Noticee's
contentions that they do not provide any service
to the Airlines and that "they are providing
service only to Customer (passenger) and Sub
agents" are quite contradictory to what the
Airline Industry and the Air Travel Agencies treat
the relationship between themselves. Further, from
the Agreement between the Airlines and the Noticee
Company, it is observed that the Commission is given
by the Airlines to the Noticee company for the service
rendered. I refer to the Clause 9 of the Agreement
7
ST/52774/2018 &
26 others
relied upon by the Noticee themselves in Contention
#C.5 which is reproduced herein below:-
"9. Remuneration
For the sale of air transportation and ancillary
services by the agent under his agreement the
carrier shall remunerate the agent in a
manner and amount as may be stated from
time to time and communicated to the Agent
by the Carrier. Such remuneration shall
constitute full compensation for the
services rendered to the Carrier."
21.3 This documentary evidence unambiguously
indicates that:-
i. The Noticee renders service to the Airlines.
ii. The Noticee gets Commission from the Airlines
for such service rendered by Noticee to the
Airlines.
iii. Such Commission given by the Airlines
constitute full compensation for such service
rendered.
Thus, it stands established that the Noticee
company is indeed rendering service to the
Airlines. No other evidence is required to
establish this point. Therefore I hold that there is
no merit in the contention of the Noticee that
they are not rendering service to Airlines. On the
other hand the above seen Agreement itself
shows that the Noticee are rendering service to
the Airlines.
*****
23.1 In contention number C.1 and C.2, based on the contentions raised in Points A and B (Discussed and rejected hereinabove) the Noticee contend that they are rendering Air Travel Agent services to the passenger and/or sub-agents, and on such services, service tax was paid on the value of commission received from the airlines by virtue of erstwhile and amended Section 67 read with Valuation Rules. They (Noticee) further contend that the SCN has erroneously alleged that the Noticee has recovered service tax from the 8 ST/52774/2018 & 26 others airlines as the amount of commission received from them was inclusive of service tax. ***** 23.2 In contentions C.2 and C.3 the Noticee firstly seeks to reiterate that it was not rendering any services to the member Airlines, instead the Air Travel Agent services were rendered to the passengers/sub-agents. Detailed submissions in this regard have been made in Para A and B above. Thus, the question of recovering any service tax from an entity (member Airlines) which is not the service recipient does not arise. They further contend that the Noticee were rendering the said Air Travel Agent services to the passengers through the PSA and PLB Agreements. And it is submitted by them that none of the said Agreements indicate that service tax was being collected from the airlines.
23.3 The contentions made in Para A and B have already been discussed and rejected. Further, the Agreement with the Airlines itself shows that the Noticee themselves have treated the Commission received from the Airlines as inclusive of the element of Service Tax. This conclusion is further supported by the simple fact that the Noticees have discharged the Service Tax liability by treating the Commission as Cum-Tax (by making calculations to make it as Service tax plus the Assessable value equals the Total Commission received). In light of these facts, I reject the contentions C.2 and C.3.
***** 25.12 In the present case, the indisputable fact is that amount in the name of Service tax has been collected by the Noticee (condition Number (i) hereinabove is satisfied). The amount has been collected from the Sub-agent (Condition Number (ii) hereinabove satisfied). Service tax is not required to be paid by the Sub-agent, because of the simple fact what the Sub-agent has got from the Noticee is the Sub-agent's share on the Net Commission 9 ST/52774/2018 & 26 others (because the Noticee had already carved out the service tax element) from the Gross Commission. It is only the Net commission, which was shared and it is also not a case of Recoupment of the Service Tax payable on the commission received from the Airline. Further it cannot be said that the Noticee has rendered service to the sub-agents. So no service tax is required to be paid to the Noticee by the sub-agent. Therefore the third and final condition is also satisfied. Since all the conditions referred to by me hereinabove at Paragraph # 25.11 are satisfied, I hold that the provisions of Section 73A(2) have correctly been sought to be invoked in the present case. Since admittedly the method of deducting the Service Tax from the commission received from the Airline before working out the share of the Sub-agents in the net commission so calculated by the Noticee was adopted by the Noticee, I hold that in the case of all the Show Cause Notice involved in the present adjudication proceedings, the provisions of Section 73A(2) have correctly been sought to be invoked."
(emphasis supplied)
10. Shri V. Lakshmikumaran, learned counsel for the appellant assisted by Ms. Shagun Arora and Shri Kunal Aggarwal made the following submissions:
(i) The present demand is based merely on a presumption that the appellant, a travel agent, is rendering services to the member airlines of IATA. Accordingly, section 73A(2) of the Finance Act has been invoked for the recovery of amount collected as representing service tax from the sub-agents.
Section 73A(2) of the Finance Act would have no application in the facts of the present case. The appellant did not render any service to the member airlines of IATA. In fact, the appellant rendered air travel agent services to the sub- 10
ST/52774/2018 & 26 others agents. In this connection, reliance has been placed on the judgment of the Madras High Court in Airlines Agents Association vs. Union of India 8 and to a larger bench decision of the Tribunal in Kafila Hospitality and Travels Pvt. Ltd. vs. Commissioner, Service Tax Delhi 9;
(ii) The department has alleged that the commission received from the airlines was inclusive of service tax and, therefore, the tax paid by the appellant was collected from the airlines. The commission received from airlines was not inclusive of service tax. The agreement was signed with the airlines in 1994. At that point of time there was no concept of service tax, as it was introduced in 1997. Unless an amount has been specifically recovered as tax, mere mentioning of phrases such as "remuneration shall constitute full compensation" or "inclusive of all taxes" would not automatically mean that tax has been recovered. In this connection reliance has also been placed on a certificate issued by airlines stating that service tax was not included in the commission paid by them to the appellant;
(iii) Once it is established that the sub-agents are the recipient of services rendered by the appellant, there can be no illegality in recovering service tax from the sub-agents; and
(iv) Interest is not leviable under section 73B of the Finance Act in respect of demand raised under section 73A(2) of the Finance Act.
11. Shri Ajay Jain, learned special counsel appearing for the department assisted by Shri Harshvardhan, learned authorized representative,
8. 2006 (3) STR 3 (Madras)
9. 2021-TIOL-159-CESTAT-Del-LB 11 ST/52774/2018 & 26 others however, supported the impugned order and made the following submissions:
(i) The appellant is not correct in asserting that it is not rendering service to the airlines. The commission received from the airlines is the consideration in lieu of service and is inclusive of service tax. The contention of the appellant that commission received from the airlines is not inclusive of service tax is not correct;
(ii) The leviability of service tax flows from the statutory provisions of the Finance Act and not from the wordings of agreement. Once service tax was levied in 1997, the liability to pay service tax will accrue whatever may be the terms of the agreement between the appellant and the airlines;
(iii) The appellant did not provide any taxable service to the sub-
agents or customers as it did not receive any consideration from the sub-agents or customers for any services;
(iv) As the consideration (commission shared with sub-agent) has flown from the appellant to the sub-agent, it is clear that service has flown in the reverse direction i.e. from the sub- agent to the appellant. The appellant, being the service recipient, was not entitled to collect any amount as service tax from the service provider;
(v) The appellant is, therefore, not justified in contending that service tax collected from sub-agents was not in lieu of any services;
(vi) The appellant is not justified in claiming that it had fully discharged service tax liability and was not liable to pay service tax under section 73A(2) of the Finance Act; and 12 ST/52774/2018 & 26 others
(vii) The appellant is not correct in its submission that interest cannot be charged under section 73A(2) of the Finance Act in respect of a demand raised under section 73A(2) of the Finance Act.
12. The submissions advanced by the learned counsel for the appellant and the learned authorized representative appearing for the department have been considered.
13. The first issue that arises for consideration is whether the commission received by the appellant from the airlines was inclusive of service tax. This is for the reason that the contention of the department is that since the commission received by the appellant from the airlines was inclusive of service tax, which service tax was paid by the appellant, the appellant could not have again collected service tax from the sub-agents. The contention of the appellant is that the commission received from the airlines did not include service tax and in any event since it was not rendering services to the airlines, the question of commission received from airlines being inclusive of service tax does not arise at all.
14. The department has relied on clause 9 of the PSA Agreement to contend that the amount recovered from the airlines was inclusive service tax. This clause reads:
"9. Remuneration For the sale of air transportation and ancillary services by the agent under this agreement the carrier shall remunerate the agent in a manner an amount as may be stated from time to time and communicated to the Agent by the Carrier. Such remuneration shall constitute full compensation for the services rendered to the Carrier."
(emphasis supplied) 13 ST/52774/2018 & 26 others
15. The said clause 9 of PSA Agreement merely mentions that the remuneration (commission) paid by the airlines to the appellant would form full compensation for the services rendered to the airlines. This clause cannot be construed to mean that the commission paid to the appellant includes service tax. The PSA Agreement was signed by the appellant in the year 1994, whereas "air travel agent" services became taxable w.e.f. 01.07.1997. Thus, the PSA Agreement could not have conceived of any service tax on "air travel agent" service. This apart, unless an amount has been specifically recovered as tax, the phrases such as "full compensation" or "inclusive of all taxes" would not automatically mean that tax has been recovered. "Full compensation" can only mean that the appellant would not claim any amount over and above the amount of commission paid by the airlines for sale of air ticket and other allied services. The appellant has also produced a certificate issued by airlines stating that no service tax was included in the commission paid by them to the appellant. It is, therefore, not possible to accept the contention of the department that the Agreement included service tax also under the remuneration clause of the Agreement.
16. The second issue that arises for consideration is whether the appellant rendered air travel agent services to the airlines as contended by the department or the appellant rendered this service to the sub- agents or customers as contended by the appellant.
17. The department alleges that the appellant provided services to the airlines and the appellant received consideration/commission from the airlines for this service. The contention of the appellant is that the appellant does not provide any service to the airlines and the commission 14 ST/52774/2018 & 26 others that it receives from the airlines is for the service that the appellant provides to the sub-agents.
18. The appellant is an accredited IATA agent in terms of the agreement titled "Passenger Sales Agency Agreement" dated 15.05.1994 for sale of ticket of member airlines. The appellant also entered into PLB Agreement with the airlines which enables the appellant to sell airline tickets of member airlines. It is for sale of such tickets that the appellant claims that it receives commission from the airlines. The appellant also claims that on the amount of commission received from the airlines, the appellant has discharged service tax liability either under the Basic-Fare Model or under the Commission Model on account of rendering services to the sub-agents.
19. The appellant also claims that as booking of a ticket of an airline can be done only by an IATA recognized agent, the sub-agents not accredited by IATA had necessarily to purchase tickets for their customers only through IATA agents, like the appellant. According to the appellant, since the sub-agents increased the business of the appellant as the appellant would have to purchase more tickets from the airlines, the appellant paid a certain percentage of the commission to the sub-agents. The appellant further claims that the customers of the sub-agents would pay the ticket price to the sub-agents, but it is the appellant who raises an invoice on the sub-agent for recovery of the ticket price with service tax for the services rendered by the appellant to the sub-agent in respect of the bookings. However, the appellant reduces the amount in the invoice to the extent of the commission that the appellant would provide to the sub- agent. This would mean that the amount that the sub-agent would have to pay to the appellant would be the ticket price minus the commission of 15 ST/52774/2018 & 26 others the sub-agent, but would include the service tax component and TDS on the commission amount paid by the appellant.
20. The issue that arises for consideration is whether it is the appellant that is providing service to the sub-agents or the sub-agents are providing service to the appellant.
21. To appreciate this issue it would be pertinent to refer to the three charts that have been submitted by the appellant.
22. The first chart relates to the methodology adopted by the appellant in respect of the Commission Model. The second chart relates to the methodology adopted by the appellant in respect of the Basic Fare Model. The third chart depicts the contention of the department.
23. The first chart deals with the methodology adopted by the appellant on the Commission Model. The chart is as follows:
METHODOLOGY ADOPTED BY THE APPELLANT-COMMISSION MODEL Air Travel Ticket Air Travel Agency Rs. 1,00,000 Services AIRLINES RIYA SUB-AGENT (IATA AGENT) Ticket Price (-) Ticket Price (-) Commission Commission Rs. 95,000 (Rs. 4,000) (+) service tax on commission Air Travel Agency Service service tax Commission on full from Airline -
commission Rs. 5,000
Ticket Price
paid to
Government
Rs. 1,000 Rs. 4,000
retained passed on to
sub-agent
PASSENGER
service tax
recovered on
the commission
passed on to
the sub-agents
16
ST/52774/2018 &
26 others
24. This chart depicts a situation where the ticket of the airlines is Rs.
1,00,000/-. The appellant pays only an amount of Rs. 95,000/- to the airlines as Rs. 5,000/- is deducted as commission paid by the airlines to the appellant. Service tax is paid by the appellant to the government on this amount of Rs. 5,000/-. The chart also depicts that out of the commission of Rs. 5,000/- received by the appellant from the airlines, an amount of Rs. 4,000/- is passed on by the appellant to the sub-agents and the appellant only retains Rs. 1,000/- out of this commission. The service tax on this amount of Rs. 4,000/- deposited by the appellant is passed on to the sub-agents. Thus, the invoice raised by the appellant on the sub-agent is for the ticket price minus the commission of Rs. 4,000/- plus the service tax on this commission of Rs. 4,000/-.
25. The second chart deals with the methodology adopted by the appellant when it pays service tax under the Basic-Fare Model. The chart is as follows:
METHODOLOGY ADOPTED BY THE APPELLANT-BASIC FARE MODEL Air Travel Ticket Air Travel Agency Rs. 1,00,000 Services AIRLINES RIYA SUB-AGENT (IATA AGENT) Ticket Price (-) Ticket Price (-) Commission Commission Rs. 95,000 (+) service tax on Basic Fare Air Travel Agency Service service tax paid on Basic Commission Ticket Price Fare under from Airline -
rule 6(7) of Rs. 5,000
the Service
Tax Rules
Rs. 1,000 Rs. 4,000
retained passed on to
sub-agent
service tax paid PASSENGER
on Basic Fare
recovered from
sub-agent
17
ST/52774/2018 &
26 others
26. It transpires from the aforesaid chart that when the cost of the air ticket is Rs. 1,00,000/-, a commission of Rs. 5,000/- is paid by the airlines to the appellant. The service tax is paid by the appellant under rule 6(7) of the Service Tax Rules on the amount of Rs. 5,000/- received as commission from the airlines. Out of this commission amount of Rs.
5,000/-, the appellant passes an amount of Rs. 4,000/- to the sub-agents. The appellant also recovers the amount of service tax paid by the appellant on this amount of Rs. 4,000/- from the sub-agent. Thus, the invoice that is raised by the appellant on the sub-agent is the ticket price minus the commission of Rs. 4,000/- plus the service tax.
27. The third chart depicts the stand of the department. It is as follows:
CONTENTION OF THE DEPARTMENT Air Travel Services to Riya Services AIRLINES RIYA SUB-AGENT (IATA AGENT) Commission as Commission as consideration consideration PASSENGER
28. According to the department, the appellant provides air travel services to the airlines for which it receives commission as consideration from the airlines. The sub-agent also provides services to the appellant for which the sub-agent receives commission from the appellant as 18 ST/52774/2018 & 26 others consideration. Thus, the service tax paid by the appellant could not have been recovered from the sub-agents as no service has been provided by the appellant to the sub-agents.
29. The contention of the learned counsel for the appellant is that no illegality was committed in recovery of service tax from the sub-agents.
30. What would transpire from the contentions of the appellant is that the four parties involved enter into the transaction in the following manner:
Commission Air Travel
for sale of Agent
AIRLINES tickets
(IATA AGENT) services
SUB-AGENT
RIYA
Air Travel Agent services
Measure of tax
PASSENGER
31. The following aspects can be identified from the aforesaid:
(i) Air travel agency services are rendered by the appellant to the sub-agents;
(ii) The consideration for such air travel agency services rendered by the appellant to the sub-agents is the commission paid by the airlines to the appellant;19
ST/52774/2018 & 26 others
(iii) Service tax is paid by the appellant on the commission amount either on the Commission Model or on Basic Fare Model; and
(iv) The appellant recovers the service tax from the sub-agents on the commission amount paid by the appellant to the sub- agent.
32. It has, therefore, to be examined whether the appellant rendered any service to the airlines or services were rendered by the appellant only to the sub-agents. To appreciate this issue, it would be pertinent to refer to the decision of the Madras High Court in Airlines Agents Association vs. Union of India 10. It was sought to be contended by the Airlines Agents Association 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 contended 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 these two contentions and held that it was the air travel agents who were rendering services to the passengers. The High Court, therefore, held that the commission paid to the air travel agents by the airlines had a direct nexus to the "air travel agent" services rendered by the air travel agent to the passengers, even if it indirectly benefited the business of the airlines. The High Court, therefore, held that air travel agents were not promoting or marketing the business of the airlines. The relevant portion of the judgment of the High Court is reproduced below:
10. 2003-TIOL-143-HC-MAD-ST 20 ST/52774/2018 & 26 others "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 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 21 ST/52774/2018 & 26 others 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)
33. This decision of the Madras High Court was referred to by the larger bench of the Tribunal in Kafila Hospitality and it was held that the travel agents rendered services only to the customers and even if such services resulted in incidental increase in business of the airlines due to which incentives were paid by airlines, it would not mean that payment of incentive would be construed as consideration against provision of any service by travel agents to the airlines.
22
ST/52774/2018 & 26 others
34. It, therefore, follows that the commission that was received by the appellant from the airlines was for the services that the appellant was providing to the sub-agents or to the customers and not because the appellant rendered any service to the airlines. In fact, the commission received by the appellant had a direct nexus with the services rendered by the appellant to the sub-agents.
35. This issue can be examined from another aspect by referring to the definition of "air travel agent" and the "taxable service" as amended from time to time.
Prior to 2000
36. Section 65(3) of the Finance Act, as it stood in 2000, defines "air travel agent". It is reproduced:
"65(3) "air travel agent" means any person engaged in providing any service connected with the booking of passage for travel by air."
37. Section 65(48) of the Finance Act defines "taxable service". The relevant portion is reproduced:
"65(48) "taxable service" means any service provided,-
*****
(l) to a customer, by an air travel agent in relation to the booking of passage for travel by air"
Prior to 2006
38. Section 65(4) of the Finance Act defines "air travel agent" as follows:
23
ST/52774/2018 & 26 others "65(4) "air travel agent" means any person engaged in providing any service connected with the booking of passage for travel by air"
39. Section 65(105)(l) of the Finance Act defines "taxable service" to mean any service provided or to be provided as follows:
"65(105) "taxable service" means any service provided or to be provided,-
*****
(l) to a customer, by an air travel agent in relation to the booking of passage for travel by air"
40. It needs to be noted that prior to the enactment of the Finance Act 2006, the valuation provisions were contained in section 67 of the Finance Act, which independently dealt with the value for each service. Section 67(k) provided for value of air travel agency services and it is reproduced:
"67. For the purpose of this Chapter, the value of taxable service:
*****
(k) in relation to service provided by an air travel agent to a customer, shall be the gross amount charged by such agent from the customer for services in relation to the booking of passage for travel by air excluding the airfare but including the commission, if any, received from the airline in relation to such booking."
(emphasis supplied)
41. It can be seen from the aforesaid provision that in respect of air travel agent services, the taxable value is the gross amount charged form the customer excluding airfare, but includes the commission received from the airlines. Hence, in addition to the amount charged from the recipient of service (customer), the provision created a specific inclusion 24 ST/52774/2018 & 26 others to the extent of airline commission. The requirement of the inclusion clause existed only because the airline was not considered as the service recipient of air travel agent services. If air travel agent services were rendered to airlines, then the commission from airlines would have been taxable as "gross amount charged from the customer" itself.
42. Even post the enactment of Finance Act, 2006, section 67 of the Finance Act deals with valuation of taxable services for charging service tax. The relevant portion of section 67 of the Finance Act 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 ***** ***** (4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed."
(emphasis supplied)
43. Rule 6 of the Service Tax (Determination of Value) Rules, 200611 refers to cases in which the commission or costs will be included or excluded. The relevant portion is reproduced below:
"(1) Subject to the provisions of section 67, the value of the taxable services shall include‚ -
*****
(iv) the commission received by the air travel agent from the airline;
11. the Valuation Rules 25 ST/52774/2018 & 26 others (2) Subject to the provisions contained in sub-rule (1), the value of any taxable service, as the case may be, does not include -
*****
(ii) the airfare collected by air travel agent in respect of service provided by him"
(emphasis supplied)
44. It is also clear from the above valuation provisions that commission received from the airlines is deemed as a part of the consideration for services provided to the sub-agents.
As Amended on 16.05.2008
45. Section 65(4) of the Finance Act, as amended on 16.05.2008, defines "air travel agent" as follows:
"65(4) "air travel agent" means any person engaged in providing any service connected with the booking of passage for travel by air"
46. Section 65(105)(l) of the Finance Act, as amended on 16.05.2008, defines "taxable service" to mean any service provided or to be provided. The relevant portion is as follows:
"65(105) "taxable service" means any service provided or to be provided,-
*****
(l) to any person, by an air travel agent in relation to the booking of passage for travel by air"
47. It needs to be noted that though the service provided or to be provided "to any customer" in section 65(105)(l) of the Finance Act, was replaced by the service to provided or to be provided "to any person" by 26 ST/52774/2018 & 26 others amendment made on 16.05.2008, but this does not have any impact on the issue involved in this appeal. This is for the reason that because of various disputes in the definition of various types of services provided "to a client" or "to a customer", they were replaced by "to any person" in respect of atleast 39 services enumerated in various clauses of section 65 of the Finance Act.
48. It also needs to be noted that there was no amendment in clause 6 of the Valuation Rules, which further demonstrate that any change from "to a customer" to "to a client" in section 65(105)(l) of the Finance Act had no impact to the issue involved.
49. Thus, what follows from the aforesaid discussion is that travel agent services have been rendered by the appellant to the sub-agents, and not to the airlines and once services are provided by the appellant to sub- agents, the sub-agents cannot be said to be providing any services to the appellant.
50. It is in the light of the findings recorded on the first and the second issue that the third issue as to whether the department is justified in recovering the amount of service tax collected by the appellant from the sub-agents under section 73A(2) of the Finance Act has to be decided.
51. This section 73A(2) of the Finance Act, which has been invoked by the department, is reproduced below:
"73A. Service Tax collected from any person to be deposited with Central Government (1) Any person who is liable to pay service tax under the provisions of this Chapter or the rules made thereunder, and has collected any amount in excess of the service tax assessed or determined and paid on any taxable service under the provisions of this Chapter or the rules made thereunder from the recipient of taxable 27 ST/52774/2018 & 26 others service in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government.
(2) Where any person who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, such person shall forthwith pay the amount so collected to the credit of the Central Government"
(emphasis supplied)
52. Section 73A of the Finance Act has carved out two situations which are distinct from each other. Section 73A(1) applies to cases where a person, who is liable to pay tax, has rendered a taxable service to a service recipient, but has collected service tax in excess, which has not been deposited with the government. This means that section 73A(1) mandates the existence of a service provider and a service recipient relationship and tax has been collected in excess of the applicable levy. On the other hand, section 73A(2) deals with a situation where any person, not being a service provider, has collected an amount from another person representing as service tax. This provision applies only to those cases where there is no service provider and service recipient relationship between the person collecting an amount as service tax and the person paying such amount. It is for this reason that sub-section (2) of section 73A has been invoked by the department.
53. The contention of the appellant is that it rendered services to the sub-agents and not to the member airlines of IATA and so the appellant was entitled to collect service tax from the sub-agents, who were the service recipients. The burden of tax is borne by the service recipient. Once it is established that the sub-agents are the recipient of services 28 ST/52774/2018 & 26 others rendered by the appellant, there can be no illegality in recovering service tax from the sub-agents. Section 73A(2) of the Finance Act would, therefore, not be applicable.
54. What follows from the aforesaid discussion is:
(i) "Such remuneration shall constitute full compensation for the services rendered to the carrier" occurring in clause 9 of the PSA Agreement does not mean that service tax is included in the remuneration;
(ii) The commission received by the appellant from the airlines was for the services provided by the appellant to the sub-agents or the customers. The appellant did not provide any service to the airlines; and
(iii) The appellant was justified in charging service tax from the sub-agents and this service tax had been deposited by the appellant with the government. Thus, the provisions of section 73A(2) of the Finance Act would not be applicable.
55. The remaining 26 appeals are with respect to the branches of the appellant which were separately registered with the department and to whom separate show cause notices were also issued. The issues involved in these 26 appeals are the same as in Service Tax Appeal No. 52774 of 2018 filed by the appellant. The adjudicating authority had, by a common order dated 30.05.2018, adjudicated all the 27 show cause notices after specifically mentioning that the issues involved in all the 27 show cause notices that were being adjudicated were same. 29
ST/52774/2018 & 26 others
56. Thus, for all the reasons stated above, the impugned order dated 30.05.2018 passed by the adjudicating authority deserves to be set aside and is set aside. All the 27 appeals are, accordingly, allowed.
(Order Pronounced on 25.09.2024) (JUSTICE DILIP GUPTA) PRESIDENT (HEMAMBIKA R. PRIYA) MEMBER (TECHNICAL) Shreya