Incentives and commissions received by Air Travel Agents from GDS/CRS companies and airlines were not liable for service tax

The two member bench of the Customs Excise and Service Tax appellate Tribunal ( CESTAT ), Mumbai has ruled that the incentive commission received by air travel agents from Global Distribution System /Central Reservation System ( GDS/CRS ) companies and airlines is not liable to Service Tax. The appellants, Trinity Air Travel & Tours Pvt. Ltd. engaged in providing taxable services as ‘Air Travel Agents’ under Section 65(4) of the Finance Act, 1994, were registered with the jurisdictional service tax authorities. Following an investigation by the Directorate General of Central Excise Intelligence ( DGCEI ), Mumbai Zonal Unit, relevant records were seized, and statements from concerned individuals were recorded. As a result of the investigation, two show-cause notices, dated April 22, 2016, and November 27, 2018, were issued to the appellants. Get a Copy of GST Smart Guide, Click here These notices alleged that the appellants had provided services and earned commissions and incentives from Global Distribution System ( GDS ) companies for visa and passport processing, management fees, emigration charges, service charges, Overriding Commission (ORC) for air ticket bookings, and cancellation charges. These services were classified as ‘Business Auxiliary Service’ (BAS) under Section 65(19) of the Finance Act, 1994, and were taxable under Section 65B (44). The appellants, however, failed to pay the service tax due on these services. The department also observed that the appellants procured air tickets from airlines or consolidators and sold them to customers at a higher rate, without paying service tax under the category of air travel agent’s service. Additionally, it was alleged that they collected Rs. 5, 11, 69,227/- from customers as service tax but did not deposit this amount with the government. Get a Copy of GST Smart Guide, Click here The show-cause notices were adjudicated by the Commissioner of Central Excise & GST, Thane, Mumbai, through an Order-in-Original dated November 14, 2019. The order confirmed the proposed service tax demand, along with interest, and imposed penalties under Sections 76, 77, and 78 of the Finance Act, 1994. Aggrieved by this decision, the appellants filed an appeal before the Tribunal. J.C. Patel, representing the appellants, argued that as an Air Travel Agent, the appellants had discharged their service tax liability in accordance with the option provided under Rule 6(7) of the Service Tax Rules, 1944, at the specified rate of the Basic Fare. He contended that any further demand for service tax on commissions, incentives, and cancellation charges by treating them as BAS was unsustainable in law. Patel highlighted that the scope of services provided by an Air Travel Agent, as defined in Section 65(105) of the Finance Act, 1994, includes any service connected with or related to the booking of air tickets. Get a Copy of GST Smart Guide, Click here He argued that once the appellants had opted to pay service tax under Rule 6(7) and had done so, there could be no further demand for service tax under BAS for services connected with air ticket bookings. Further submitted that incentives and commissions received by Air Travel Agents from GDS/CRS companies and airlines were not liable for service tax, citing the decision of the Larger Bench of the Tribunal in the case of Kafila Hospitality & Travel Pvt. Ltd. The bench, comprising S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member), found that the Air Travel Agents were using the portals of CRS service providers for booking air tickets. They noted that the passengers were unaware of the specific CRS used by the appellants for ticket bookings and that there was no direct interaction between the passengers and the CRS. Further concluded that the activities of the appellants could not be classified as BAS, as there was no direct connection between the CRS, the appellants, and the customers. Get a Copy of GST Smart Guide, Click here The bench also observed that the receipt of incentives or commissions by the air travel agent did not alter the nature of services rendered, and therefore, could not be subjected to service tax under BAS. They ruled that since the appellants were already paying service tax under Rule 6(7) for air travel agent services, the department could not take a contrary stand to impose tax liability under BAS. CESTAT found that the issue was covered by the ruling of the Larger Bench of the Tribunal in the case of Kafila Hospitality & Travels Pvt. Ltd., which held that incentives and commissions were not subject to service tax. Consequently, the impugned order was set aside, and the appeal was allowed in favor of the appellants, with consequential relief as per law.