The Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) has ruled that no service tax can be imposed on “incentives”. The bench comprising Binu Tamta ( Judicial Member ) and P.V. Subba Rao ( Technical Member ), noted a crucial distinction between “commission” and “incentive”. The appellant contested the service tax imposition on incentives received from airlines under “Business Auxiliary Service.” Meanwhile, the department cross-appealed regarding income bifurcation into “commission” and “incentive,” as well as the breakdown of incentives into “incentive,” “discount,” and “market price adjustments,” with the latter two being non-taxable. The issue arose when a show cause notice was issued, alleging underreporting of taxable values and insufficient service tax payment under “Clearing and Forwarding Agent” ( CFA ) and “Business Auxiliary Service” ( BAS ) categories.

This led to a demand for differential service tax amounting to Rs. 9,44,87,513, along with interest and penalties, using an extended limitation period. The adjudicating authority, however, noted limitations in invoking the extended period regarding freight inclusion in clearing and forwarding agent services. They ruled that freight isn’t taxable under the Act, as it’s recovered from clients for booking space, not attributed to the agent’s services. Consequently, a demand of Rs. 7,72,79,839 was dropped. Regarding Business Auxiliary Service, the authority addressed “commission” separately, as it was already taxed, while “incentive” taxation was contested. The tribunal upheld the non-taxability of “incentives,” considering terminology differences in Cargo Sales Report ( CSR ) Sheets. They confirmed a service tax demand of Rs. 11,47,957 for incentives during the normal period of October 2013 to March 2015.

The appellant argued that terms like “incentive,” “discount,” and “market price adjustment” in CSR Sheets refer to the same income category, emphasizing no service involvement in booking airline space. Contrarily, the department viewed the space booking activity as a service to airlines, justifying incentive taxation as payment for promoting their businesses. The tribunal, however, maintained the non-taxability of incentives. The appeal on “discount” and “market price adjustment” was also dropped due to their direct link to non-taxable freight. The tribunal bench of Binu Tamta ( Judicial Member ) and P.V. Subba Rao ( Technical Member ) explained that “commission” directly correlates with the service provided by the appellant, specifically the booking of airline space. On the other hand, “incentive” represents the profit earned from charging clients more than the negotiated price with airlines, indicating a trading activity rather than a service. Therefore, the tribunal deemed incentives as non-taxable.