2006 (8) TMI 522 - AT - Service Tax

Summary

Issues:
1. Whether the service provided to airlines by the appellants falls under "Business Auxiliary Service" for the purpose of service tax liability.
2. Whether the appellants can claim exemption from service tax by arguing that they were exporting a service.
3. Whether the appellants, being members of an association that challenged the service tax levy, are bound by the decision of the Director General of Service Tax (DGST) declaring the service as taxable.

Analysis:

1. The appellants were engaged in business with airlines as Air Cargo Agents, acquiring cargo space from airlines and allotting it to their clients against payment. The Commissioner found the service rendered by the appellants to airlines as falling under "Business Auxiliary Service" as per Section 65(19) of the Finance Act, 1994. The appellants contended that they were exporting a service and hence not liable for service tax. However, the Commissioner noted the absence of evidence of foreign exchange remittance in connection with the transactions.

2. The trade association of air cargo agents, including the appellants, had challenged the proposal for service tax levy in the Bombay High Court. The High Court directed the DGST to decide on the issue after hearing the petitioners. The DGST subsequently held the service as taxable under "Business Auxiliary Service." The Tribunal observed that as members of the association bound by the DGST's decision, the appellants could not prima facie contest the levy of service tax. The appellants did not claim financial hardship, leading the Tribunal to direct them to pre-deposit 50% of the tax demanded.

3. The Tribunal emphasized that there was no stay order against the operation of the DGST's decision, and the appellants were required to comply with the pre-deposit directive. Upon due compliance with the pre-deposit, the Tribunal granted waiver of pre-deposit and stay of recovery for the balance amount of tax. The appellants were given a deadline for the pre-deposit and compliance reporting.

In conclusion, the Tribunal upheld the service tax liability on the appellants under "Business Auxiliary Service," considering the absence of evidence supporting the claim of exporting a service. The appellants were directed to pre-deposit a specified amount, failing which recovery would proceed, while compliance would lead to waiver of pre-deposit and stay for the remaining tax amount.