2011 (7) TMI 202 - HC - Service Tax

Demand - chartering of aircrafts - circular bearing Dy. No.20/Comm (ST)/2009 dated 9th February, 2009 - It is submitted by Mr. Sharma that aircraft operators are only taking passengers and when passengers board a chartered flight, service tax has to be levied under clause (zzzo) and clause (zzzzj) has no application - the issue raised falls in the realm of interpretation of the terms, namely charter agreement - In case members of the petitioner-association are aggrieved by any kind of adjudication, they can challenge the same before the appropriate forum in accordance with law - The writ petition is accordingly disposed of

Summary

Issues Involved:
Challenge to circular imposing Service Tax on chartering of aircrafts under Clause (zzzzj) of Section 65 of the Finance Act, 1994. Interpretation of terms in the circular and applicability of the circular to charter agreements.

Analysis:

Issue 1: Challenge to Circular
The petitioner invoked the extraordinary jurisdiction under Article 226 of the Constitution to seek a writ of certiorari to quash the circular dated 9th February, 2009, issued by the first respondent. The circular sought to impose Service Tax on chartering of aircrafts under Clause (zzzzj) of Section 65 of the Finance Act, 1994. The petitioner, a society registered under the Societies Registration Act, consisting of members engaged in chartering aircrafts commercially, challenged the circular's validity.

Issue 2: Interpretation of Circular
The petitioner argued that the circular exceeded the language of clause (zzzzj) of Section 65 as there was no transaction involved. They contended that the activity falls under the said clause, and therefore, exemption should be granted during the relevant period except for international travel. The respondent, on the other hand, argued that the circular aimed to prevent the avoidance of service tax and provided room for interpretation. The judges noted that the issue raised pertained to the interpretation of terms in the circular, specifically the "charter agreement," which required examination of the factual matrix in each case.

Resolution:
The High Court held that the issue required a detailed examination of the factual matrix in each case, especially concerning the provision of crew in a wet lease of aircraft. As there had been no adjudication or decision so far, the Court directed that adjudication should take place first. Until adjudication is completed, no coercive steps should be taken against the members of the petitioner-association. The Court left the issue of the circular's validity open for future challenge before the appropriate forum. The writ petition was disposed of without any order as to costs.