2012 (6) TMI 722 - AT - Service Tax

Business Auxiliary Service - Duty demand on collecting Passenger Service Fees (PSF) from the passengers who embark on a flight of the airlines - Held that - As the applicants have no choice but to collect this PSF on behalf of AAI as per the reference to Ministry of Civil Aviation and they are bound to do collection of PSF for AAI, the activity undertaken by the applicant covers under Business Support Service and are not liable to pay service tax under Business Auxiliary Service - complete waiver of pre-deposit of the demands

Summary

Issues:
1. Liability of airlines for service tax on collection charges for Passenger Service Fees (PSF) on behalf of Airports Authority of India.
2. Classification of the activity of airlines under Business Auxiliary Service or Business Support Service.
3. Sustainability of show-cause notice issued for the period July 2003 to May 2007.

Issue 1: Liability of airlines for service tax on collection charges for Passenger Service Fees (PSF) on behalf of Airports Authority of India

The judgment addresses the issue of whether airlines are liable to pay service tax on the collection charges received for Passenger Service Fees (PSF) on behalf of the Airports Authority of India (AAI). The airlines were accused of not discharging service tax on the collection charges despite the service being categorized under Business Auxiliary Service. The tribunal noted that the airlines were collecting PSF on behalf of AAI under instruction and passing it on to AAI. The airlines argued that they were entitled to a commission if they paid the entire amount to AAI within 15 days and contended that their activity should be classified under Business Support Service. However, the tribunal found that the activity fell under Business Support Service, not Business Auxiliary Service, and granted a waiver of the demands, staying the recovery during the appeal process.

Issue 2: Classification of the activity of airlines under Business Auxiliary Service or Business Support Service

The judgment delves into the classification of the airlines' activity as either Business Auxiliary Service or Business Support Service for the purpose of determining the liability for service tax. The airlines argued that their activity of collecting PSF on behalf of AAI should be classified under Business Support Service, which came under the service tax net from a specific date. The tribunal, after considering the arguments and examining the nature of the activity, concluded that the activity undertaken by the airlines was more appropriately covered under Business Support Service rather than Business Auxiliary Service. As a result, the tribunal waived the requirement of pre-deposit of the service tax, interest, and penalties, providing relief to the airlines during the pendency of the appeal.

Issue 3: Sustainability of show-cause notice issued for the period July 2003 to May 2007

The judgment also evaluates the sustainability of the show-cause notice issued to the airlines for the period from July 2003 to May 2007. The airlines contended that the show-cause notice issued in June 2007 was not sustainable as they had been paying service tax under Business Support Service since May 2006. The tribunal, after hearing the arguments and examining the records, found merit in the airlines' contentions. It held that the activity of the airlines fell under Business Support Service and not Business Auxiliary Service, thereby supporting the airlines' case for a waiver of the demands and staying the recovery process during the appeal period.

This comprehensive analysis of the judgment highlights the key issues addressed by the tribunal regarding the liability of airlines for service tax, the classification of their activity, and the sustainability of the show-cause notice, providing a detailed insight into the legal reasoning and decision-making process involved in the case.