2013 (12) TMI 565 - AT - Service Tax

Stay application - Service to airlines - Penalty u/s 76, 77, 78 - Held that - Taxability of the commission which the appellant receive as GSA from the foreign airlines whom they represent in India and whose products are being marketed by them. There is also no dispute that the commission is being received in convertible foreign currency and that the airlines do not have any office or establishment in India. Prima facie we are of the view that the issue involved in this case is covered by the judgment of the Tribunal in the case of Paul Merchants Ltd. (2012 (12) TMI 424 - CESTAT, DELHI (LB)) and accordingly the services being provided by the appellant to the foreign airlines have to be treated as export of service in terms of Rule 3 of the Export of Service Rules. Therefore, the appellant have a strong prima facie case and, hence, the requirement of pre-deposit is waived for hearing of the appeal and recovery thereof is stayed till the disposal of the appeal - Stay granted.

Summary

Issues:
Taxability of commission received by the appellant from foreign airlines as General Sales Agent (GSA) in India.

Analysis:
The judgment revolves around the taxability of the 3% commission received by the appellant, who acts as an International Air Transport Association (IATA) agent and a General Sales Agent (GSA) for foreign airlines. The dispute arises from whether the appellant is liable to pay service tax on the commission received from airlines like HANNAIR, S.N. Brussels, and Iceland Airlines, which do not have any office in India. The Jurisdictional Additional Commissioner confirmed a service tax demand against the appellant, along with interest and penalties, which was upheld by the Commissioner (Appeals), leading to the current appeal.

The appellant's counsel argued that the services provided by the appellant should be treated as export of service under Rule 3 of the Export of Service Rules since the foreign airlines are located abroad and use the services in their business. The counsel relied on a previous judgment of the Tribunal in the case of Paul Merchants Ltd. to support their position. On the other hand, the Departmental Representative opposed the stay application, contending that the services provided cannot be considered as export of service, highlighting the ongoing appeal against the Tribunal's judgment in the Paul Merchants Ltd. case.

After hearing both sides and examining the facts, the Tribunal found that the commission received by the appellant from foreign airlines, where the airlines have no establishment in India, should be treated as export of service. The Tribunal noted that the issue at hand aligns with the judgment in the Paul Merchants Ltd. case, indicating a strong prima facie case in favor of the appellant. Consequently, the Tribunal waived the requirement of pre-deposit for the appeal and stayed the recovery of the service tax demand until the appeal's disposal, allowing the appellant's stay application.

In conclusion, the judgment resolves the issue of taxability of the commission received by the appellant from foreign airlines, determining that the services provided should be treated as export of service under Rule 3 of the Export of Service Rules, based on the absence of establishment of the airlines in India and the precedent set by the Tribunal's previous ruling.