2013 (12) TMI 967 - AT - Service Tax

Demand of service tax - Imposition of penalties under Section 76, 77 and 78 - Transportation of Goods by Air - Held that - principal service involved in the present case is transportation of passengers by air. While rendering the services to passenger, his baggage is also transported free of cost within specified limits and the cost of transportation of baggage is included in the fare of transportation of the passenger by air. When the weight of the baggage exceeds the free allowance limits, they collect excess baggage charges from the passengers, and this does not mean that they are transporting goods by air. Transportation of baggage is not an individual or separate service, but it is a component of the principal service, and the principal service is transportation of the passenger by air - transportation of baggage is not an individual or a separate service, but it is a part of transportation of passengers service by air - appellant had made out a strong prima facie case for complete waiver of pre-deposit. Accordingly, we grant unconditional waiver from pre-deposit of the dues adjudged against the appellant and stay recovery thereof during the pendency of the appeals - Stay granted.

Summary

Issues:
1. Whether charges collected for excess baggage by an airline are liable to Service Tax under the category of 'Transportation of Goods by Air'?
2. Whether transportation of baggage is a separate taxable service or a component of the principal service of transporting passengers by air?

Analysis:
1. The appellant, an airline company, was issued notices demanding Service Tax for charges collected for excess baggage. The Revenue claimed that these charges fall under 'Transportation of Goods by Air' service. The appellant argued that the transportation of baggage is incidental to transporting passengers and should not be separately taxed. The Board's circulars clarified that services ancillary to the principal service are not considered separate taxable services. The appellant also cited financial hardship due to ceasing airline operations.

2. The Revenue contended that transportation of passengers and baggage are distinct services, with excess baggage charges falling under 'Transportation of Goods by Air' service. They highlighted the appellant's non-disclosure of collecting excess baggage charges. However, the Tribunal found merit in the appellant's argument that transportation of baggage is not a separate service but a component of transporting passengers by air. Citing precedents, the Tribunal held that ancillary activities are not taxable separately if they are integral to the principal service.

3. The Tribunal concluded that the transportation of baggage is part of the principal service of transporting passengers by air. Relying on previous decisions, they granted a complete waiver of pre-deposit for the appellant, indicating a strong prima facie case. The Tribunal emphasized that excess baggage charges do not constitute a separate taxable service but are integral to the main service of transporting passengers. Consequently, they stayed the recovery of dues during the appeal process.

This judgment clarifies the distinction between principal services and ancillary activities in the context of service tax liability, emphasizing that ancillary services integral to the principal service are not separately taxable.