2005 (2) TMI 7 - AT - Service Tax

Service Tax Air Travel Agent (1) Agency commission (2) Margin from sale of ticket (3) Service tax demand

Summary

Issues:
1. Calculation of service tax liability based on "basic fare" or total margin realized by the appellant.
2. Interpretation of Section 66 of the Finance Act and Notification No. 22/97.
3. Determination of agency commission and taxable service in relation to an Air Travel Agent.

Issue 1: Calculation of service tax liability based on "basic fare" or total margin realized by the appellant

The dispute in the appeal revolved around the quantum of service tax that the appellant, an official agent of an airline, was liable to pay for the period between April 1, 1999, and September 30, 2000. The appellant had initially paid tax at a rate of 0.5% of only the price at which the tickets were sold to passengers. However, the Revenue authorities contended that the tax should have been calculated at 0.5% of the fares indicated on the tickets, considered as the "basic fare." This disagreement led to a demand for service tax amounting to Rs. 803,815, exceeding the appellant's total earnings on ticket sales. The appellant argued that the tax should be based on the total margin realized, not the printed fare on the tickets, as it would result in a tax higher than the total margin.

Issue 2: Interpretation of Section 66 of the Finance Act and Notification No. 22/97

The appellant relied on Section 66 of the Finance Act, which specified the rate of tax at 5% of the taxable service. Additionally, the appellant referred to Notification No. 22/97, which exempted any value of taxable service exceeding the commission received by the Air Travel Agent. The appellant contended that the service tax liability should not exceed 5% of the total margin realized. It was argued that the Revenue authorities erred in treating the printed fare on tickets as the basic fare and demanding service tax at 0.5% of that amount, contrary to the provisions of the Finance Act and the notification.

Issue 3: Determination of agency commission and taxable service in relation to an Air Travel Agent

Upon reviewing the records and arguments presented, it was established that the margin retained by the appellant from ticket sales could be considered as the agency commission. Even though the airline had certified that no commission was provided, the appellant's margin was deemed to constitute the agency commission in the transaction. The appellant's role as an agent in selling tickets to passengers and remitting the proceeds to the airline, after deducting a margin, was pivotal. As the appellant did not receive any additional commission beyond the margin, the service tax was deemed applicable on the margin realized. Consequently, the appeal was allowed, setting aside the excess service tax demand and ruling out any penalty, given the appellant's timely tax payments and return filings. The appellant was granted entitlement to any consequential relief arising from the decision.

This detailed analysis of the judgment highlights the key issues addressed by the Appellate Tribunal CESTAT (New Delhi) regarding the calculation of service tax liability, interpretation of relevant legal provisions, and determination of agency commission in the context of an Air Travel Agent's transactions.