2015 (9) TMI 363 - HC - Service Tax

Waiver of pre-deposit - export of service or not - air travel agents - commission / overriding commission - IATA agents - general sales agent, in respect of cargo sales and passenger sales - Extended period of limitation - Held that - Circular No. 111, dated 24-2-2009 provides that if the benefits of the service accrues outside India, it will be export of taxable service. Furthermore, the issue of 5% commission paid to IATA agents and incentive paid to IATA agents, who have already discharged Service Tax liability, for the purpose of Service Tax, would have to be considered on merits so as to exclude those substantial amounts from out of the purview of tax liability mulcted on the appellant. The Tribunal has not considered the calculation as probable amount as shown above. This Court, prima facie feels that the Tribunal should have taken the above factors into consideration while ordering pre-deposit. The plea that the pre-deposit order is onerous, and would cause undue hardship on a running business organisation is, therefore, tenable. Further, the appellant has also pleaded that such pre-deposit will erode the working capital of the company and if the amount is directed to be paid, it will seriously jeopardize the running business of the appellant, which is a travel agent, and, its business would almost come to a standstill. The order of ₹ 35 lakhs as pre-deposit ordered by the Tribunal is modified and the appellant is directed to deposit a sum of ₹ 15 lakhs. - Decided partly in favor of assessee.

Issues Involved:
1. Justification of pre-deposit direction by the Tribunal.
2. Double taxation on commission and incentives.
3. Inclusion of incentives in taxable value.
4. Limitation period for issuing show cause notice.
5. Applicability of Export of Services Rules, 2005.
6. Location of service receiver and service usage.
7. Treatment of overriding commission as foreign currency.
8. Calculation of taxable value under Section 67(1)(i) of the Finance Act.

Detailed Analysis:

1. Justification of Pre-deposit Direction by the Tribunal:
The appellant contended that the Tribunal's order directing pre-deposit was onerous and did not consider the prima facie case and financial hardship. The court noted that the Tribunal should have considered the factors of undue hardship and financial constraints of the appellant. The pre-deposit order of Rs. 35 lakhs was deemed excessive and reduced to Rs. 15 lakhs.

2. Double Taxation on Commission and Incentives:
The appellant argued that the commission and incentives earned by IATA agents had already been subjected to Service Tax under Business Auxiliary Services, leading to double taxation. The court found merit in this argument, noting that the amounts already taxed at the hands of IATA agents should be excluded from the appellant's taxable value.

3. Inclusion of Incentives in Taxable Value:
The Tribunal's direction to include incentives paid to cargo agents in the taxable value was challenged. The court observed that the issue was debatable and required a detailed examination on merits, which the Tribunal failed to do.

4. Limitation Period for Issuing Show Cause Notice:
The appellant contended that the show cause notice for the period April 2008 to March 2009 was issued beyond the stipulated period of one year, making the demand barred by limitation under Sections 73(1) and 73(6)(i)(c) of the Finance Act. The court acknowledged this contention but did not provide a detailed ruling on this issue in the judgment.

5. Applicability of Export of Services Rules, 2005:
The appellant argued that the services rendered under the Passenger Sales Agreement and Cargo Sales Agreement were export services and thus not taxable. The court referred to Rule 3 of the Export of Services Rules, 2005, which exempts services provided from India and used outside India from Service Tax, supporting the appellant's claim.

6. Location of Service Receiver and Service Usage:
The appellant claimed that since the service receiver (SAA) was located outside India and the benefits accrued outside India, the services should be considered export of services. The court agreed, citing Circular No. 111/05/2009-S.T., which clarifies that services benefiting entities outside India are considered export services.

7. Treatment of Overriding Commission as Foreign Currency:
The appellant argued that the overriding commission should be treated as foreign currency, as it was deducted while remitting sale proceeds to the overseas service recipient. The court found this argument valid under Rule 3(3) of the Export of Services Rules, 2005, which exempts such services from Service Tax.

8. Calculation of Taxable Value under Section 67(1)(i) of the Finance Act:
The appellant contended that the incentives and commissions paid to IATA agents should not be included in the taxable value under Section 67(1)(i) of the Finance Act. The court noted that the Tribunal did not adequately consider this provision and its implications on the appellant's taxable value.

Conclusion:
The court modified the Tribunal's pre-deposit order, reducing the amount to Rs. 15 lakhs, and directed the appellant to deposit this sum within four weeks. The court emphasized the need for the Tribunal to consider the appellant's financial hardship and the merits of the case more thoroughly. The appeal was restored to the Tribunal's file, and the balance amount demanded was waived during the pendency of the appeal.

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