2016 (4) TMI 780 - AT - Service Tax

Service tax liability - Passenger service fee being collected by the appellant on behalf of air port authority of India and being paid by them to the said authority - Held that - by following the decision of Tribunal in the case of M/s Continental Airlines Inc vs. CST, New Delhi 2015 (7) TMI 1079 - CESTAT NEW DELHI , no service tax liability would arise in respect of passenger service fee being collected by the appellant on behalf of air port authority of India and being paid by them to the said authority. Accordingly while confirming the demand in respect of other charges, as not being contested, the demand on the inclusion of passenger fee charges in the value of the services along with the penalty are set aside. - Appeal disposed of

Summary

Issues:
1. Clarification on the inclusion of fuel surcharge, administrative charges, and passenger service fee in the assessable value of services for levy of service tax.
2. Dispute over the imposition of penalty under section 78 of the Finance Act.
3. Determination of whether passenger service fee should be included in the taxable value of services.

Analysis:

Issue 1:
The appellant, engaged in providing passenger transport services by air embarking in India for international journeys, was discharging service tax liability on the basic air fare but not on fuel surcharge, administrative charges, and passenger service fee. Confusion existed until a circular clarified that fuel surcharge is part of the assessable value for service tax. The appellant subsequently paid the differential tax with interest before a show cause notice. The Tribunal noted the lack of clarity during the relevant period and the subsequent payments made by the appellant post-clarification. The imposition of penalties under section 78 of the Finance Act was deemed unjustified and set aside.

Issue 2:
Regarding the passenger service fee, the Tribunal referred to a previous case where it was held that such fees, equivalent to airport taxes, collected by airlines on behalf of airports, should not be included in the assessable value. This decision was supported by a High Court ruling that Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, which mandated inclusion of all service-related costs in taxable value, was ultra vires to the relevant sections of the Act. As a result, the Tribunal concluded that no service tax liability arises on passenger service fees collected by the appellant. The demand for including such fees in the value of services was set aside, along with the penalty.

Conclusion:
The Tribunal upheld the service tax liability on basic air fare and clarified the non-applicability of penalties under section 78. It also ruled that passenger service fees need not be included in the taxable value of services, aligning with previous decisions and a High Court ruling on the invalidity of Rule 5(1) of the Valuation Rules. The appeal was disposed of accordingly.