2016 (7) TMI 92 - AT - Service Tax

Valuation - transportation of passengers by air service - inclusion of fuel and insurance surcharge as well as on passenger service fee and airport tax - suppression of facts - extended period of limitation - Held that - it is clear that the airlines association has taken up the issue of fuel and insurance surcharge with the CBEC which issued the clarification. In the circumstances, it is totally untenable to even allege suppression/ wilful mis-statement with regard to service tax demand pertaining to fuel surcharge. We have perused the Show Cause Notice also and find that the allegation of wilful suppression of taxable value has been made essentially on the ground that the appellant did not include the fuel surcharge, PSF and airport taxes in the assessable value and failed to file correct ST-3 returns (meaning that the assessable value shown in the ST-3 returns did not include the PSF and airport taxes and fuel and insurance surcharge). The Show Cause Notice does not even remotely bring out as to how it was a wilful act to evade service tax and the airline was aware that the same were includible in the assessable value. Mere omission to give correct information is not suppression of facts unless it was deliberate and that an incorrect statement cannot always be equated with wilful mis-statement. Thus, the ingredients required for imposing penalty under Section 78 ibid are conspicuously absent in this case. Demand pertaining to passenger service fee and airport taxes is set aside and the penalty under Section 78 ibid is also set aside. - Decided partly in favor of asessee.

Summary

Issues:
Appeal against service tax demand on transportation of passengers by air service, including fuel and insurance surcharge, passenger service fee, and airport taxes.

Analysis:
1. The appellant contested the service tax demand on fuel surcharge but not on passenger service fee and airport taxes. CESTAT judgments, including Lufthansa German Airlines and Continental Airlines Inc. cases, held that no service tax is payable on passenger service fee and airport taxes as they are not part of the assessable value.

2. The Departmental Representative argued that charges like fuel and insurance surcharge constitute part of the assessable value and are taxable. However, the appellant clarified that the issue of fuel surcharge was addressed with CBEC, and service tax was remitted after clarification.

3. The Tribunal noted that the appellant admitted and paid the service tax demand on fuel surcharge. CESTAT judgments distinguished the case of British Airways PLC, citing the rule declared ultra vires by the Delhi High Court. The Tribunal found no wilful misstatement or suppression of facts by the appellant.

4. Regarding the penalty under Section 78, a letter from CEBC clarified the inclusion of YQ and YR charges in the taxable value of services provided by airlines. The Tribunal observed that the appellant's actions were not deliberate or suppressive, citing various legal precedents that emphasize the need for positive evidence of wilful misstatement for imposing penalties.

5. Considering the analysis, the Tribunal partially allowed the appeal by setting aside the demand related to passenger service fee and airport taxes, as well as the penalty under Section 78. The decision was based on the lack of evidence supporting wilful misstatement or suppression of facts by the appellant.