2017 (8) TMI 836 - AT - Service Tax

Air Travel Agent Services - non-payment of service tax - The appellant did not discharge service tax for the period October 2003 to September 2005 and alleging that appellants cannot discharge service tax on the basic fare but have to pay on the commission received show cause notice dated 4.10.2006 was issued - Held that - As per rule 6(7) of Service Tax Rules 1994 the appellant has an option to pay service tax on that part of the basic fare method instead of discharging service tax on the rate applicable for the commission received. There is no procedure contemplated in the provision to intimate the department regarding the option exercised. The main reason for disallowing such option to pay service tax on the basic fare as revealed from the impugned order is that the appellant has not intimated the department with regard to the exercise of option. When no procedure is contemplated for such intimation the option exercised by the appellant which is revealed from the service tax returns filed by them cannot be denied. The conduct of the appellant in filing ST-3 returns by calculating the service tax on the basic fare method in terms of the option available to them under Rule 6(7) is sufficient exercise of option. The department cannot force upon the appellant to pay service tax on the basis of commission received when the rules itself provide an option to the appellant / assessee. Penalties - Held that - it is clear that there was much dispute and confusion as to whether the discharge of service tax on the basis of basic fare method is sufficient and proper and the department has not been allowing the appellant to exercise the option which the law provides to them. It is also brought out that there was denial of right to exercise option by the department by which the appellant was put to much difficulties. On such score the penalties imposed are unwarranted and the same are set aside. The adjudicating authority directed to ascertain the demand in terms of basic fare method - appeal allowed in part and part matter on remand.

Summary

Issues:
1. Dispute over non-payment of service tax under Air Travel Agent Services category.
2. Appellants' failure to discharge service tax for specific periods.
3. Applicability of penalty under Sections 76 and 78 of the Act.
4. Interpretation of Rule 6(7) of the Service Tax Rules, 1994 regarding payment options.
5. Allegations of suppression of facts and limitation periods.

Analysis:
1. The dispute centered on the non-payment of service tax by the appellants under the Air Travel Agent Services category. The issue arose when the appellants, accredited to IATA, failed to discharge service tax obligations after getting accredited in October 2002. The Order-in-Original confirmed a demand for service tax and imposed penalties. The subsequent appeal upheld the decision, leading to the current appeal.

2. The appellants faced another demand for service tax for the period October 2003 to September 2005. The dispute revolved around whether the appellants could discharge service tax on the basic fare or had to pay based on the commission received. The original authority confirmed a significant demand, penalties under Sections 76 and 78, and additional penalties. The appellants contested this decision, leading to the current appeal.

3. The appellants argued against the penalties under Sections 76 and 78. They contended that as they had paid the tax in full for a specific period and made subsequent payments, the penalties should not apply. The appellants sought a sympathetic view from the Commissioner to set aside the penalties based on reasonable cause.

4. The interpretation of Rule 6(7) of the Service Tax Rules, 1994 was crucial in this case. The rule provided an option for the service provider to pay service tax on a specified percentage of the basic fare instead of the commission received. The appellants argued that they had exercised this option by filing ST-3 returns based on the basic fare method, which should be considered sufficient compliance.

5. Allegations of suppression of facts and issues related to limitation periods were also raised. The appellants argued that the department was aware of the facts and had issued previous show cause notices based on the same set of facts. They contended that the second show cause notice alleging suppression was not sustainable. The confusion over payment methods and the department's refusal to accept ST-3 returns added complexity to the case.

Overall, the Tribunal found merit in the appellants' arguments regarding the payment method and remanded the issue to the adjudicating authority for reevaluation. The penalties under Sections 76 and 78 were set aside due to the confusion and disputes surrounding the payment options. The judgment modified the impugned order, directing a reevaluation of the demand based on the basic fare method and nullifying all penalties.