2018 (3) TMI 115 - AT - Service Tax

Air Travel Agent Service - activity included in booking of air tickets for their customers - whether the appellants are liable to pay service tax on the incentives received for using Computer Reservation System? - penalties. Held that - the issue decided in the case of D. Pauls Consumer Benefit Ltd. Versus CCE, New Delhi 2017 (3) TMI 1019 - CESTAT NEW DELHI , where it was held that These computers are connected worldwide to the GDS/CRS, which linked to ticket sales offices of various airlines, hotels and car rental agencies spread across the world. They are by using these GDS/CRS for booking tickets, receiving incentives from the said companies for every segment booked by them. Appellants have given reasonable explanation for the failure to discharge the service tax, the imposition of penalties is unwarranted. Appeal allowed in part.

Summary

Issues:
- Liability to pay service tax on incentives received for using Computer Reservation System (CRS)
- Applicability of penalties under Sections 76, 77, and 78 of the Finance Act, 1994

Analysis:
1. Liability to pay service tax on incentives received for using CRS:
The appellants, being IATA accredited air travel agents, used CRS software provided by M/s. Amadeus India Pvt. Ltd. for booking air tickets for customers. It was observed during an audit that the appellants earned income through incentives from Amadeus for using the CRS software but did not pay service tax on these incentives. Show cause notices were issued, and after due process, the demand for service tax, interest, and penalties was confirmed by the original authorities and upheld by the Commissioner (Appeals). The appellants argued that the incentives were not consideration for services provided and that there was no service provider-service recipient relationship while using the software. However, the Tribunal, relying on a previous decision, held that the incentives were for Business Auxiliary Service under the Finance Act, 1994, and thus subject to service tax. Despite this, penalties were set aside considering the appellants' bona fide belief that the incentives were not taxable.

2. Applicability of penalties under Sections 76, 77, and 78 of the Finance Act, 1994:
The appellants contended that penalties should be set aside due to the interpretational nature of the issue. The Tribunal acknowledged the reasonable explanation provided by the appellants for not discharging the service tax, leading to the conclusion that the imposition of penalties was unwarranted. The Tribunal emphasized that the appellants genuinely believed that the incentives received for using the CRS software were not liable to service tax, especially considering the necessity of using the software for booking tickets. Consequently, the penalties under Sections 76, 77, and 78 of the Finance Act, 1994 were set aside, while the demand for service tax and interest was upheld.

In conclusion, the Tribunal determined that the incentives received by the appellants for using the CRS software were subject to service tax under the Business Auxiliary Service category. However, recognizing the appellants' genuine belief and the necessity of using the software, the penalties were waived. The impugned orders were modified to set aside the penalties without affecting the demand for service tax or interest, resulting in the partial allowance of the appeals.