2018 (11) TMI 983 - AT - Service Tax

Business Auxiliary Service or not - Taxability - incentive received on appreciable performance - demand under the taxable category of BAS in absence of three parties service provider, service receiver and targeted audience - value of service is fixed under an option provided under the Rules - section 67 of the Chapter V of Finance Act, 1994 - liability of service tax in absence of the relationship of service provider and service receiver - Difference of opinion. Held that - In view of difference of opinion, matter should be referred to Larger Bench - We direct the Registry to place the records before Hon ble President for constitution of Larger Bench.

Summary

Issues Involved:
1. Taxability of Incentives
2. Specification of Sub-Clause under BAS
3. Requirement of Tripartite Agreement for BAS
4. Taxation of Incentives under Fixed Value of Service
5. Consideration for Service under Section 67
6. Relationship of Service Provider and Service Receiver

Issue-wise Detailed Analysis:

1. Taxability of Incentives:
The primary issue is whether incentives received for appreciable performance can be subjected to service tax. The appellant argued that incentives are not taxable as they do not constitute a service rendered. Relevant judgments such as JM Financial Services Pvt. Ltd. v. Commissioner and Commissioner of Central Excise, Jaipur-II v. LMJ Services Ltd. were cited, which held that incentives do not involve promotion or marketing of services and thus are not taxable under Business Auxiliary Services (BAS).

2. Specification of Sub-Clause under BAS:
The next issue is whether service tax can be demanded without specifying the applicable sub-clause of BAS. The definition of BAS includes various services, and it is essential to classify the specific sub-category before confirming the demand. The Tribunal in Sharma Travels v. Commissioner of Central Excise, Jaipur-I and Jak Traders Pvt. Ltd. v. Commissioner of Central Excise, Kanpur emphasized that service tax liability cannot be confirmed without mentioning the specific sub-clause under which the activities are covered.

3. Requirement of Tripartite Agreement for BAS:
For a service to be classified under BAS, there must be three parties involved: the service provider, the client, and the targeted audience. This requirement was highlighted in judgments such as Sourav Ganguly v. Union of India and Duflon Industries Pvt. Ltd. v. Commissioner of C.Ex., Raigad, which stated that a tripartite agreement is necessary for an activity to fall under BAS.

4. Taxation of Incentives under Fixed Value of Service:
The appellant, registered as a travel agent and discharging service tax liability under Rule 6(7) of the Service Tax Rules, 1994, argued that once the value of service is fixed, any other consideration received cannot be taxed under another category. Previous decisions in the appellant’s own case, such as Kafila Hospitality & Travels Ltd. v. CST, Delhi, supported this argument, stating that service tax liability under Rule 6(7) should not include additional incentives.

5. Consideration for Service under Section 67:
The appellant contended that while confirming the demand on incentives, there was no discussion or finding on the gross value of service as provided under Section 67 of the Act. Judgments like Commissioner, Service Tax, Mumbai v. Allied Aviation Ltd. and The Cricket Club of India Ltd. v. Commissioner of Service Tax, Mumbai emphasized that the gross amount charged must be for the service provided, and mere monetary transactions cannot be presumed as consideration for service.

6. Relationship of Service Provider and Service Receiver:
The appellant argued that in the case of services rendered by an air travel agent, there is no direct relationship of service provider and service receiver between the IATA agent and the airlines. The transactions are primarily sales and purchases of tickets through IATA, with no privity of contract. The Delhi High Court in Delhi Chit Fund Association v. Union of India upheld by the Supreme Court, stated that a transaction in money cannot be considered a service unless there is a clear relationship of service provider and service receiver.

Referral to Larger Bench:
Due to conflicting judgments and the need for a consistent legal position, the Tribunal referred the following questions to a larger bench:
(i) Taxability of incentives received for appreciable performance.
(ii) Necessity of specifying the sub-clause of BAS for confirming demand.
(iii) Requirement of a tripartite agreement for classification under BAS.
(iv) Taxation of incentives under a fixed value of service.
(v) Consideration for service as provided under Section 67.
(vi) Existence of a service provider and service receiver relationship.

Conclusion:
The Tribunal directed the registry to place the records before the Hon’ble President for the constitution of a larger bench to resolve the issues comprehensively.