2022 (4) TMI 1035 - AT - Service Tax

Levy of Service Tax - Business Auxiliary Services - incentives / commission from CRS Developers (Centralized Reservation System) received for booking of tickets through the computerized reservation booking system offered by the said companies - HELD THAT - The Larger Bench in the case of KAFILA HOSPITALITY TRAVELS PVT. LTD. VERSUS COMMISSIONER, SERVICE TAX, DELHI 2021 (3) TMI 773 - CESTAT NEW DELHI has held that the said incentive is not subject to levy of service tax. The demand cannot sustain - Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the incentive received by the appellant for using the CRS Developer is subject to service tax or not.
2. Whether service tax can be levied on target-based incentives paid to travel agents by airlines.
3. Whether the commission paid by CRS Companies to travel agents can be subjected to service tax.

Analysis:
1. The appellant, engaged in providing "Air Travel Agency Service," received incentives/commission from CRS Developers for booking tickets through their system. The Service Tax Department alleged that these incentives are subject to service tax under "business auxiliary service." The issue was whether these incentives are taxable. The appellant argued citing a precedent from the Larger Bench of the Tribunal in a similar case, which held that such incentives are not subject to service tax. The Tribunal agreed with this view and set aside the demand, stating that the incentive is not leviable to service tax.

2. The Tribunal considered whether service tax could be imposed on target-based incentives paid to travel agents by airlines. The Tribunal analyzed the nature of the relationship between airlines, travel agents, and CRS Companies. It was noted that the incentives were not for promoting or marketing the airlines' business but were linked to achieving booking targets. The Tribunal concluded that these incentives cannot be considered as "consideration" under the Finance Act and are not liable to service tax.

3. The issue of whether the commission paid by CRS Companies to travel agents is subject to service tax was also addressed. The Tribunal examined the services provided by air travel agents and the nature of their business relationship with CRS Companies. It was established that the agents were promoting their own business by selling airline tickets, not the business of the airlines or CRS Companies. Therefore, the classification of the service fell under "air travel agent service" and not "business auxiliary service." Consequently, the commission paid by CRS Companies to travel agents was not liable to service tax. The Tribunal set aside the demand and allowed the appeal with consequential relief.