2022 (7) TMI 193 - AT - Service Tax

Levy of service tax - Business Auxiliary Service (BAS) - receipt of commission / incentive from CRS companies (computer reservation service - Performance linked bonus (PLB) from the Airlines - HELD THAT - The issue herein is squarely covered by the ruling of Larger Bench of this Tribunal in the case of KAFILA HOSPITALITY TRAVELS PVT. LTD. VERSUS COMMISSIONER, SERVICE TAX, DELHI 2021 (3) TMI 773 - CESTAT NEW DELHI . The decision answered the question relating to taxability of target incentives/ Performance Linked Bonus(PLB) received from airlines and commission received from CRS companies. Following the ruling of Larger Bench decision in the case of Kafila Hospitality Travels Pvt. Ltd., it is held that the impugned order is bad and the same is set aside - Appeal is allowed

Summary

Issues Involved:
1. Liability of air travel agents to pay service tax under Business Auxiliary Service (BAS) on commissions/incentives from CRS companies.
2. Liability of air travel agents to pay service tax on Performance Linked Bonus (PLB) from airlines.
3. Whether air travel agents are promoting their own business or that of the airlines.
4. Whether air travel agents are promoting the business of CRS companies.
5. Taxability of incentives paid for achieving targets.

Detailed Analysis:

1. Liability of air travel agents to pay service tax under BAS on commissions/incentives from CRS companies:
The Tribunal examined whether the commissions/incentives received by air travel agents from CRS companies fall under the category of Business Auxiliary Service (BAS). The Larger Bench in the case of Kafila Hospitality & Travels Pvt. Ltd. had previously ruled that such commissions are not subject to service tax under BAS. The CRS companies provide online portals for booking tickets and pay incentives to IATA agents for achieving predefined booking targets. It was concluded that the CRS commission is not taxable under BAS as it does not constitute promotion or marketing of CRS companies' services.

2. Liability of air travel agents to pay service tax on PLB from airlines:
The Tribunal considered whether the Performance Linked Bonus (PLB) received by air travel agents from airlines is subject to service tax under BAS. The Larger Bench had held that PLB is not subject to service tax under BAS. The PLB is paid to IATA agents for achieving a minimum number of bookings and is not considered as promoting or marketing the airlines' services. Therefore, PLB is not taxable under BAS.

3. Whether air travel agents are promoting their own business or that of the airlines:
The Tribunal analyzed whether air travel agents are promoting their own business or that of the airlines. It was observed that air travel agents provide options to passengers and the passengers decide the airline for travel. The incentives received by travel agents are for achieving booking targets and do not constitute promotion of airlines' services. The Madras High Court in Airlines Agents Association had also held that air travel agents render services to passengers, not airlines, and the commission received is directly linked to the services provided to passengers.

4. Whether air travel agents are promoting the business of CRS companies:
The Tribunal examined if air travel agents promote the business of CRS companies. It was noted that the CRS commission is paid for achieving booking targets and not for promoting CRS companies. Passengers are unaware of the CRS system used by travel agents, and travel agents are free to choose any CRS system. The selection of CRS software by travel agents does not amount to promotional activity. Therefore, air travel agents are not promoting the business of CRS companies.

5. Taxability of incentives paid for achieving targets:
The Tribunal considered whether incentives paid for achieving targets are taxable. It was concluded that incentives are given to encourage performance and are not transaction-specific. Incentives are based on general performance and not on any particular transaction of service. Therefore, incentives do not qualify as "consideration" under Section 67 of the Finance Act and are not subject to service tax.

Conclusion:
Following the Larger Bench decision in Kafila Hospitality & Travels Pvt. Ltd., the Tribunal held that the impugned order is set aside, and the appeal is allowed with consequential benefits. The extended period of limitation is not available to the Revenue. The appeal is allowed with consequential relief.