2024 (7) TMI 65 - AT - Service Tax

Classification of service - convenience fee and cancellation charges collected by the appellant from their customers - Air Travel Agent Service or Business Auxiliary Service? - Rule 6 (7) of Service Tax Rules as a percentage of the base fare before 01.07.2012 and after 01.07.2012 - exemption under the N/N. 22/1997-ST dated 22.06.1997 - extended period of limitation - penalty. Whether the service for which convenience fee was received and the activity for which cancellation fee was charged is part and parcel of Air Travel Agent Services ( ATAS ) (taxable vide section 65(105) (l)) or Business Auxiliary Services (BAS)? - HELD THAT - If the appellants are charging any fee or amount over and above the limit prescribed by the concerned Ministry it is not understood as to how the same constitutes a consideration towards any other service. If the appellants have violated any conditions of the Circular issued by the Ministry it is for the concerned Ministry to take action against the appellants; for this reason the amount charged by the appellants does not become a consideration for any other service. Ironically the SCN does not specify what is the service rendered by the appellants to the airlines in addition to the service in relation to booking of tickets for passage through air. The argument that the convenience fee/ cancellation fee if permitted by the airlines should form part of the basic fare defies logic - the learned Adjudicating Authority simply refers to the definition of Business Auxiliary Service and accepts the contention of the SCN that the charges collected by the appellant are towards Business Auxiliary Service provided by the appellants but collected from the customers. The argument proposed in the SCN and accepted by the Adjudicating Authority would have made some sense if there was a tripartite arrangement or understanding between the airlines the appellant and the customers. No such argument has been proposed in the SCN leave alone with evidence. It is a fallacy on the part of the Department to see every amount or payment received by the assessee is necessarily for and towards a consideration for provision of some service or the other. There is no condition that the appellants are required to promote or help or work as agents to further the business of the Airlines in other than booking the tickets. In terms of the agreement the appellants are required to make arrangements which include maintenance of their website for booking tickets with Indigo - the convenience fee and cancellation fee are recovered in the course of the provision of the service related to booking of tickets for passage through air and not in connection to any business promotion. The issue of cancellation charges came for discussion before tribunal in the case of Globe Forex and Travels Ltd 2014 (6) TMI 356 - CESTAT NEW DELHI and the bench held that cancellation fee paid to the Air Travel Agent in excess of the commission is exempt from the levy of service tax. The service or tolerance of loss if any flows from the appellant to the customer who pays the consideration. This being the position it cannot be said that the Convenience fee and cancellation charges received by the appellants are part of consideration received by them towards the Business Auxiliary Services rendered by the appellants to the airlines. The convenience provided is exclusively for air ticket booking and so is the cancellation; even if the services are considered as composite services both the activities merit classification under the category of Air Travel Agent Services rather than under the category of Business Auxiliary Service by the essential character test. We find that even applying the residuary principle the services provided by the Appellant would be classified under the category of air travel agent services which comes prior to BAS in the list under 65(105). Service tax before or after 01.07.2012 - HELD THAT - There are no force in the submissions on behalf of the Revenue. The Convenience Fee and Cancellation Fee are not relatable to any other service provided by the appellant and the Service Tax being discharged in terms of Rule 6(7) of Service Tax Rules 2006 no additional liability of Service Tax can be fastened to the appellant on account of Convenience Fee and Cancellation Fee either before or after 01-07-2012. The appeals succeed squarely on merits. Extended period of limitation - penalty - HELD THAT - There are force in the submissions of the appellant that Department conducted audit of the Appellant in March and April 2010 for period 2006-07 to 2008-09 as mentioned in SCN dated 07.06.2012; the Appellant duly replied to all the communications received from the authorities from time to time; various SCNs on different issues were also issued to the Appellant on basis of information supplied by them - except for bald allegation of suppression of facts etc no evidence showing the intent to evade payment of duty has been shown in the impugned order. Also looking in to the fact that issue being not free of doubt and being the subject matter of litigation all over the appellants are entitled to entertain a belief that the Convenience Fee and Cancellation Fee are not chargeable to Service Tax - the extended period is not invokable in the facts and circumstances of the case. When the appellant succeeds on merits there is no question of imposing any penalty. Appeal allowed.

Summary

Issues Involved:
1. Classification of convenience fee and cancellation charges.
2. Liability to pay service tax on convenience fee and cancellation charges under "Business Auxiliary Service" despite opting for Rule 6(7) of Service Tax Rules.
3. Applicability of exemption under Notification No. 22/1997-ST.
4. Invocation of the extended period of limitation.
5. Imposition of penalties.

Issue-wise Detailed Analysis:

1. Classification of Convenience Fee and Cancellation Charges:
The primary issue was whether the convenience fee and cancellation charges collected by the appellant should be classified as part of the "Air Travel Agent Service" (ATAS) or as "Business Auxiliary Service" (BAS). The Tribunal concluded that these charges are inherently part of the ATAS. The convenience fee is charged for providing online booking facilities, and the cancellation fee is for administrative expenses incurred during the cancellation of tickets. Both these charges are directly related to the booking of air tickets and cannot be separated as distinct services. The Tribunal emphasized that the service provided by the appellant is an integrated one and should be classified under the specific category of ATAS rather than the general category of BAS.

2. Liability to Pay Service Tax under Rule 6(7):
The appellant argued that they had opted to pay service tax under Rule 6(7) of the Service Tax Rules, which allows paying tax as a percentage of the basic fare. The Tribunal agreed with this contention, stating that once the option under Rule 6(7) is exercised, it applies uniformly to all bookings and cannot be changed during a financial year. Therefore, no additional service tax liability can be imposed on the convenience fee and cancellation charges, as these are part of the ATAS.

3. Applicability of Notification No. 22/1997-ST:
The exemption under Notification No. 22/1997-ST exempts amounts received in excess of the commission from the airlines for booking air tickets. The Tribunal held that this notification is applicable to the appellant, as the convenience fee and cancellation charges are amounts received over and above the commission and are part of the ATAS. Hence, these amounts are exempt from service tax under the said notification.

4. Invocation of Extended Period of Limitation:
The Tribunal found that the extended period of limitation could not be invoked in this case. The appellant had been regularly filing service tax returns, maintaining all required records, and there was no evidence of fraud, collusion, or willful misstatement. The issue involved classification and interpretation of statutory provisions, which is a matter of legal interpretation. Therefore, the demand for the extended period was set aside.

5. Imposition of Penalties:
Since the Tribunal concluded that the convenience fee and cancellation charges are part of the ATAS and the appellant had discharged their service tax liability under Rule 6(7), there was no cause for imposing penalties. The Tribunal noted that the appellant's conduct was bona fide, and there was no intent to evade tax. Consequently, no penalties were imposable under Sections 77 and 78 of the Finance Act.

Conclusion:
The appeals were allowed, and the Tribunal ruled that the convenience fee and cancellation charges are part of the ATAS. The appellant had correctly discharged their service tax liability under Rule 6(7), and no additional tax or penalties were warranted. The exemption under Notification No. 22/1997-ST was applicable, and the extended period of limitation could not be invoked. The miscellaneous application for changing the name and address of the respondent was also allowed.