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2024 (9) TMI 1595 - AT - Service TaxLevy of service tax on the commission received from the airlines under the category of air travel agent services - rendering of air travel agent services to the airlines or to the sub-agents/customers? - recovery of amount of service tax collected by the appellant from the sub-agents under section 73A(2) of the Finance Act. Whether the commission received by the appellant from the airlines was inclusive of service tax? - HELD THAT - The PSA Agreement was signed by the appellant in the year 1994 whereas air travel agent services became taxable w.e.f. 01.07.1997. Thus the PSA Agreement could not have conceived of any service tax on air travel agent service. This apart unless an amount has been specifically recovered as tax the phrases such as full compensation or inclusive of all taxes would not automatically mean that tax has been recovered. Full compensation can only mean that the appellant would not claim any amount over and above the amount of commission paid by the airlines for sale of air ticket and other allied services. The appellant has also produced a certificate issued by airlines stating that no service tax was included in the commission paid by them to the appellant. It is therefore not possible to accept the contention of the department that the Agreement included service tax also under the remuneration clause of the Agreement. Whether the appellant rendered air travel agent services to the airlines as contended by the department or the appellant rendered this service to the subagents or customers as contended by the appellant? - HELD THAT - The commission that was received by the appellant from the airlines was for the services that the appellant was providing to the sub-agents or to the customers and not because the appellant rendered any service to the airlines. In fact the commission received by the appellant had a direct nexus with the services rendered by the appellant to the sub-agents. It can be seen from the provision of section 67 of the Finance Act that in respect of air travel agent services the taxable value is the gross amount charged form the customer excluding airfare but includes the commission received from the airlines. Hence in addition to the amount charged from the recipient of service (customer) the provision created a specific inclusion to the extent of airline commission. The requirement of the inclusion clause existed only because the airline was not considered as the service recipient of air travel agent services. If air travel agent services were rendered to airlines then the commission from airlines would have been taxable as gross amount charged from the customer itself. The travel agent services have been rendered by the appellant to the sub-agents and not to the airlines and once services are provided by the appellant to subagents the sub-agents cannot be said to be providing any services to the appellant. Whether the department is justified in recovering the amount of service tax collected by the appellant from the sub-agents under section 73A(2) of the Finance Act? - HELD THAT - Section 73A of the Finance Act has carved out two situations which are distinct from each other. Section 73A(1) applies to cases where a person who is liable to pay tax has rendered a taxable service to a service recipient but has collected service tax in excess which has not been deposited with the government. This means that section 73A(1) mandates the existence of a service provider and a service recipient relationship and tax has been collected in excess of the applicable levy. On the other hand section 73A(2) deals with a situation where any person not being a service provider has collected an amount from another person representing as service tax. This provision applies only to those cases where there is no service provider and service recipient relationship between the person collecting an amount as service tax and the person paying such amount. It is for this reason that sub-section (2) of section 73A has been invoked by the department. The contention of the appellant is that it rendered services to the sub-agents and not to the member airlines of IATA and so the appellant was entitled to collect service tax from the sub-agents who were the service recipients. The burden of tax is borne by the service recipient. Once it is established that the sub-agents are the recipient of services rendered by the appellant there can be no illegality in recovering service tax from the sub-agents. Section 73A(2) of the Finance Act would therefore not be applicable. The impugned order dated 30.05.2018 passed by the adjudicating authority deserves to be set aside and is set aside - Appeal allowed.
Issues Involved:
1. Whether the commission received by the appellant from the airlines was inclusive of service tax. 2. Whether the appellant rendered air travel agent services to the airlines or to the sub-agents/customers. 3. Whether the department is justified in recovering the amount of service tax collected by the appellant from the sub-agents under section 73A(2) of the Finance Act. Detailed Analysis: 1. Whether the commission received by the appellant from the airlines was inclusive of service tax: The department contended that the commission received by the appellant from the airlines was inclusive of service tax, relying on clause 9 of the PSA Agreement which stated that the remuneration paid by the airlines to the appellant would form full compensation for the services rendered to the airlines. However, the appellant argued that this clause could not be construed to mean that the commission included service tax, especially since the PSA Agreement was signed in 1994, before air travel agent services became taxable in 1997. The appellant also produced a certificate from airlines stating that no service tax was included in the commission paid to the appellant. The Tribunal concluded that the commission paid to the appellant did not include service tax, and the phrases "full compensation" or "inclusive of all taxes" did not automatically mean that tax had been recovered. 2. Whether the appellant rendered air travel agent services to the airlines or to the sub-agents/customers: The department alleged that the appellant provided services to the airlines and received consideration/commission from the airlines for this service. The appellant contended that it did not provide any service to the airlines and that the commission received was for the service provided to the sub-agents. The Tribunal referred to the decision of the Madras High Court in Airlines Agents Association vs. Union of India, which held that air travel agents rendered services to the passengers, and the commission paid by the airlines had a direct nexus to the services rendered to the passengers. The Tribunal also noted the valuation provisions under section 67 and the Service Tax (Determination of Value) Rules, which included the commission received from the airlines as part of the consideration for services provided to the sub-agents. Thus, the Tribunal concluded that the appellant rendered services to the sub-agents/customers and not to the airlines. 3. Whether the department is justified in recovering the amount of service tax collected by the appellant from the sub-agents under section 73A(2) of the Finance Act: Section 73A(2) of the Finance Act applies to cases where any person, not being a service provider, has collected an amount from another person representing as service tax. The department invoked this provision, alleging that the appellant collected service tax from the sub-agents without rendering any service to them. However, the Tribunal found that the appellant rendered services to the sub-agents and was justified in collecting service tax from them, which was deposited with the government. Therefore, section 73A(2) was not applicable in this case. Conclusion: The Tribunal concluded that: 1. The commission received by the appellant from the airlines did not include service tax. 2. The appellant rendered air travel agent services to the sub-agents/customers, not to the airlines. 3. The appellant was justified in collecting service tax from the sub-agents, and section 73A(2) of the Finance Act was not applicable. The impugned order dated 30.05.2018 passed by the adjudicating authority was set aside, and all 27 appeals were allowed.
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