2015 (11) TMI 54 - AT - Service Tax

Demand of service tax - Transportation of goods by air - whether the service tax payable on excess baggage charges paid by the passengers at the time of boarding the aircraft - Difference of opinion - Majority order - Held that - Carrying of baggage by the appellant Airlines is incidental to the service being transport of passengers by Air and the same is classifiable under Section 65(105)(zzn). There is no separate contract in the facts of the case for transport of goods (excess baggage). More particularly, in the case of agreement of transport of passengers by Air, there is no element of transport of unaccompanied goods. Excess baggage charges collected by the appellant Airlines is integral part of the service provided for transport of passengers by Air . There is no case of any suppression on the part of the appellant Airlines. The appellant Airlines have duly disclosed the receipts from passengers towards excess baggage in their Books of Account, maintained in the ordinary course of business. I find that the issue is one of interpretation of the taxing statute and as such being debatable, there is no element of any fraud or suppression. Accordingly, the extended period of limitation is held not invocable. - there being no deliberate defiance of the provisions of law or non-compliance with the provisions of Service Tax, none of the penalties are held to be attracted. Accordingly, I agree with the learned Member (Judicial) on this point. Thus, the penalties are fit to be set aside. - Decided in favour of assessee.

Issues Involved:
1. Classification of excess baggage charges under service tax.
2. Applicability of extended period of limitation.
3. Imposition of penalties on the appellants.

Issue-Wise Detailed Analysis:

1. Classification of Excess Baggage Charges:

The core issue is whether service tax is payable on excess baggage charges under the category of "transportation of goods by air" or should it be considered an integral part of the "transportation of passengers by air." The appellants argued that excess baggage charges are part of the service of transporting passengers by air, supported by CBEC letters and international cases, asserting that such charges should not be treated as a separate service. They contended that the method of charging does not determine the nature of the service, and excess baggage charges should be bundled with passenger transport services.

Contrarily, the respondent argued that excess baggage charges are for transporting goods by air, distinct from passenger transport services, and thus taxable separately. They emphasized that these charges are collected specifically for transporting goods, not passengers.

Upon careful consideration, the judgment concluded that excess baggage charges cannot be demanded without the transportation of passengers by air. The main service is the transportation of passengers by air, and excess baggage charges are an integral part of it. Section 65A of the Finance Act, 1994, supports this by stating that when a service comprises more than one service, it should be classified under the head that gives its essential characteristic. Therefore, excess baggage charges are part of the transportation of passengers by air.

2. Applicability of Extended Period of Limitation:

The appellants argued that the extended period of limitation should not be invoked as the issue is debatable and based on various judicial pronouncements. They maintained that there was no deliberate intention to evade tax, and the matter involved interpretation of the law.

The respondent, however, contended that the appellants deliberately did not pay service tax on excess baggage charges, justifying the invocation of the extended period of limitation.

The judgment noted that the issue of classification was indeed debatable and based on interpretation. Given the appellants' disclosure of receipts in their books of account and the absence of fraud or suppression, the extended period of limitation was deemed not invocable.

3. Imposition of Penalties:

The appellants argued against the imposition of penalties, asserting that the excess baggage charges were disclosed in their books and there was no intentional evasion of tax.

The respondent maintained that penalties should be imposed due to the appellants' failure to pay service tax on excess baggage charges, which they were well aware of.

The judgment concluded that there was no deliberate defiance of the law or non-compliance with service tax provisions by the appellants. Given the debatable nature of the issue and the appellants' disclosure in their books, penalties were deemed not applicable.

Separate Judgments:

The judgment included separate views from the members. One member held that excess baggage charges should be classified under "transportation of goods by air," while the other member viewed them as part of "transportation of passengers by air." The third member agreed with the latter, leading to a majority decision.

Majority Order:

1. Excess baggage charges are an integral part of the transportation of passengers by air, and the demand for service tax is set aside.
2. The extended period of limitation is not invokable.
3. Penalties cannot be imposed on the appellants.

The appeals were allowed in view of the majority opinion.

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