2016 (12) TMI 1067 - AT - Service Tax

Commission received from airlines - Business Auxiliary Service - the appellant has not provided any services to the airlines, and have provided services only to cargo companies for which service tax already stands paid - whether the commission received by the appellant from the airlines is towards any services rendered by the appellants to them, and is taxable? Held that - during the said period, the definition of BAS underwent significant change with effect from 10.09.2004. The subject matter of levy of service tax on airline agent was the subject matter of lot of litigations - Suffice to say that the appellant cannot be blamed for entertaining a bona fide belief that the activity undertaken by them and the commission received by them may not be liable to payment of service tax. There can be no basis for alleging suppression or willful mis-statement, and invoking extended time limit for recovery of service tax - demand restricted within the normal time period available under Section 73 of the Act - imposition of penalty also set aside - For re-quantification of demand falling within the normal time, the case is remanded to the original adjudicating authority - appeal allowed by way of remand.

Issues:
1. Whether the commission received by the appellant from the airlines is towards any services rendered by the appellants to them.
2. Whether the demand for service tax raised under the category of Business Auxiliary Service (BAS) on the amount received from the airlines is justified.
3. Whether the appellant can be penalized for suppression or willful mis-statement in relation to the payment of service tax.

Analysis:
1. The dispute in the case revolves around the demand for service tax under the category of Business Auxiliary Service (BAS) on the amount received from the airlines. The appellant, engaged in the business of working as a co-loader, collects cargo from various small cargo or courier companies and provides rates for freight of various airlines to the cargo companies. The appellant receives a commission at the rate of 5% as per Indian Air Transport Association (IATA) rates, along with "target discount/target incentive" from the airlines. The appellant argues that they do not provide any services to the airlines, and their activities are akin to those of an air travel agent. They rely on the Madras High Court decision and contend that the commission received for booking cargo is not attributable to any service provided to the airlines. However, the tribunal finds that the commission received by the appellant from the airlines is for the promotion of the airlines' business, making it liable for service tax under BAS.

2. The tribunal examines the appellant's argument in light of the Madras High Court decision regarding the taxability of the commission earned by air travel agents from airlines. The High Court upheld that the commission is connected with the services provided to customers in booking passages, thereby subject to tax. Similarly, the tribunal concludes that the commission received by the appellant is integrally connected with the bookings made with airlines, benefiting the airlines' business. Despite the appellant's reliance on the Madras High Court decision, the tribunal distinguishes the present case from the one before the High Court and upholds the service tax demand on the commission received from the airlines.

3. Regarding the imposition of penalty on the appellant for suppression or willful mis-statement in relation to service tax payment, the tribunal notes that the definition of BAS underwent significant changes during the relevant period. The appellant's belief that their activity and the commission received may not be liable for service tax is considered bona fide, given the litigations and conflicting decisions on the taxability of airline agents. As there is no basis for alleging suppression, the demand is restricted within the normal time period under the Act, and no penalty is imposed. The case is remanded for re-quantification to the original adjudicating authority based on the normal time limit available under Section 73 of the Act.

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