2017 (4) TMI 438 - AT - Service Tax

Business auxiliary service - incentives received - commission on cargo booked by IATA agents - short paid tax - The impugned order appears to hold that the unclaimed amount is commission received as General Sales Agent and liable to tax - Held that - expression gross amount charged in Section 67 of Finance Act, 1994 is limited to the consideration taxed in the impugned order because the expression gross amount charged, is not an isolated phrase but to be read in conjunction with the expression for such service provided . Consequently there is no scope for taxing the amounts transferred to IATA agents as consideration for service rendered by assessee. Cum-tax valuation - target incentive - Held that - As the amount is not evidenced as receipts for services but is merely deemed to be so, it is plain that tax has not been collected on this amount. Moreover the amount paid by the airline is a consequence of contractual terms which does not admit to additional payment of tax on the contracted amount. In accordance with principles of equity, the amount on which tax has been collected should be considered as including the tax component. Likewise, the commission received as General Sales Agent on cargo bookings effected by IATA agents is covered by contractual agreement which, too, does not provide for tax liability on the amount paid by the airlines. Consequently, we find that they are entitled to cum-tax valuation of services on which tax has been computed. This would reduce the tax liability, interest liability and penalties arising therefrom. Penalty - Held that - considering the promptitude with which payments were made along with interest, penalty u/s 76 of Finance Act, 1994 imposed in connection with the first notice is not warranted and is aside. Appeal disposed off - decided against Revenue.

Summary

Issues:
1. Tax liability on incentives received from M/s. Saudi Airlines for rendering 'business auxiliary service'.
2. Short-payment of tax on sale of tickets directly to passengers and commission on cargo booked by IATA agents.
3. Dispute regarding tax on gross receipts from M/s. Saudi Airlines for commission to IATA agents.
4. Interpretation of 'taxable service' under Section 65(105) of Finance Act, 1994.
5. Contention on 'cum-tax valuation' for tax liability computation.
6. Adjustment of excess tax paid and refund claim.
7. Applicability of penalties under Sections 76 and 77 of Finance Act, 1994.

Analysis:
1. The case involves a dispute over tax liability on incentives received from M/s. Saudi Airlines for providing 'business auxiliary service'. The Appellate Tribunal found that the consideration received was not for any specific service rendered by the IATA agents to the assessee, thus not falling under the definition of 'taxable service' as per Section 65(105) of the Finance Act, 1994.

2. Additionally, the Tribunal addressed the short-payment of tax on the sale of tickets directly to passengers and commission on cargo booked by IATA agents. The assessee contended that certain amounts had been remitted with interest, and the Tribunal considered the contractual agreements and nature of transactions to determine the tax liability.

3. Another issue was the dispute regarding tax on gross receipts from M/s. Saudi Airlines for commission to IATA agents. The Revenue sought to demand tax on the entire amount received, while the Tribunal held that tax liability only extended to the amount retained by the assessee without transmission to the agents.

4. The Tribunal also analyzed the concept of 'cum-tax valuation' for the computation of tax liability. It considered the contractual terms and nature of transactions to determine that the tax had not been collected on certain amounts, leading to adjustments in the tax liability, interest, and penalties.

5. Regarding the adjustment of excess tax paid and refund claims, the Tribunal noted that such adjustments could only be made under specific provisions of the Finance Act, 1994. The assessee's plea for refund instead of fresh deposits was not considered feasible without invoking the relevant statutory provisions.

6. Lastly, the Tribunal discussed the applicability of penalties under Sections 76 and 77 of the Finance Act, 1994. While acknowledging the awareness of tax liability by the assessee, the Tribunal considered the prompt payments made along with interest to set aside the penalty imposed under Section 76 in connection with the first notice.

7. In conclusion, the appeal of the assessee was disposed of with adjustments in tax liability, interest, and penalties. The appeal of the Revenue was dismissed, and the memorandum of cross-objections was also disposed of by the Tribunal.