2022 (1) TMI 1016 - AT - Service Tax

Classification of services - business of imparting training and coaching to individuals in the field of flying aircrafts for obtaining commercial licenses and private licenses from the Director General of Civil Aviation - transportation of passengers by air which became taxable w.e.f. 01.07.2010 or would be taxable under supply of tangible goods (STG) w.e.f 16.05.2008? - HELD THAT - The provisions of section 65A would not come to the aid of the appellant for the simple reason that it is only when a taxable service is prima facie found to be classifiable under two or more sub-clauses of section 65(105) that classification has to be effected in the manner provided. In the present case as noticed above there is no manner of doubt that the services provided by the appellant would fall only under section 65 (105) (zzzzj) which became taxable w.e.f. 16.05.2008. Likewise section 66F(2) on which reliance has been placed by learned counsel for the appellant would not come to the aid for the appellant as it is only where a service is capable of differential treatment for any purpose based on its description that the most specific description shall be preferred over a more general description. In any view of the matter the most specific description of the service rendered by the appellant is STG. The services rendered by the appellant in charter hire of helicopters to various corporates for offshore operations is classifiable under supply of tangible goods for use service - the demand of service tax under the said category along with interest thereon is upheld. However wherever the appellant has not collected service tax separately from the customers the consideration received shall be treated as cum-tax and the service tax demand ought to be recomputed - the imposition of penalties on the appellant under Sections 76 77 of the Finance Act 1994 for the default in payment of service tax and for non-compliance of statutory provisions relating to the service tax is upheld - the penalties imposed under Section 78 of the Finance Act 1994 is set aside. Appeal allowed in part.

Summary

Issues Involved:
1. Classification of services provided by the appellant under "Transportation of Passengers by Air" (TPA) or "Supply of Tangible Goods" (STG).
2. Levy of interest under section 75 of the Finance Act.
3. Imposition of penalties under sections 76, 77(1)(a), 77(2), and 78 of the Finance Act.

Detailed Analysis:

1. Classification of Services:
The primary issue was whether the services provided by the appellant should be classified under "Transportation of Passengers by Air" (TPA) or "Supply of Tangible Goods" (STG). The appellant argued that their services were related to transporting passengers by air, whereas the Department contended that the services fell under STG.

The Tribunal examined the definitions and amendments related to TPA and STG under the Finance Act. It was found that the appellant had supplied aircraft/helicopters to various entities on mutually agreed terms, retaining control and possession of the aircraft. The invoices indicated that the aircraft were hired for a lump-sum amount irrespective of the number of passengers, without transferring the right of possession and effective control to the charterer. Therefore, the services provided were categorized under STG, which became taxable from 16.05.2008.

The Tribunal referred to a Circular dated 09.02.2009, which clarified that chartering of aircrafts where the owner retains effective control falls under STG. The Tribunal upheld the findings of the Commissioner (Appeals) that the appellant provided STG services and not TPA services.

2. Levy of Interest:
The Commissioner (Appeals) had dropped the levy of interest under section 75 of the Finance Act, noting that there was no delay in the discharge of service tax liability by the appellant. The Tribunal agreed with this finding, as the appellant had timely discharged their service tax liability, albeit under a different category of taxable services.

3. Imposition of Penalties:
The Tribunal examined the imposition of penalties under sections 76, 77(1)(a), 77(2), and 78 of the Finance Act. The Commissioner (Appeals) had dropped the penalties under sections 76 and 78, stating that the issue was not non-payment of service tax but payment under a different category. However, penalties under sections 77(1)(a) and 77(2) were upheld due to the appellant's failure to take registration under STG and contravention of provisions of the Finance Act.

The Tribunal referred to the case of Global Vectra Helicorp Ltd., where similar services were classified under STG, and penalties under sections 76 and 77 were upheld. The Tribunal concluded that the appellant's intentional misclassification of services to seek refunds and avoid liability indicated non-compliance with statutory obligations, justifying the imposition of penalties under sections 77(1)(a) and 77(2).

Conclusion:
The Tribunal dismissed the appeals, upholding the classification of services under STG, the dropping of interest levy, and the imposition of penalties under sections 77(1)(a) and 77(2) of the Finance Act. The findings and order of the Commissioner (Appeals) were affirmed, and no interference was deemed necessary.