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TMI Blog2021 (11) TMI 176X X X X Extracts X X X X X X X X Extracts X X X X ..... (JUDICIAL) Shri V. Sridharan, Senior Advocate, for the Appellant Shri Nitin Ranjan, Deputy Commissioner, Authorised Representative for the Respondent ORDER This appeal is directed against order in original No 11- 13/STC-III/SKD/15-16 dated 07.08.2015 of Commissioner Service Tax III, Mumbai. By the impugned order, the Commissioner has held as follows: ORDER 5.1 I, hold that the impugned activities of the Noticee is appropriately taxable under Business Auxiliary Services as defined under Sub Sections (19) read with Sub Section (105) (zzb) of the said Act read with Section 66 ibid. 5.2 In respect of show cause notice F. No. DGCEI/MZU/I IS 'C' /12/4/4/2009/ Part 1/8609 dated 19.10.2011 5.2(a) 1, confirm the demand of Service Tax amounting to ₹ 2,51,89,781/- (Rupees Two Crores, Fifty one lakhs, Eighty Nine Thousand, Seven Hundred and Eighty One only) (Inclusive of Education Cess and Secondary Higher Education Cess) for the period from August 2007 to March 2011, under the category of Business Auxiliary Services service, under Section 73(2) of the Act. 5.2(b) I, order for payment of Interest under Section 75 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undred only) for every day during which such failure to pay service tax continues or at the rate of two per cent (2%) of such tax, per month, whichever is higher, starting with the first day after the due date till the date of actual payment of the exceed the service tax payable by then, as confirmed at para 5.3 (a) above. 5.3(d) I, impose a penalty of ₹ 10,000/- (Rupees Ten thousand only) on the Noticee, under Section 77 of the Act. 5.4 In respect of show cause notice F. No. ST 1/MUM/Div.III/Gr.X/DGCEI CTSPL/01/2011/9030 dated 16.09.2013 5.4(a) 1, confirm the demand of Service Tax amounting to ₹ 51,42,432/- - (Rs. Fifty One Lakhs, Forty Two Thousands, Four Hundred and Thirty Two only) (inclusive of Education Cess and Secondary Higher Education Cess), under the category of Business Auxiliary Services service, under Section 73(2) of the Act. 5.4(b) I, order for payment of Interest under Section 75 of the Act, at the appropriate rates prevalent during the material period, on the delay in payment of service tax amounting to ₹ 51,42,432/- (Rs. Fifty One Lakhs, Forty Two Thousands, Four Hundred and Thirty Two only), (inclusive of Education C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,122/- ( Rupees Four Lakhs Eighty Nine Thousand One Hundred and Twenty Two Only) and Sec. Higher Education Cess amounting to As 2,44,561/- (Rupees Two Lakhs Forty Four Thousand Five Hundred and Sixty One Only) totally amounting to ₹ 2,51,89,781/- (Rupees Two Crores Fifty One Lakhs Eighty Nine Thousand Seven Hundred and Eighty One Only) on the commission earned by them on the said services rendered by them to the CRS Companies, during the period from August 2007 to March 2011, as detailed in Annexure-A to this Notice, should not be demanded and recovered from them under the proviso to Section 73(1) of the said Act, read with the provisions of Section 68 ibid. 13.3 Penalty under the provisions of Sections 76, 77 78 of Chapter V of the Finance Act, 1994, should not be imposed upon them.. 13.4 Interest, at the appropriate rates as applicable, in force, under section 75 of the said Act, should not be demanded and recovered from them on the Service Tax that would be determined to be payable by them. 2.3 Since even in the subsequent period appellant did not discharged service tax due on these services provided by them demand notices dated 20.09.2012 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eements with foreign based companies such as Amadeus Global SA Spain, Galileo International Partnership USA, Abacus Distribution System Pvt. Ltd. Singapore to avail information technology solutions and connectivity through Computerized Reservation System (CRS) and thereby distributing their products through a technology solution to travel agents. 4.3 The Noticee in their written submission mentioned above at para 2.20 (2.2) dated 27.03.2014, stated that 'Noticee agree to keep Abacus reservation system as Predominant GDS'. It is evident from this that Noticee have been observed to have booked segments on the CRS of M/s Abacus thereby rendering assistance in the promotion of the business of M/s Abacus and consequentially are in receipt of sums of Toney for such activities. It therefore appears that the aforesaid activities undertaken by Noticee would fall within the category of Business Auxiliary Services' defined under the said Act, and they appear liable to ST on the amounts so received from M/s Abacus in the course of booking of segments on the CRS. 4.4 Based on the above facts, it is clear that Noticee is the provider of 'Business Auxiliary services&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. Cleartrip Travel Service Private Limited Order-in-Original No. 11- 13/STC-III/SKD/15-16, dated 3-8-2015 CESTAT, Mumbai 2. M/s. FCM Travel Solutions (I) Private Limited Order-in-Original No. 98-2018-ST, dated30-10-2018 CESTAT, Chandigarh 3. M/s. SOTC Travel Limited Order-in-Original No. 32-ST-D-I-2015, dated 30-9-2015 CESTAT, New Delhi 12. Another application had been filed by M/s. Riya Travels Tours (I) Pvt. Ltd. with a similar prayer stating that it proposes to file an appeal against the order dated February 10, 2021 passed by the Principal Commissioner, in which same issues are involved. 13. The intervention applications have been opposed by Shri Suresh Merogu Learned Authorized Representative of the Department at Mumbai and Shri Rajesh Rai and Shri Vijay Kumar Gupta, Learned Authorized Representatives of the Department at Chandigarh. They have submitted that only some of the issues referred to the Larger Bench arise for consideration in the pending appeals and in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) Commissioner of C. Ex., Mumbai-II v. Godrej Boyce Mfg. Co. Ltd. [2010 (18) S.T.R. 682 (Bom.)] (iii) Shasun Drugs Chemicals v. CESTAT, Chennai [2006 (198) E.L.T. 179 (Mad.)]. 16. These two issues relating to the intervention applications and the admissibility of the reference to the Larger Bench need to be decided first. Intervention application 17. It is not in dispute that three appeals referred to in the intervention application are pending before Benches of the Tribunal at Mumbai and Chandigarh and also before Principal Bench of the Tribunal at New Delhi and that some of the issues referred to the Larger Bench also arise for consideration in these appeals. Any decision taken by the Larger Bench on these six issues that have been framed would necessarily have an impact on the appeals pending before the Division Benches. The submission made by Learned Authorized Representatives of the Department that only some of the issues referred to the Larger Bench may be involved in the appeal cannot be a ground to reject the intervention application. The Division Benches of the Tribunal would be bound by the decision of the Larger Bench on these issues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce larger bench has heard and decided the issues on leviability of service tax under the category of business auxiliary service , in this appeal itself, the same cannot be considered by us again. 4.5 On the issue of taxability under the category of business auxiliary service larger bench has concluded as follows: Merits 41. On a consideration of the entire matter it transpires that the following two main issues arise for determination :- (a) Whether service tax can be levied under the category of business auxiliary service on target based incentives paid to the travel agents by airlines by alleging that the travel agents are promoting and marketing the business of the airlines; and (b) Whether the commission paid by CRS Companies to travel agents can be subjected to service tax under the category of business auxiliary service by alleging that the travel agents are promoting and marketing the business of such companies. 42. Shri Anil Sood Learned Counsel for the appellant made the following submissions :- (i) Incentives are not taxable and in the support of this contention reliance has been placed upon a decision of this Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt has made the following submissions :- (i) Promotion of Reservation Functionality of particular CRS Company like Galileo, Abacus and Amadeus is not an activity which is connected to the booking of air ticket per se. Even though this functionality is used for booking of ticket, but in the contract, consideration received in the form of commission is not dependent on booking of ticket but dependent upon particular functionality of particular CRS Company which has been used to book the ticket. Hence, the service cannot fall under air travel agent service. Rather, it being an activity of promotion of the functionality (service) provided by the CRS Companies, would fall within the definition of BAS under Section 65(19) read with Section 65(105)(zzb) of the Finance Act; (ii) A perusal of the agreements would indicate that the transaction of booking of an air ticket is not the essential feature of the contract. The essential feature is an activity that happens before the booking of air tickets. This activity is the exercise of choice by the appellant to prefer a particular software system. In fact, the transaction of a single ticket for a particular passenger and for a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art. 48. The contention of the Department is that the target based incentives paid by airlines to IATA agents and the CRS incentives paid by the CRS Companies to IATA agents or the sub-agents are for promoting and marketing the business of the airlines and CRS companies respectively and so are leviable to service tax under the category of BAS. 49. Section 65(19) of the Finance Act defines BAS and the relevant portion contained in clause (ii) is reproduced below :- business auxiliary service means any 65(19) service in relation to :- (i) xxxxxxxx (ii) promoting or marketing of service provided by the client; (iii) xxxxxxxx to (vii) xxxxxxxx 50. This is a taxable service under Section 65(105)(zzb) of the Finance Act and the relevant portion is quoted below :- taxable service 65(105)(zzb) means any service provided or to be provided to a client, by any person in relation to business auxiliary service. 51. Air travel agent has been defined in Section 65(4) of the Finance Act and the relevant portion is reproduced below :- 65(4) air travel agent means any person engaged in providing any service connected with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and it was held that the air travel agents were rendering services to the passengers. The High Court, therefore, held that the commission paid to the air travel agents had a direct nexus to the air travel agent services rendered to the passengers, even if it indirectly benefited the business of the airlines. The High Court, therefore, held that air travel agent were not promoting or marketing the business of the airlines. The relevant portion of the judgment is reproduced below :- 14.In the first place, it will have to be seen as to whether the argument regarding the factual position involved is correct. The Learned Senior Counsel appearing on behalf of the petitioners argues that the commission that the air travel agents earn from the airlines is not on account of the services that they give to the air-travellers but because they procure business for the airlines. This is the basic submission. Now, it is obvious that the airlines give the commission to the air travel agents and undoubtedly the air travel agents provide business for the airlines. However, it has to be noted that unless the air travel agents provide a service to the customers, there would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the air travel agent gives services to the air-traveller that the airlines is benefited, the tax is intended and in reality is imposed as against the service provided by the air travel agent to the customer in the absence of which, there would be no question of any commission. The contention of the Learned Counsel that because of Section 67(k), the nature of the tax itself changes is incorrect. (emphasis supplied) 57. The judgment rendered by the Kerala High Court in Commissioner of Central Excise v. Shabeer Travels [2011 (24) S.T.R. 171 (Kerala)] also needs to be referred to in this connection. A sub-agent was receiving commission for booking airlines ticket through IATA agent. The contention of the Department that the sub-agent was rendering BAS to IATA agent was not accepted by the High Court and it was held when an assessee is in the business of booking air tickets though another air travel agent, the assessee essentially renders air travel agent services to the main travel agent and would, therefore, not be liable to pay service tax under the category of BAS. The relevant portion of the judgment is reproduced below :- 2. The order under challenge is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e travel agents book the tickets of various airlines for the passengers. The contention of the appellant/interveners is that the use of CRS software is to enhance the business of the travel agents, while that of the Department is that the travel agents promote the services of the CRS Companies. 60. It is seen that the CRS commission is paid to a travel agent if he is able to attain an agreed level of segments to be booked. A passenger is not aware of the CRS Company being utilized by the travel agent for booking the segment nor can a passenger influence a travel agent to avail the services of a particular CRS Company. What is important to notice is that for an activity to qualify as promotional , the person before whom the promotional activity is undertaken should be able to use the services. The passenger cannot directly use the CRS software provided by the Company to book an airline ticket. It cannot, therefore, be said that a travel agent is promoting any activity before the passenger. 61. The matter can be examined from another aspect. For booking a ticket, a travel agent would require a system to book the tickets. A travel agent is free to choose any CRS system. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for its business promotion or a service on behalf of the reinsuring Company (i.e. Business Auxiliary Service). In fact, it is the reinsurer which provides insurance service to the insurance Company. As both the insurance Company and reinsurer pay service tax on the entire amount of premium charged by them, the question of charging service tax under any other taxable service does not arise. (emphasis supplied) 63. It is seen from the aforesaid Circular that the commission deducted by the insurance Company was being subjected to tax alleging that the insurance Company was providing BAS to the reinsurance Company by promoting the business of the reinsurance Company. The Board clarified that such an arrangement between the insurance Company and the reinsurer Company was for sharing of expenses only and no BAS was rendered as the customer of the insurance Company was only unaware of the role of the reinsurer. The Circular, therefore, reinforces that if the audience of an alleged promotional service is unaware of the service of the client, no promotional or marketing services can be said to have been provided. 64. Learned Authorized Representative of the Department, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 65, classification shall be effected as follows :- (a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description; (b) composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a), shall be classified as if they consisted of a service which gives them their essential character, in so far as this criterion is applicable; (c) when a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub- clause which occurs first among the sub-clauses which equally merits consideration. (emphasis supplied) 70. The two competing entries are air travel agent service and BAS . It would be seen from the definition of air travel agent that it includes all services connected with or in relation to the booking of passage for travel by air. The services in question are booking of airlines tickets and for achieving a pre-determined target, the air travel agent also receives an additional amount in the form of incentives/commission from the airlines or the CRS Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed manner. (emphasis supplied) 75. Section 67 of the Act deals with valuation of taxable services for charging service tax. Sub-section (1) of Section 67 provides that where service tax is chargeable on any taxable service with reference to its value, then such value shall, where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by the service provider. It is, therefore, clear that only such amount is subject to service tax which represents consideration for provision of service and any other amount which is not a consideration for provision of service cannot be subjected to service tax. 76. In this connection, it would be appropriate to refer to the decision of the Supreme Court in Union of India v. Intercontinental Consultancy and Technocrats [2018 (10) G.S.T.L. 401 (S.C.)]. The Supreme Court observed that service tax is on the value of taxable services and, therefore, it is the value of the services which are actually rendered which has to be ascertained for the purpose of calculating the service tax. It is for this reason that the expression such occur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arget incentive payments. It reasoned as follows at [I06]- [I08]: The last remaining payment type is Ford's I06. retail target incentive payment. It is clear from the Drive for Success program that the payment is triggered at the time, and by reason, of the Applicant s recording of a level of new sales for a relevant period of eligible vehicles to eligible customers in excess of a specified target set by Ford. Significantly, though, and unlike the fleet rebates and the run-out model support payments, the target incentive payment has no nexus with any one particular supply. It is a payment made in connection with supplies generally, or perhaps more accurately, it is a payment made in connection with the making of supplies generally. 53.On analysis, the so-called supplies for consideration identified by the Commissioner are nothing more than the encouragement of an overall business relationship between the manufacture and the dealer to the mutual benefit of both. The relationship involves a whole raft of obligation from one to the other all, presumably, with the ultimate objective of maximizing their respective commercial positions. As the AP Group put it, the overal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of incentives received on such account cannot, therefore, be treated as consideration for any service. The incentives received by the appellant cannot, therefore, be leviable to service tax. (emphasis supplied) 80. It, therefore, clearly transpires from the aforesaid decisions that incentives paid for achieving targets cannot termed as consideration and, therefore, are not leviable to service tax under Section 67 of the Finance Act. 81. The reference to this Larger Bench has arisen for the reason that the Division Bench hearing this appeal expressed doubts about the view taken by the Division Bench in D. Pauls. The appellant therein was a travel agent who had used the CRS system of Galileo, Amadeus and Abacus which had paid incentives to the appellant for the period from October 1, 2003 to December 21, 2008. The lower authorities had observed that the services provided by the appellant fell under the category of tour operator services as defined under Section 65(11)(o) of the Finance Act. In the appeal before the Tribunal, the Learned Authorized Representative of the Department had submitted that the services were covered under BAS . The Division Bench hearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the Learned Counsel for the assessee-appellants is not applicable in the instant case as the same was dealing with the advertising agencies. So, on the facts, the ratio laid down in the said case is not applicable to the present case is not applicable to the present case. (emphasis supplied) 82. A perusal of the aforesaid decision would indicate that though in paragraph 2 of the decision, the Division Bench noted that the lower authorities had categorized the services rendered by the appellant as tour operator , but in paragraph 5 of the decision the Division Bench observed that the services provided by the appellant were rightly covered under BAS . In fact, the Division Bench also observed that since the appellant was providing tour operator services, the commission received by them is for BAS under Section 73(1) of the Finance Act. There is no discussion in the decision as to why the commission received would fall under BAS . The decision also does not specify the particular sub-clause of Section 65(19) of the Finance Act that defines BAS . It also needs to be noted that on behalf of the appellant it was contented that no marketing or promotion was con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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