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TMI Blog2024 (9) TMI 1595X X X X Extracts X X X X X X X X Extracts X X X X ..... as air travel agent services became taxable w.e.f. 01.07.1997. Thus, the PSA Agreement could not have conceived of any service tax on air travel agent service. This apart, unless an amount has been specifically recovered as tax, the phrases such as full compensation or inclusive of all taxes would not automatically mean that tax has been recovered. Full compensation can only mean that the appellant would not claim any amount over and above the amount of commission paid by the airlines for sale of air ticket and other allied services. The appellant has also produced a certificate issued by airlines stating that no service tax was included in the commission paid by them to the appellant. It is, therefore, not possible to accept the contention of the department that the Agreement included service tax also under the remuneration clause of the Agreement. Whether the appellant rendered air travel agent services to the airlines as contended by the department or the appellant rendered this service to the subagents or customers as contended by the appellant? - HELD THAT:- The commission that was received by the appellant from the airlines was for the services that the appellant was providin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered services to the sub-agents and not to the member airlines of IATA and so the appellant was entitled to collect service tax from the sub-agents, who were the service recipients. The burden of tax is borne by the service recipient. Once it is established that the sub-agents are the recipient of services rendered by the appellant, there can be no illegality in recovering service tax from the sub-agents. Section 73A(2) of the Finance Act would, therefore, not be applicable. The impugned order dated 30.05.2018 passed by the adjudicating authority deserves to be set aside and is set aside - Appeal allowed. - MR. DILIP GUPTA, PRESIDENT AND MS. HEMAMBIKA R. PRIYA, MEMBER (TECHNICAL) Shri V. Lakshmikumaran, Ms. Shagun Arora and Shri Kunal Aggarwal, Advocates for the Appellant Shri Ajay Jain, Special Counsel for the Department with Shri Harshvardhan, Authorized Representative of the Department ORDER Service Tax Appeal No. 52774 of 2018 has been filed by M/s Riya Travel Tours (India) Private Limited [the appellant] to assail the order dated 30.05.2018 passed by Additional Director General (Adjudication) [the adjudicating authority] . This order directs the appellant, in view of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arging service tax equivalent to a specified percentage of the basic fare of the ticket. 4. The appellant claims that till 2011-12, most branches of the appellant followed the Basic Fare Model, but w.e.f. 01.04.2012 all the branches paid service tax under the Commission Model. In both the cases, the service tax component was paid by the appellant. 5. During the relevant period, the appellant was selling airline tickets to sub-agents, who further sold the tickets to their customers. The appellant contends that booking of a ticket of an airline in the travel industry can be done only by IATA recognized travel agents and so subagents who were not IATA accredited were required to purchase tickets for their customers only through IATA agents, and to this extent the appellant rendered air travel agent services to the sub-agents. The appellant also contends that since the sub-agents increased the business of the appellant, a certain amount of commission/incentive was paid by the appellant to the sub-agents. 6. The said transaction has been explained in detail by the appellant. It has been stated that when a sub-agent books a ticket for his customer, the customer pays the ticket price to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. RTT did not deposit the amount so collected as representing Service Tax by them, with the Government exchequer. During investigation, M/s. RTT failed to provide any legal justifications/statutory authority under which Service Tax was collected by them from their subagents/customers of the airlines. In view of the above, it is evident that M/s. RTT were unjustly benefited by their illegal acts, as on the one hand, they collected Service Tax from the airlines and utilized the same to discharge their Service Tax liability and on the other hand, they wrongfully collected amounts from their sub-agents/customers, as representing Service Tax and did not deposit the same in the Government exchequer. (emphasis supplied) 8. The appellant filed a detail reply to the show cause notice and pointed out that the appellant was not rendering any service to the airlines. In fact, air travel agent services were being provided by the appellant to the sub-agents and/or passengers, and the sub-agents were also providing services to their ultimate passengers and not to the appellant. The appellant, therefore, pointed out that it had correctly collected service tax from the subjects and that the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Airlines. On the other hand the above seen Agreement itself shows that the Noticee are rendering service to the Airlines. **** 23.1 In contention number C.1 and C.2, based on the contentions raised in Points A and B (Discussed and rejected hereinabove) the Noticee contend that they are rendering Air Travel Agent services to the passenger and/or sub-agents, and on such services, service tax was paid on the value of commission received from the airlines by virtue of erstwhile and amended Section 67 read with Valuation Rules. They (Noticee) further contend that the SCN has erroneously alleged that the Noticee has recovered service tax from the airlines as the amount of commission received from them was inclusive of service tax. ***** 23.2 In contentions C.2 and C.3 the Noticee firstly seeks to reiterate that it was not rendering any services to the member Airlines, instead the Air Travel Agent services were rendered to the passengers/sub-agents. Detailed submissions in this regard have been made in Para A and B above. Thus, the question of recovering any service tax from an entity (member Airlines) which is not the service recipient does not arise. They further contend that the No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shmikumaran, learned counsel for the appellant assisted by Ms. Shagun Arora and Shri Kunal Aggarwal made the following submissions: (i) The present demand is based merely on a presumption that the appellant, a travel agent, is rendering services to the member airlines of IATA. Accordingly, section 73A(2) of the Finance Act has been invoked for the recovery of amount collected as representing service tax from the sub-agents. Section 73A(2) of the Finance Act would have no application in the facts of the present case. The appellant did not render any service to the member airlines of IATA. In fact, the appellant rendered air travel agent services to the subagents. In this connection, reliance has been placed on the judgment of the Madras High Court in Airlines Agents Association vs. Union of India [ 2006 (3) STR 3 (Madras)] and to a larger bench decision of the Tribunal in Kafila Hospitality and Travels Pvt. Ltd. vs. Commissioner, Service Tax Delhi [ 2021-TIOL-159-CESTAT-Del-LB] ; (ii) The department has alleged that the commission received from the airlines was inclusive of service tax and, therefore, the tax paid by the appellant was collected from the airlines. The commission rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces; (vi) The appellant is not justified in claiming that it had fully discharged service tax liability and was not liable to pay service tax under section 73A(2) of the Finance Act; and (vii) The appellant is not correct in its submission that interest cannot be charged under section 73A(2) of the Finance Act in respect of a demand raised under section 73A(2) of the Finance Act. 12. The submissions advanced by the learned counsel for the appellant and the learned authorized representative appearing for the department have been considered. 13. The first issue that arises for consideration is whether the commission received by the appellant from the airlines was inclusive of service tax. This is for the reason that the contention of the department is that since the commission received by the appellant from the airlines was inclusive of service tax, which service tax was paid by the appellant, the appellant could not have again collected service tax from the sub-agents. The contention of the appellant is that the commission received from the airlines did not include service tax and in any event since it was not rendering services to the airlines, the question of commission received f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... airlines is for the service that the appellant provides to the sub-agents. 18. The appellant is an accredited IATA agent in terms of the agreement titled Passenger Sales Agency Agreement dated 15.05.1994 for sale of ticket of member airlines. The appellant also entered into PLB Agreement with the airlines which enables the appellant to sell airline tickets of member airlines. It is for sale of such tickets that the appellant claims that it receives commission from the airlines. The appellant also claims that on the amount of commission received from the airlines, the appellant has discharged service tax liability either under the Basic-Fare Model or under the Commission Model on account of rendering services to the sub-agents. 19. The appellant also claims that as booking of a ticket of an airline can be done only by an IATA recognized agent, the sub-agents not accredited by IATA had necessarily to purchase tickets for their customers only through IATA agents, like the appellant. According to the appellant, since the sub-agents increased the business of the appellant as the appellant would have to purchase more tickets from the airlines, the appellant paid a certain percentage of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... del. The chart is as follows: 26. It transpires from the aforesaid chart that when the cost of the air ticket is Rs. 1,00,000/-, a commission of Rs. 5,000/- is paid by the airlines to the appellant. The service tax is paid by the appellant under rule 6(7) of the Service Tax Rules on the amount of Rs. 5,000/- received as commission from the airlines. Out of this commission amount of Rs. 5,000/-, the appellant passes an amount of Rs. 4,000/- to the sub-agents. The appellant also recovers the amount of service tax paid by the appellant on this amount of Rs. 4,000/- from the sub-agent. Thus, the invoice that is raised by the appellant on the sub-agent is the ticket price minus the commission of Rs. 4,000/- plus the service tax. 27. The third chart depicts the stand of the department. It is as follows: 28. According to the department, the appellant provides air travel services to the airlines for which it receives commission as consideration from the airlines. The sub-agent also provides services to the appellant for which the sub-agent receives commission from the appellant as consideration. Thus, the service tax paid by the appellant could not have been recovered from the sub-agents a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 no question of their getting a commission from the airlines. It is not as if the air travel agents get a fixed commission or income from the airlines irrespective of the passages booked by them in favour of the customers in the nature of a retainer fee or guarantee money , at least that is not the case pleaded before us. Therefore, unless the air travel agents book the tickets and thereby unless they provide the services to the customers, they do not become entitled to any commission. Their commission is entirely depended on and connected with the passage they book for the customers. It cannot, therefore, be said that the commission that the air t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n incidental increase in business of the airlines due to which incentives were paid by airlines, it would not mean that payment of incentive would be construed as consideration against provision of any service by travel agents to the airlines. 34. It, therefore, follows that the commission that was received by the appellant from the airlines was for the services that the appellant was providing to the sub-agents or to the customers and not because the appellant rendered any service to the airlines. In fact, the commission received by the appellant had a direct nexus with the services rendered by the appellant to the sub-agents. 35. This issue can be examined from another aspect by referring to the definition of air travel agent and the taxable service as amended from time to time. Prior to 2000 36. Section 65(3) of the Finance Act, as it stood in 2000, defines air travel agent . It is reproduced: 65(3) air travel agent means any person engaged in providing any service connected with the booking of passage for travel by air. 37. Section 65(48) of the Finance Act defines taxable service . The relevant portion is reproduced: 65(48) taxable service means any service provided, ***** (l) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue shall, (i) in a case 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 him ***** ***** (4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed. (emphasis supplied) 43. Rule 6 of the Service Tax (Determination of Value) Rules, 2006 [the Valuation Rules] refers to cases in which the commission or costs will be included or excluded. The relevant portion is reproduced below: (1) Subject to the provisions of section 67, the value of the taxable services shall include - ***** (iv) the commission received by the air travel agent from the airline; (2) Subject to the provisions contained in sub-rule (1), the value of any taxable service, as the case may be, does not include ***** (ii) the airfare collected by air travel agent in respect of service provided by him (emphasis supplied) 44. It is also clear from the above valuation provisions that commission received from the airlines is deemed as a part of the consideration for services provided to the sub-agents. As Amended on 16.05.2008 45. Section 65(4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble service under the provisions of this Chapter or the rules made thereunder from the recipient of taxable service in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government. (2) Where any person who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, such person shall forthwith pay the amount so collected to the credit of the Central Government (emphasis supplied) 52. Section 73A of the Finance Act has carved out two situations which are distinct from each other. Section 73A(1) applies to cases where a person, who is liable to pay tax, has rendered a taxable service to a service recipient, but has collected service tax in excess, which has not been deposited with the government. This means that section 73A(1) mandates the existence of a service provider and a service recipient relationship and tax has been collected in excess of the applicable levy. On the other hand, section 73A(2) deals with a situation where any person, not being a service provider, has collected an amount from another person representing as service tax. This provis ..... 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