In a recent case, the New Delhi bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has held that service tax is not leviable on account of incentives received from Computer Reservation System ( CRS ) Companies.
New High Flying Travels Pvt. Ltd., the appellant challenged the Order-in-Appeal which confirmed the demand of service tax along with interest and penalty. The appellant engaged in providing taxable services in relation to travel and tours is registered under the category of “Tour Operator Service”, “Air Travel Agent Service”, and “Business Auxiliary Service”. The services rendered by the appellant are broadly classified under the various categories like Domestic , Outbound, Business Auxiliary Service .
In respect of domestic category, there is no dispute, however, dispute pertains to outbound tours and BAS.
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Under BAS, the appellant is receiving Computer Reservation System ( CRS ) incentive for booking of air tickets by using the software and hardware provided by the CRS company Galileo/ Amadeus. In case of outbound tours, the appellant organises tours outside the territory of India for Indian tourist to facilitate them to visit various local places outside India.
A Show cause notices were issued to the appellant for the period 01.10.2010 to 30.09.2011 and 01.10.2011 to 30.06.2012 for Rs. 2,84,406/- and Rs. 3,26,748/- respectively. On adjudication, the service tax amount as proposed was confirmed along with interest and penalty under section 76,77 and section 78 of the Act.
Being aggrieved, the appellant had challenged the same before the Commissioner (Appeals), whereby the impugned order has been passed. SCN for the period 01.10.2011 to 30.06.2012 was remanded to the adjudicating authority as the service tax liability was not correctly assessed and hence the same is not under challenge.
Shri S. K. Wadhwa, counsel for the appellant and Shri S. K. Meena, the authorised representative for the Revenue. The issue whether service tax is leviable on the CRS incentive has been decided by the Larger Bench of the Tribunal in the case of Kafila Hospitality & Travels Pvt. Ltd Vs. Commissioner of Service Tax, Delhi in favour of the assessee holding that mere selection of software or exercising of a choice would not result in any promotional activity and the department has not pointed out any activity undertaken by an air travel agent that promotes the business of the CRS company and therefore, the incentives received by service recipient from a service provider cannot be subjected to service tax.
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In the case, the tribunal held that “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 Companies. The receipt of incentives/commission would not change the nature of the services rendered by the travel agent.
71. This apart, the definition of BAS would also reveal that the service provider must promote or market the service of a client.
As noticed above, it is not a case where the air travel agent is promoting the service of airlines/ CRS Companies. The air travel agent is, by sale of airlines ticket, ensuring the promotion of its own business even though this may lead to incidental promotion of the business of the airlines/ CRS Companies. Thus, in terms of the provision of Section 65A(2)(a) of the Finance Act, the classification of the service would fall under “air travel agent” services and not BAS.”
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The two member bench of Binu Tamta, Member ( Judicial ) Hemambika R. Priya, Member ( Technical ) held that principle of law settled by the Larger Bench squarely applies to the facts of the present case and hence no service tax can be levied on the appellant on account of incentives received from the CRS companies.
In view of our discussion above, the court held that no service tax is leviable on the CRS incentives received by the appellant.
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