“Airport Service” Charges cannot be Taxed without Prior Authorization: CESTAT Clarifies Definitions, Allows Air India’s Appeal [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) reiterated the pre-condition of prior authorization to collect tax by the airport authority for “airport services”. It also clarified the definition of “tour operator services” and allowed the appeal in favour of Air India.

The facts of the case are that the appellant, M/s. Air India Limited, offers promotional schemes referred to as “tour packages” to its customers which includes coupons for staying in hotels and transportation of passengers to various tourist places for a lump sum amount. During 2008-09 to 2010-11, appellant incurred expenses like training charges and amount paid for repairing different items on behalf of its erstwhile wholly owned subsidiary, Airline Allied Services Limited (AASL) and claimed reimbursement of services from AASL.

A Central Excise Revenue Audit (CERA) was conducted for the period from 2008-09 to 2010-11. Thereafter, a show cause notice was issued to the appellant on 24.09.2013 alleging that the appellant was not entitled to avail the benefit of abatement in respect of “tour operator services” on the ground that they had availed CENVAT Credit on common input services which were also used in providing Tour Operator Services thereby violating the conditions for availing the abatement.

The second allegation was that the appellant failed to pay service tax under the category of “Airport Service” for the services provided to AASL. The demand of service was confirmed against the appellant along with interest and penalties. The appellant then approached the CESTAT.

With regards to the first allegation, the counsel for the appellant contended that tour packages provided by the appellant do not fall under the category of “tour operator service” as defined under Section 65(105)(n) of the Finance Act, 1994. As for the second allegation, the counsel argued that the appellant had not provided “Airport Service” as defined under Section 65(105)(zzm) of the Act. The counsel placed reliance on several cases.

The CESTAT observed that the issue of abatement for tour operator services had already been settled by the tribunal in the appellant’s own case for an earlier period wherein the activity of providing tour packages does not fall under category of tour operator services. Accordingly, it was held that the appellant is not liable to pay service tax under said category.

Secondly, the Tribunal made note of the pre-condition of prior authorization by airport authority for taxation of services rendered by an assessee as Airport Service which was missing in this case. Therefore, it was decided that the charges collected by the appellant do not qualify as Airport Service.

The two member bench of Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) set aside the confirmed demand, interest and penalties and allowed the appeal with consequential relief.

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