Two-Year Delay in Issuing SCN Demanding Service Tax on Excess Baggage Charges Collected By Spicejet: CESTAT Quashes Demand [Read Order]

The Delhi  bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) quashed the demand since the two-Year delay in issuing Show Cause Notice (SCN) demanding service tax on excess baggage charges collected By Spicejet

The department challenged the order passed by the Commissioner of Service Tax, DelhiIII, Commissionerate, New Delhi  by which the demand of service tax of Rs. 4,01,27,641/- in respect of the excess baggage charges recovered from the passengers by M/s. Spicejet Ltd. has been dropped and the respondent has been allowed CENVAT credit of Rs. 21,54,80,008/-.

The respondent was primarily engaged in business of transport of passenger by air, which was earlier exempt from service tax.

The respondent adopted rule 6(3A) of the CENVAT Credit Rules, 2004  for availing CENVAT credit in proportion to the dutiable services it was providing. In terms of rule 6(3A), the assessee was required to reverse the CENVAT credit every month as per the ratio of dutiable and exempted services provided in the previous financial year, and then by 30th June of following year, re-computation of CENVAT credit was required to be done as per the ratio of current financial year. It was after this that differential amount, if any, was determined and adjusted.

During the audit, it was noticed by the department that for the months from July 2010 to March 2011, the respondent had not reversed 95% of CENVAT credit taken by adopting the ratio for the previous financial year, resulting in excess availment of CENVAT credit amounting to Rs. 21,54,80,008.

It was observed that the respondent had received payment of Rs. 38,95,88,747 towards excess baggage charges from passengers, for which service tax amounting to Rs. 4,01,27,641 was required to be paid in terms of section 65(105)(zzn) of Finance Act, 1994  but such tax had not been paid by the respondent. It was also noticed that with effect from 10.09.2004 the services provided by an aircraft operator, in relation to transport of goods by aircraft, came within the ambit of service tax.

The Commissioner, by order dated 31.03.2016, dropped the entire demand proposed in the show cause notice.

The show cause notice was issued on 21.10.2014. In regard to the demand of CENVAT credit taken in excess of rule 6(3A) of the 2004 Credit Rules, the period of dispute is from July 2010 to March 2011. In regard to the demand of service tax short paid on excess baggage charges, the period of dispute is from April 2009 to March 2012.

A two member bench comprising Justice Dilip Gupta, President and Mr P Anjani Kumar, Member (Technical) observed that the audit of the statutory records of the respondent was conducted from 02.05.2012 to 08.05.2012. The same issues and demand were suggested in the audit report. The respondent had also been filing ST-3 returns.

“However, the show cause notice was only issued on 21.10.2014, i.e. after more than two years of the facts coming to the knowledge of the department. The department could have issued the show cause notice within the normal period of limitation. The extended period of limitation could, therefore, not have been invoked by the department.”, the CESTAT viewed.

Thereby the  bench dismissed the appeal.

To Read the full text of the Order CLICK HERE

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