KAFILA HOSPITALITY AND TRAVELS LTD Vs CST-TIOL

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2015-TIOL-406-CESTAT-DEL
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
PRINCIPAL BENCH, NEW DELHI
Service Tax Misc. No.61454/2013, Stay No.60420/2013
Appeal No.59715/2013
Arising out of Order-in-Original No.109/GB/2013, Dated: 20.5.2013
Passed by the Commissioner of Service Tax, New Delhi
Date of Hearing: 14.10.2014
Date of Decision: 14.10.2014
M/s KAFILA HOSPITALITY AND TRAVELS LTD
Vs
COMMISSIONER OF SERVICE TAX, DELHI
Appellants Rep by: Shri N Venkataraman, Sr. Adv., Shri Anil Sood & Ms Rajeshwari K G,
Advs.
Respondent Rep by: Shri Amresh Jain, DR
CORAM: Archana Wadhwa, Member (J)
Rakesh Kumar, Member (T)
Service Tax Valuation - Air Travel Agent Service - appellant was receiving
commission on the airfare including the fuel surcharges Revenue viewed that
the airfare including the fuel surcharge was to be adopted as the basic fare for
the purpose of Rule 6(7) of the Service Tax Rules, 1994; while the appellant had
opted to discharge the tax liability only on the fare excluding fuel surcharge
small amount of cenvat credit availed in respect of office not covered by the ST
registration also disputed demands adjudicated and agitated herein.
Held: Appellant as IATA Agent has two options to discharge service tax liability;
the first being assessment on the gross amount of commission received - Rule 6
(7) provides another option to them to pay service tax @ 0.6% of the basic fare
in respect of domestic bookings and @ 1.2% of the basic fare in respect of the
international booking; "basic fare" is defined in the sub-rule as the part of the
airfare on which the commission is normally paid to the Air Travel Agent by the
Airlines and explanation to Rule 6(7) defining the term "basic fare" clearly
indicates that the basic fare for the purpose of this sub-rule is not the gross fare
but is the part of the gross airfare charged from the passengers on which the
Airlines normally pay commission to the Air Travel Agent - the term "basic fare",
in terms of its definition in Rule 6(7), is not the gross fare including fuel
surcharge, but is that part of the gross airfare on which the concerned Airlines
normally pay the commission to the Air Travel Agent - what is relevant for the
purpose of Rule 6(7) is as to on which part of the airfare, the commission was
being normally paid by the Airlines to the Air Travel Agent's - impugned order
set aside and the matter remanded to the Commissioner for de novo decision
after considering the documents in support of their plea that they have paid
service tax on that part of the airfare on which the commission is normally paid
by the Airlines. [Para 7].
Matter remanded
FINAL ORDER NO. 54843/2014

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Per: Rakesh Kumar:

The facts leading to filing of this appeal along with stay application and misc. Application
for admission of additional documents are, in brief, as under:1.1. The appellant is an approved agent of International Air Ticketing
Association '(IATA))' and Service Tax Registration No.AAA CD385 3FST001
with the Service Tax Commissionerate, Delhi under the category of Air Travel
Agent Service. He is engaged in providing air tickets to the clients both as an
IATA agent and also by way of purchasing tickets from other IATA Agents on
principal to principal basis. The Appellant as Air Travel Agent is required to
pay service tax on the amount of gross commission received from the Airlines.
However, under Rule 6(7) of the Service Tax Rules, 1994, there is an option
for him to pay service tax @ 0.6% of the basic fare in case of domestic
bookings and @ 1.2% of the basic fare in case of international bookings. In
terms of the explanation to Rule 6(7) of the Service Tax Rules, 1994, for the
purpose of this sub-rule, the expression "basic fare" means part of the air fare
on which the commission is normally paid to the Air Travel Agent by the
Airline. In this case the objection of the department is that during the period
of dispute i.e. during the period from 2008-2009 to 2010-2011, the appellant
were receiving commission on the airfare including the fuel surcharges and
thus it is the airfare including the fuel surcharge, which was to be adopted as
the basic fare for the purpose of Rule 6(7) of the Service Tax Rules, 1944 and
while the appellant had opted to discharge his service tax liability under Rule
6(7), he paid service tax at the rate specified in this sub-rule only on the fare
excluding fuel surcharge. Accordingly, the department has calculated service
tax liability of the appellant on the basis of the gross amount of commission
received by them and has demanded differential service tax of
Rs.3,54,81,558/-. Besides this above, it was also found that during the above
mentioned period, the Appellant had taken the cenvat credit of Rs.1,40,375/on the basis of the invoices issued to their Bombay office while the Bombay
office was not mentioned in the central excise registration obtained by him
and the department was of the view that this amount of the cenvat credit
would not be admissible to him.
1.2. It is in view of the above facts that the show cause notice dated 5.7.2012
was issued to them for (a) recovery of service tax of Rs.3,54,81,558/-under proviso to
Section 73(1) of the Finance Act, 1994 along with interest thereon
under Section 75 ibid;
(b) recovery of cenvat credit amounting to Rs.1,40,735/- under
Rule 14 of the Cenvat Credit Rules, 2004 read with proviso to
Section 73(1) of the Finance Act, 1994 along with interest on it
under Section 75 ibid; and
(c) imposition of penalty on the appellant under Section 76, 77
and 78 of the Finance Act, 1994 and also under Rule 15 (2) of the
Cenvat Credit Rules, 2004.
1.3. The above show cause notice was adjudicated by the Commissioner vide
order-in-original dated 20.05.2013 by which - he confirmed the service tax
demand of Rs. 3,44,48,113/- along with interest, but dropped the cenvat
credit demand of Rs.1,40,735/-. He also imposed penalty of Rs.3,44,48,.113/on the appellant under Section 78 and penalty of Rs.10,000/- under Section
77.
1.4. Against this order of the Commissioner, this appeal has been filed along
with stay application.
1.5. The misc. application has been filed for adding certain additional grounds
and adducing some additional evidences.

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2. Heard both the sides.

3. Though the matter was listed for hearing of the stay application and misc. application
only, after hearing this matter for sometime, the Bench was of the view that the matter
can be taken up for final disposal. Accordingly the requirement of pre-deposit is waived
and with the consent of both the sides, the matter was heard for final disposal.
4. Shri N. Venkataraman, Sr. Advocate, Shri Anil Sood, Advocate and Rajeshwari K.G.,
Advocate, the ld. Counsels for the appellant, pleaded that the appellant during the period
of dispute had opted to discharge service tax liability in terms of Rule 6(7) of the Service
Tax Rules, 1994, that in terms of this sub-rule, the person liable for paying service tax on
the services provided as Air Travel Agent shall have option to pay tax at the rate of 0.6%
of the basic fare in case of domestic booking and at the rate of 1.2% of the basic fare in
case of international booking, that in terms of explanation to this sub-rule, the expression
"basic fare" is the part of the fare on which commission is normally paid to the Air Travel
Agent by the Airlines, that from the explanation, it is very clear that the service tax at the
rate specified in sub-rule is not chargeable on the gross basic fare but is chargeable only
on that part of the basic fare, on which the commission is normally payable to the Air
Travel Agent, that the appellant have evidence to show that the appellant have paid
service tax under Rule 6(7) only on that portion of the fare on which the commission was
being paid to them by the Airlines, that they have never received commission on the fuel
surcharge part of the fare, that the appellant had provided copies of the "IATA BSP Agent
billing statement" for the billing period 16.12.2008 to 31.12.2008 to the Audit Team and
had explained the manner in which the billing is done, that this statement shows that
most of the Airlines do not pay commission on the basic fare mentioned in the air tickets,
but this plea of the appellant was ignored, that the appellant seeks to produce these
documents for which they have filed a misc. application, that on the basis of the
documents, the appellant can prove that they have paid service tax under Rule 6(7) only
on the portion of the fare on which they had received the commission i.e. the basic fare in
terms of its definition in Rule 6(7), that the contention of the department that the
appellant were required to pay service tax, on the gross amount of fare including fuel
surcharge is totally incorrect and there is no legal basis for the same and that in view of
the above, the impugned order is not sustainable. Shri Venkataraman also pleaded that
the additional evidence for introduction of certain documents may also be admitted.
5. Shri Amresh Jain, ld. DR defended the impugned order by reiterating the findings of
the Commissioner in the impugned order and emphasized that the Audit Team as well as
the departmental officers had repeatedly asked the appellant to give the break-up of the
gross fare into the basic fare and fuel surcharge but since this information was not
provided, the department has no option but to determine the Appellant service tax
liability on the basis of the gross commission. He emphasized that the appellant while
opting to discharge service tax liability under Rule 6(7) of the Service Tax Rules has not
paid service tax, on the portion of the airfare on which the commission was being
received by them, as if this had been done, there would not have been such a big
difference between the service tax liability determined on the basis of the gross
commission and the service tax liability determined under Rule 6(7) of the Service Tax
Rules.
6. We have considered the submissions from both the sides and perused the records.
7. The appellant as IATA Agent have two options to discharge service tax liability. The
first option is to pay service tax on the gross amount of commission received. However,
Rule 6(7) provides another option to them to pay service tax @ 0.6% of the basic fare in
respect of domestic bookings and @ 1.2% of the basic fare in respect of the international
booking. The word, "basic fare" is defined in the sub-rule as the part of the airfare on
which the commission is normally paid to the Air Travel Agent by the Airlines. The
explanation to Rule 6(7) defining the term "basic fare" clearly indicates that the basic fare
for the purpose of this sub-rule is not the gross fare but is the part of the gross airfare
charged from the passengers on which the Airlines normally pay commission to the Air
Travel Agent. The expression "air fare on which the commission is normally paid" means
the portion of air fare, whether 100% or a lesser percentage; on which most of the

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Airlines pay the commission ignoring the stray cases in which commission is paid on a
different part of air fare. The appellant's plea is that they have discharged service tax
liability under Rule 6(7), only on that part of the gross airfare on which the commission
was paid to them by the Airlines and most of the Airlines pay commission only on that
portion of fare. In other words, the Appellant plea is that they have paid service tax on
the basic fare as defined in the sub-rule. The department's contention, however, is that
since the Appellant have not given the break-up of the gross fare into basic fare and the
fuel surcharge to enable the department to determine the basic fare component, for the
purpose of Rule 6(7), they would not be eligible for the facility of discharge of service tax
under Rule 6(7) of the Service Tax Rules and accordingly, the department has determined
the service tax liability on the basis of the gross commission. In our view, the term "basic
fare", in terms of its definition in Rule 6(7), is not the gross fare including fuel surcharge,
but is that part of the gross airfare on which the concerned Airlines normally pay the
commission to the Air Travel Agent. Therefore, what is relevant for the purpose of Section
6(7) is as to on which part of the airfare, the commission was being normally paid by the
Airlines to the Air Travel Agent's. According to the appellant, the have evidence to prove
that they have discharged the service tax liability under Rule 6(7) only on that part of the
fare on which the commission was being paid, but this plea has not been considered by
the Commissioner. In view of this, the impugned order is set aside and the matter is
remanded to the Commissioner for de novo decision after considering the Appellant's plea
and also our observations in this order. Misc. application for additional evidence is also
allowed. In course of de novo proceedings, the Commissioner shall consider the
documents produced by the appellant in support of their plea that they have paid service
tax on that part of the airfare on which the commission is normally paid by the Airlines.
The appeal, stay application as well as misc. application stand disposed of as above.
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