2021 (3) TMI 773 - AT - Service Tax

Levy of Service Tax - Incentive received by service receiver from service provider, on appreciable performance - Validity of demand made without specifying the sub clause of BAS under which the activities are covered - validity of service tax demand, under the taxable category of BAS in absence of three parties – service provider, service receiver and targeted audience - demand under the case value of service is fixed under an option provided under the Rules - validity of claiming liability without specifying the consideration for service as provided under section 67 of the Chapter V of Finance Act, 1994 as amended up to date - validity of demand made in absence of the relationship of service provider and service receiver? - these matters were placed before Division Bench for decision.

Whether the air travel agent is promoting it own business and not the business of the airlines? - HELD THAT:- For an activity to be considered as promotional, it is necessary that a service provider must “promote” or “endorse” the service of the client. It has, therefore, to be seen whether in the present case the travel agent is encouraging a passenger to purchase a ticket of a particular airline. The facts reveal that the travel agent is only providing options to the passenger and it the passenger who determines the airline for travel. It is only when the target of having achieved the pre-determined number of bookings is achieved that the airline pays an incentive to the travel agent. It cannot, therefore, be said that the travel agent is promoting the services of any airline. Incidentally, the airlines may benefit if more tickets are sold, but this would not mean that the travel agent is providing a service for promoting the airlines - by rendering of services connected to travel by air, a travel agent would render “air travel agent” services, which services cannot be said to be for ‘promotion or marketing’ for the airlines.

Whether the air travel agent is promoting the business of CRS companies? - HELD THAT:- Mere selection of software or exercising of a choice would not result in any promotional activity. The Department has not pointed out at any ‘activity’ undertaken by an air travel agent that promotes the business of the CRS Company - The passenger cannot be deemed to be an audience for promotion of the business of CRS Companies, for the passenger can neither book directly through a CRS Company nor can a passenger be influenced by any travel agent to book through a particular CRS Company.

Section 65A of the Finance Act - HELD THAT:- 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 - 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.

Whether Incentives paid for achieving targets are taxable? - HELD THAT:- In this regard following can be held:

(i) the air travel agent is promoting its own business and is not promoting the business of the airlines;

(ii) the air travel agent is not promoting the business of the CRS Companies;

(iii) in any view of the matter, the classification of the service would fall under “air travel agent” service and not “BAS” in terms of the provisions of section 65A of the Finance Act; and

(iv) the incentives paid for achieving the targets are not leviable to service tax.

Further, i. view of above submissions, it would not been necessary to decide that once the IATA agent has discharged his service tax liability in terms of section 67 of the Finance Act or rule 6 (7) of the 1994 Rules, no further service tax could be demanded on the amount paid to or passed on by the IATA agent.

Application disposed off.