2025 (7) TMI 1453 - AT - Service Tax

Taxability - Business Auxiliary Service (BAS) - deposit incentives from airlines/main agents - amount received by the appellant as cancellation charges - irregular availment of Cenvat credit. Taxability - Business Auxiliary Service (BAS) - discount/interest on deposits/advances maintained with airline/main agent towards ticket purchases - HELD THAT - This demand pertains to depository incentives received from airlines/main agents during the year 2013-14. It is observed that this incentives received from airlines/main agents is not liable to Service tax in terms of Section 66D(e) of the Finance Act - the Chartered Accountant s certificate clearly acknowledges that the incentive was received against advances maintained with the airlines/main agents - there are no reason to reject the Chartered Accountant s Certificate - the demand of Rs. 11, 61, 226/- confirmed on the depository incentives received during 2013 14 is not sustainable. Taxability of Rs. 10, 68, 861/- received by the appellant as cancellation charges during the period 2010-11 and 2011-12 under the category BAS - HELD THAT - Such charges collected by the appellant do not fall within the scope of any of the sub-clauses of BAS. It is also observed that such cancellation charges were not collected towards the provision of any taxable service. It is also found that Board has issued Circular bearing File No. B43/3/97 dated 26-06-1997 clarifying that cancellation charges collected are not liable to service tax - by relying on the Board Circular it is held that the service tax demand of Rs. 1, 10, 093/- is not sustainable Recovery of alleged irregular availment of Cenvat credit of Rs. 2, 34, 618/- for the period 2013- 14 - Ld. Commissioner has disallowed Cenvat credit of service tax in respect of five invoices on the ground that the Appellant allegedly failed to furnish proof of payment against these invoices - HELD THAT - The appellant have provided copies of each of the aforesaid invoices along with extracts of bank statements issued by HDFC Bank and Union Bank of India clearly evidencing payment to the respective vendors against these invoices. On perusal of the documentary evidences submitted by the appellant it is found that the appellant has fulfilled the conditions for availing the credit in respect of those five invoices. Accordingly the demand for recovery of Cenvat credit amounting to Rs. 2, 34, 618/- is not sustainable. Appeal disposed off.

Summary

ISSUES:

Whether the amount received as deposit incentives from airlines/main agents is taxable as Business Auxiliary Service (BAS) or exempt as interest/discount under the Finance Act.Whether cancellation charges collected by an air travel agent constitute taxable Business Auxiliary Service under service tax law.Whether the alleged irregular availment of Cenvat credit without proof of payment is sustainable.

RULINGS / HOLDINGS:

The demand of service tax on deposit incentives received from airlines/main agents is not sustainable as these incentives are "essentially in the nature of interest/discount," exempt under Section 66D(n)(i) of the Finance Act; the Chartered Accountant's certificate confirming the nature of such incentives was accepted.Service tax demand on cancellation charges is not sustainable since such charges "do not fall within the scope of any of the sub-clauses of BAS" and are not consideration for any taxable service; judicial precedents and Board Circular No. B43/3/97 dated 26-06-1997 support that cancellation charges are not taxable.The demand for recovery of Cenvat credit amounting to Rs. 2,34,618/- is not sustainable where the appellant produced invoices and bank statements evidencing payment, fulfilling the conditions for availing credit.

RATIONALE:

The Court applied the statutory framework under the Finance Act, 1994, specifically Sections 66D(e) and 66D(n)(i), which exempt services by way of extending deposits or advances insofar as the consideration is interest or discount; acceptance of certified documentary evidence was pivotal in recognizing the nature of deposit incentives.In interpreting the scope of Business Auxiliary Service under service tax law, the Court relied on settled judicial precedents holding that cancellation charges are not consideration for any taxable service; the Board Circular clarifies that amounts received in excess of commission, such as cancellation charges, are exempt from service tax.Regarding Cenvat credit, the Court emphasized compliance with documentary proof requirements for credit availed, rejecting disallowance where bank statements and invoices demonstrated payment, consistent with the conditions prescribed under the Cenvat Credit Rules.