By TIOL News Service

NEW DELHI, AUG, 28, 2017: THE appellants are Air India Ltd.

The appellant entered into an agreement with MTIL, which envisaged print and delivery of "Swagat" magazine to the appellant on a monthly basis. MTIL shall undertake print and publication and deliver magazine to the appellant as per the specifications agreed upon and having contents approved by the Joint Editorial Board. This magazine is intended for circulation on board the flights operated by the appellant and also in the airline lounges. MTIL is allowed all the advertisement proceeds in the magazine. The appellant shall have the right to publish two pages of advertisements in every issue, free of cost, to generate goodwill among public and to promote travel on IA. The advertisement material are to be cleared by the Editorial Board before publication. No advertisement of competitors of appellant shall be published. MTIL shall not get any remuneration for this activity of printing and delivering the in-flight magazine to the appellant. However, MTIL shall pay Rs.8.75 lakhs per month to the appellant.

It is on this amount received by the appellant that the department alleges service tax liability under the category of "Franchisee Service".

The CCE, Delhi adjudicated the case and confirmed service tax liability of Rs.93,81,940/- and imposed equal amount of penalty etc.

In appeal before the CESTAT, the appellant submitted that copyright of the magazine is with MTIL; that MTIL has acted in their own capacity and cannot be called as franchisee of the appellant; that the appellant entertained a bonafide belief regarding non-liability of the service tax; that the demand for extended period and penalties are not sustainable as they are Government of India Enterprise and no malafide can be attributed.

The AR submitted that from the terms of the agreement it is clear that the appellants authorized MTIL to canvass and collect advertisement from the clients and that formed the revenue for MTIL, out of which a fixed amount was paid to the appellant, on a monthly basis; that "Swagat" magazine is associated with Air India and MTIL is only a representative of Air India in the eyes of the clients as well as the passengers who peruse the said magazine; that even after repeated requests the appellant did not make available the particulars, therefore, extended period is rightly invoked.

The Bench extracted the definition of "Franchisee" as mentioned in section 65(47) of the FA, 1994 during the impugned period and observed thus -

On Merits:

+ A perusal of the terms of the agreement and the magazine published clearly indicate that the said magazine is identifiable with Airlines operation and business of the appellant. The publication of the in-flight magazine is one of the activities of the appellant, who is an operator of major commercial airlines. Admittedly, provision of in-flight magazine is an essential requirement for such commercial airlines.

+ In terms of the agreement, the appellant permitted MTIL to print and deliver a fixed number of copies of the said magazine for use by passenger in flight or in the lounge.

+ It is clear that the advertisers, who place their advertisements in the in-flight magazine, fully identified the magazine with the appellant and the target readers provided by the appellant.

+ The magazine is fully identified with the appellant and MTIL is getting profitable advertisement revenue by representing such magazine of the appellant with various clients.

+ In the magazine, it is clearly printed that "Swagat (meaning "welcome"), in-flight magazine of Air India". Publication of in-flight magazine having logo and title of the airline company is very much part of the airlines business of the appellant.

+ MTIL is paying a fixed monthly amount to the appellant for permitting the usage of the appellant's name and the magazine for generating the revenue.

Holding that the amount received by the appellant from MTIL is liable to be taxed under the said tax entry, the confirmation of tax liability was upheld.

Limitation:

+ The appellant is a Government of India Undertaking. As such, a rebuttable presumption is created regarding non-existence of intention to evade payment of service tax. However, in this particular case, the Revenue has produced sufficient evidence to rebut such presumption. It is seen that in spite of a notice issued under Section 77 of the Act, the appellant did not furnish the required details for quantification of tax liability.

The extended period of limitation was held to be correctly invoked.

Penalty:

+ Considering the overall facts and circumstances of the case, we find that Section 80 can be invoked for waiver of penalty imposed on the appellant u/s 78.

The appeals were disposed of.

(See 2017-TIOL-3123-CESTAT-DEL)