By TIOL News Service

MUMBAI, APR 02, 2014: JET Airways is the appellant. It is alleged by the Central Excise department that in the course of their activity of transportation of passengers by air, the applicants are collecting Passenger Service Fees (PSF) from the passengers who embark on a flight of the airlines; that the collection of PSF from the passenger were being carried out on behalf and under instruction of Airports Authority of India i.e. this fee was being collected by the airlines from the passenger along with fares in respect of tickets sold to the passenger; that the PSF was passed on to the AAI and, therefore, this is a service provided by the airline; that AAI was paying collection charges to the airline, but they (airline) were not discharging the service tax on collection charges so received under the category of "Business Auxiliary Service".

The airline was caught in an Air Turbulence. The CCE, Thane-II confirmed the Service Tax demand of Rs. 1.05 Crores and also imposed interest and penalties. The period involved is July, 2003 to May, 2006.

Before the CESTAT, while seeking stay,the applicant submitted that they are getting a commission of 2.5% if they pay the entire amount of collection on account of PSF to AAI within 15 days; if the said payment is not made within 15 days, they have to pay penal interest of 18% p.a. It is further submitted that the applicants have no choice but are bound to collect this PSF on behalf of AAI as per the reference of Ministry of Civil Aviation. It is also contended that their activity is appropriately covered under the category of "Business Support Service" which came into the service tax net on 01.05.2006 and they are paying service tax on the same.

Inasmuch as since the SCN has been issued for the period July 2003 onwards till they got registered under the category of 'Business Support Service', the same is not sustainable, the appellant submitted.

The Division Bench of CESTAT while granting Stay observed -

"4. Prima facie we are of the view that the activity undertaken by the applicant covers under 'Business Support Service'. Therefore, they are not liable to pay service tax under 'Business Auxiliary Service'. Therefore, applicant has made out a case of 100% waiver of pre-deposit of the demands. Accordingly, we waive the requirement of pre-deposit of entire amount of service tax, interest and various penalties and stay recovery thereof during the pendency of the appeal."

We reported this Stay order as (2012-TIOL-752-CESTAT-MUM) and commented that the appellant may probably have - A safe passage through air turbulence!

The appeal was heard recently.

While the Stay order seemed to indicate that the appellant had a safe passage through the Air Turbulence, the final order has apparently made things topsy-turvy.

Read further.

The appellant reiterated the submissions made at the time of hearing of the Stay application and also submitted that the demand is time barred inasmuch as the show-cause notice for the short levy/non-levy has been made vide Notice dated 15.6.2007 for the period from July 2003 onwards.

It is also submitted that even as per order-in-original, in para 13, the adjudicating authority had held that the service of collection of passenger service fee on behalf of the M/s Jet Airways was not covered in sub-clause (iv) of Section 65(19) prior to 10.09.2004 or in sub-clause (vii) of the said Section after 10.09.2004, but inspite of such finding, the adjudicating authority has confirmed the demand for the period prior to 10.09.2004. Furthermore, the Explanation added to Business Auxiliary Service under Section 65(19) with effect from 16.06.2005 begins with the words " For the removal of doubts… " and, therefore, the activity/service rendered by them would not be taxable at all prior to insertion of the Explanation.

The Revenue representative submitted that the appellant themselves admitted that with effect from 01.06.2006 they have rendered the services of Business Support Service and, therefore, for the period prior to 01.06.2006 it cannot be said the activity undertaken by them is not a service. Moreover, as per the Explanation to Section 65(19) relating to Business Auxiliary Service, if any person collects payments of sale price of goods or services for another person, they would be covered under sub-clause (vii) of Section 65 (19) as commission agent's service and, therefore, the definition of BAS is more specific to the activity undertaken by the appellant. Inasmuch as the service rendered by the appellant to the Airport Authority of India is rightly classified under BAS; that the Explanation only clarifies the position of law as it stood; does not extend the scope of the service and therefore, it should be held as retroactive and would apply from the inception of the levy i.e. from 01.07.2003 and hence the demand should be upheld. The bar of limitation also does not apply as the appellant had not declared the activity undertaken by them to the department at any point of time and they got registered under Business Support Service only in July 2006. Reliance is placed on the decision in Sulochana Amma v. Narayanan Nair - (2002-TIOL-292-SC-MISC).

In his rejoinder, the appellant sought to place reliance on Circular No. 89/07/2006-ST dated 18.12.2006 issued by the CBEC wherein it has been clarified that Service tax is not leviable on statutory fees collected by public authorities while performing under the provisions of law. In the instant case, as the appellant has collected passenger fee under Airport Authority of India Act, therefore, the provisions of service tax would not apply.

The CESTAT extracted the definition of Business Auxiliary Service as existing since 01.07.2003, the amendment made vide the Finance Act, 1994 [w.e.f. 10.09.1994], the Explanation added to the definition w.e.f. 16.06.2005 vide FA, 2005 and in terse terms observed -

"6.4 From these statutory definition, it is clear that if a person collects payment for the services rendered by another person and remit the same, then the activity would come under the purview of Business Auxiliary Service as defined in Section 65(19) (vii) and the activity would be leviable to Service tax."

After extracting the competing entry of Business Support Services as claimed by the appellant, the Bench further observed -

"6.6 On perusal of the above legal provisions, it is clear that the collection of charges for the service rendered is more specifically covered under ‘Business Auxiliary Service' and not under ‘Business Support Service'. As per the Section 65A of the Finance Act, 1994, which deals with the classification of taxable services, sub-clause (105) of Section 65 which provides the most specific description shall be preferred to sub-clauses providing more general description. In the case before us Section 65(19) read with sub-clause (zzb) to Section 65(105) provides the most specific description. Thus the activity undertaken by the appellant is specifically covered under ‘Business Auxiliary Service' and not under ‘Business Support Service'. Therefore, the contention of the appellant that they are not liable to pay service tax under BAS prior to 01.07.2006 is devoid of merits."

Nonetheless, the Bench referred to the contents of paragraph 13 of the order-in-original as highlighted by the appellant and made the following observations -

"6.7 As regards the invocation of extended period for confirmation of demand, we notice that the adjudicating authority himself has observed that prior to 10.09.2004, the activity undertaken by the appellant would not come under either sub-clause (iv) or (vii) of the Section 65(19). If that be so, we do not understand as to how the adjudicating authority could have confirmed the demand for the period prior to 10.09.2004 under BAS. We further observe that with effect from 16.6.2005 an Explanation was inserted in Section 65(19) clarifying the scope of commission agent's service mentioned in sub-clause (vii) which starts with the phrase "for the removal of doubts, it is hereby declared that". This would imply that prior to 16.06.2005, there were doubts existing about the scope of commission agent's service covered by Section 65(19). Therefore, demands prior to 16.6.2005 cannot be made invoking the extended period of time. With effect from 16.06.2005, the legal position became very clear and nobody could have entertained any doubt about the liability to pay service tax under Commission Agent's Service under BAS. Therefore, the demand for the period from 16.6.2005 onwards is legally sustainable. In the present case we observe that the appellant did not declare the activity to the Revenue authorities during the relevant period and filed the returns only in October 2006. Only from the returns filed in October 2006, the Revenue came to know about the activity under taken by the appellant. The show-cause notice was issued in June 2007, well within the normal period of one year, from the date of filing returns and, therefore, the demand for the period with effect from 16.6.2005 is clearly sustainable in law and we hold accordingly."

On the question of penalties, the Bench held that penalty u/s 76 & 77 is imposable as no mensrea is required to be proved and mere contravention of law would suffice. Further, since the appellant did not declare to the department the activities undertaken by them prior to 01.06.2006, the same amounted to suppression of facts as held in the case of Neminath Fabrics - (2011-TIOL-10-HC-AHM-CX) and, therefore, penalty under Section 78 is rightly imposable. However, the quantum of penalty imposable under all these sections would depend on the quantum of service tax liability on the appellant w.e.f. 16.6.2005.

In fine, the Bench remanded the case to the adjudicating authority for re-computing the service tax liability w.e.f 16.06.2005 and on such liability the interest and penalty.

The appeal was disposed of in the above terms.

(See 2014-TIOL-502-CESTAT-MUM)