By TIOL News Service

MUMBAI, OCT 30, 2015 : THE  appellants are Kingfisher Airlines & Jet Airways who are in the business of transporting passengers by air. While transporting passengers, the baggage of passengers is also transported. There is a free allowance for carrying of baggage and any baggage in excess of free allowance is liable to transportation charges.

The Revenue smelt a 'baggage' case here. It was of the view that charges collected by the Airlines for the excess baggage is liable to Service Tax under the category of "Transportation of Goods by Air" and accordingly, demand notices for recovery of Service Tax were issued.

Dropping demand notices is passe nowadays and, therefore, both the airlines had an added baggage of Service Tax demands to carry.

In the case of Kingfisher, in the matter of stay application filed against o-in-o dated 17.09.2012 passed by CST, Mumbai , the Division Bench while granting stay observed–

ST - Transportation of baggage is not an individual or a separate service, but it is a component of the principal service of “Transportation of passengers' service by air” – Collection of “excess baggage charges” by airline, when weight of baggage exceeds the free allowance limits, from the passengers does not mean that they are transporting goods by air – Prima facie case in favour – Stay granted: CESTAT

We reported this stay order as 2013-TIOL-1463-CESTAT-MUM.

In a similar case involving Jet Airways , the Division Bench by relying upon the aforementioned order granted stay by noting thus –

ST - Transportation of goods by air service - Appellant are charging for excess baggage - whether ST is liable to be paid on these charges - Co-ordinate Bench of Mumbai in case of Kingfisher Training & Aviation Services Ltd. 2013-TIOL-1463-CESTAT-MUM has waived pre deposit in a similar situation - following the same, pre deposit waived and stay granted: CESTAT [para 4]

This order was reported as 2014-TIOL-1590-CESTAT-MUM.

Appeals filed by both the airlines were heard last September and there was a difference of opinion.

The Member (Judicial) while allowing the appeals made the following observations -

++ The question arises in the mind is whether the excess baggage charges can be demanded without transportation of passengers by air or not. The answer to this question is obviously 'no', because when the passenger is travelling by air and his baggage is excess than the permitted limit, then he has to pay the excess baggage charges. In these circumstances, the main service provided by the airline is transportation of passenger by air. The excess baggage charges are the integral part of the service of transportation of passenger by air.

++ From the provisions of s.65A, it is clear that when taxable service comprises of more than one service then such services shall be classifiable under the taxable head which gives its essential characteristic. In this case, we have seen that the question of excess baggage charges arises when passenger is transported by air, otherwise not. In that situation, the essential characteristic of the service is transportation of passenger by air.

++ Appellant is paying service tax under the category of transportation of passengers by air which are fixed per passenger during the impugned periods. Therefore, the appellants are not required to pay any service tax on excess baggage charges during the impugned period as the excess baggage charges is an integral part of the main service provided by the appellants, namely transportation of passenger by air.

++ Appeals succeed on merits as well as on limitation.

The Member (Technical) had a differing view.

He recorded his observations thus –

++ When the excess baggage charges are paid by passengers separately, they are being provided a service of transportation of goods by Air. This is what the statute clearly and unambiguously provides. This activity of carriage of excess baggage is distinct and separately identifiable and therefore no occasion arises for clubbing this service with the service of transportation of passengers. It is only the free baggage allowed with the passenger ticket that can be called as incidental to the transportation of passengers because no separate charges are levied for free baggage. It is incidental because the free baggage is apparently included in the cost of the ticket.

++ But when the transportation of excess baggage is being charged separately and is being paid for distinctly and separately and is also specified as a service, the question of calling this activity as incidental does not arise. Merely because two services are being provided simultaneously but distinctly, it cannot lead to an over-simplistic conclusion that a single service is being provided.

++ There are instances when unaccompanied baggage is transported ina passenger Aircraft. Will Service Tax not be leviable? There are many instances when the passengers bring commercial quantities of goods along with them. In such cases, the passenger will be asked to file a Bill of Entry as in the case of Commercial Cargo. Thus the baggage becomes Commercial Cargo and its transportation will be leviable to Service Tax.

++ Therefore the service of excess baggage transportation cannot be considered as an integral part of the services of transportation of passenger, when both the services are distinctly leviable to tax under Service Tax law.

++ In my view, the service of transportation of goods by Air specifically covers the carriage of excess baggage. Therefore there is no need to refer to clause (b) which speaks of composite services.

++ The appellants are paying service tax on passenger transportation and cargo transportation. Therefore, they cannot plead ignorance for not paying service tax on charges for excess baggage. They are well aware of Service Tax Law. But they chose not to declare the excess baggage charged collected by them in the ST-3 returns. They have suppressed information and are, therefore, liable to penalty under Section 78 of the Finance Act, 1994.

The matter, therefore, came to be referred to the third Member on 02/12/2014.

The Third Member (Judicial) on reference heard the matter on 23.04.2015 and has passed an order on 16.09.2015.

He has held as under –

++ I find that the carrying of baggage by the appellant Airlines is incidental to the service being 'transport of passengers by Air' and the same is classifiable under Section 65(105)(zzn). There is no separate contract in the facts of the case for transport of goods (excess baggage). More particularly, in the case of agreement of transport of passengers by Air, there is no element of transport of unaccompanied goods. Thus, agreeing with the learned Member (Judicial), I hold that the excess baggage charges collected by the appellant Airlines is integral part of the service provided for 'transport of passengers by Air'.

++ I find that there is no case of any suppression on the part of the appellant Airlines. The appellant Airlines have duly disclosed the receipts from passengers towards excess baggage in their Books of Account, maintained in the ordinary course of business. I find that the issue is one of interpretation of the taxing statute and as such being debatable, there is no element of any fraud or suppression. Accordingly, the extended period of limitation is held not invokable.

The Majority order, therefore, is -

(1) The excess baggage charges collected by the appellants are an integral part of the main service namely transportation of passengers by air. Therefore, the demand of service tax is set aside.

(2) Extended period of limitation is not invokable.

(3) Penalties cannot be imposed on the appellants.

All the appeals were allowed.

In passing : Missing the woods for the trees…hope this baggage rests peacefully!

(See 2015-TIOL-2329-CESTAT-MUM)