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ST - Excess baggage charges collected by airlines are integral part of Transportation of pax by air - demand on this amount under 'Transportation of Goods by Air' not sustainable: SC

By TIOL News Service

NEW DELHI, DEC 01, 2016: BOTH the  respondents 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 viewed that  charges collected by the Airlines for the excess baggage is liable to Service Tax under the category of "Transportation of Goods by Air".

The demands were confirmed by the adjudicating authority.

The CESTAT observed that the appellants had a prima facie case in favour and, therefore, granted stay. The Bench remarked -

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.

We reported these stay orders as 2013-TIOL-1463-CESTAT-MUM and  2014-TIOL-1590-CESTAT-MUM respectively.

When the appeals were heard, there was a difference of opinion and, therefore, the matter came to be referred to the third Member.

The third member on reference observed -

++ 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'.

++ 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, while allowing the appeals was -

(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.

We reported this decision as   2015-TIOL-2329-CESTAT-MUM .

Pained by this order, the department had filed a Civil Appeal in the Supreme Court.

After condoning the delay, the Supreme Court dismissed the Civil Appeal.

(See 2016-TIOL-210-SC-ST)


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