By TIOL News Service

MUMBAI, FEB 20, 2017: BOTH, the assessee and Revenue, are in appeal before the CESTAT against the order passed by CST, Mumbai.

It is the contention of the assessee that the carrier enters into a separate agreement with IATA agents for sale of cargo space and ticketing and, in addition to normal commission which is deducted by agents from the fare of ticket, special incentive linked to productivity are also payable. As verification has to be carried out, the assessee is entrusted with the amount as custodian for disbursement and which is executed on claim filed by IATA agents. Non-claimed amounts remain in transit with the assessee who is liable to discharge the same when claimed.

Revenue, in its appeal, seeks to demand tax on the amount of Rs. 2,58,43,291/- being the receipts from M/s Saudi Airlines for discharge of commission to IATA agents. It is their contention that section 67 of Finance Act, 1994 levies tax on gross receipts and that the adjudicating authority had erred in excluding a portion from the gross receipts.

The Bench observed -

+ The contention of Revenue would be tenable if some service was rendered by IATA agents to the assessee for which the consideration was a portion of the incentive received from M/s Saudi Airlines . In the absence of such a service, it would not fit into the definition of 'taxable service' among those enumerated in Section 65 (105) of Finance Act,1994.

+ The impugned order appears to hold that the unclaimed amount is commission received as General Sales Agent and liable to tax. In these circumstances, expression 'gross amount charged' in section 67 of Finance Act, 1994 is limited to the consideration taxed in the impugned order because the expression 'gross amount charged', is not an isolated phrase but to be read in conjunction with the expression 'for such service provided'. Consequently there is no scope for taxing the amounts transferred to IATA agents as consideration for service rendered by assessee.

The appeal of Revenue was held to be not sustainable.

On the amount of target incentive received from M/s Saudi Airlines for the periods covered in the two notices and on the amount of tax computed on commission on cargo received as General Sales Agent, service tax is demanded and confirmed under the category of BAS.

As for the appeal by the assessee to consider the amount as cum-tax, the Bench while agreeing to the same observed – "As the amount is not evidenced as receipts for services but is merely deemed to be so, it is plain that tax has not been collected on this amount. Moreover the amount paid by the airline is a consequence of contractual terms which does not admit to additional payment of tax on the contracted amount. In accordance with principles of equity, the amount on which tax has been collected should be considered as including the tax component...Likewise, the commission received as General sales Agent on cargo bookings effected by IATA agents is covered by contractual agreement which, too, does not provide for tax liability on the amount paid by the airlines. Consequently, we find that they are entitled to 'cum-tax' valuation of services on which tax has been computed. This would reduce the tax liability, interest liability and penalties arising therefrom."

The plea of the assessee for adjustment of excess tax paid towards the tax liability was not acceded to by the Bench by opining - Such adjustment can arise only upon invoking the provisions of Section 73A of Finance Act, 1994 which, not having been denied thus far to the assessee by the competent authority, is beyond the scope of determination in this appeal.

In the matter of penalty imposed u/s 76 of FA, 1994, considering the promptitude with which payments were made along with interest, the CESTAT held that the same is not warranted and accordingly set it aside.

Conclusion:

+ Appeal of assessee is disposed of.

+ Appeal of Revenue is dismissed.

(See 2017-TIOL-511-CESTAT-MUM)