ST - When value has been fixed as per Rule 6(7) of STR, 1994, can Incentive be subjected to service tax as 'Commission' under BAS - matter referred to LB: CESTAT
By TIOL News Service
NEW DELHI, NOV 21, 2018: THE appellant, a travel agent engaged in providing services of booking of tickets for passengers travelling by air and other travel related services, opted to discharge service tax liability on basic fare as provided under Rule 6(7) of the STR, 1994 as amended.
The case of the appellant is that there are two limbs of transaction, first being purchase of ticket from IATA/GSA agent on which the service tax is charged by the Airlines, second is the sale of tickets to its customers on which it has option of discharging its service tax liability either on Commission received by it at full rate or at the rate prescribed under Rule 6(7) of the Service Tax Rules, 1994 (STR) i.e. on basic fare - commissionable fare. Since it has opted to discharge service tax liability on Basic fares i.e. Commissionable fare, the value of services rendered by it stands fixed and, therefore, any other income received by it is not taxable.
As the Commissioner, Service Tax, Delhi confirmed the demand of Service Tax by negating the submissions made by the assessee, the appellant is before the CESTAT.
The order is challenged on the following counts -
(a) Incentive for appreciable performance cannot be subjected to service tax;
(b) Since value of service has been fixed as per Rule 6(7) of the Service Tax Rules, 1994, therefore, Incentive cannot be subjected to service tax as 'Commission" under BAS without specifying the applicable sub category of BAS;
(c) To attract the taxability under BAS, there must be three parties, which obligation has not been discharged while confirming the demand
The appellant submits that during the pendency of the appeal, the Principal Bench CESTAT in the case of D. PAULS CONSUMER BENEFIT LTD. - 2017-TIOL-908-CESTAT-DEL [Order dated 15th February 2017] held that the "incentive" is taxable under the category of BAS and various Benches of CESTAT have followed the said decision without rendering any independent findings.
The Principal Bench, in another case of M/s. Jose Travel - 2017-TIOL-1814-CESTAT-DEL in identical set of facts allowed the appeal by way of remand by observing that - In a BAS, three party arrangement of transaction is a requirement.
Thereafter, another Division Bench of CESTAT, Allahabad vide FINAL ORDER NO -70165/2018 dated 9th January 2018 inthe case of Akbar Travels India Pvt Ltd., held that since the Travel agent is discharging service tax liability under Rule 6(7) of the STR, therefore, the incentive received is not taxable.
In view of the divergent judgments, the appellant has requested the Bench to refer the matter to the larger Bench on the grounds that the decision rendered by Principal Bench, CESTAT, Delhi militates against the settled judicial precedents on multiple issues detailed below:-
(i) Incentive remains incentive irrespective of Industry because it is not on account of rendition of any service but on appreciable performance;
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(ii) to confirm demand of service tax, the sub clause under which the activities are covered must be specified
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(iii) to attract the classification under BAS, the agreement must be between three parties; therefore, in absence of third party;
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(iv) Once the value of service is fixed, can any other consideration received be taxed under another category?
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Once the issue has been settled in favour of the Appellant in its own case and the same has been accepted by the Department since no appeal filed, a divergent view cannot be taken.
(v) To fasten tax liability, there must be a value of service as provided under section 67 of the Chapter V of Finance Act, 1994, as amended up to date.
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(iv) the relationship of service provider and service receiver must exist;
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The Bench considered the submissions and observed -
"20. After hearing the rival submissions and on perusal of records and consideration of various judgment placed on record it appears that the order in case of D.Paul's case - 2017-TIOL-908-CESTAT-DEL has been passed without considering and discussing any of the judgments pronounced by various Benches on non-taxability of incentives, without specifying the sub clause of BAS and the targeted audience before whom the services of Galileo India, Amadeus India and Calleo Distribution were promoted.
21. It is cardinal principal that co-ordinate Bench of CESTAT could not have taken a contrary view to the settled judicial precedents and in case of any difference of opinion the matter should have been referred to Larger Bench. There is a possibility that the both the arguing Counsel as well as Learned DR did not place the settled legal position before the Bench. Hence, in our considered view and in interest of justice, the matter must be referred to larger Bench, following the mandate of judicial discipline as held by Hon'ble Supreme Court of India [in cases of KRAPS Chem Pvt. Ltd. - 2015-TIOL-102-SC-CX, SRD Nutrients Pvt Ltd. - 2017-TIOL-416-SC-CX, Mahindra & Mahindra Ltd. - 2014-TIOL-71-SC-CX "
Accordingly, on the aforesaid questions, the matter was referred to the President for determination of the issues by the Larger Bench.
(See 2018-TIOL-3504-CESTAT-DEL)
