Case Law Details
Nitco World Travels Vs Commissioner of Service Tax (CESTAT Kolkata)
Legal interpretations in the financial world can significantly impact the way businesses are conducted. One such crucial case is the matter of Nitco World Travels vs Commissioner of Service Tax, adjudicated by the CESTAT Kolkata. This case has pivotal implications for the service tax on commission and incentives in the travel industry. It particularly concerns commissions received by travel agencies from CRS (Computerized Reservation System) developers.
The Background
Nitco World Travels entered into an agreement with Amadeus India Pvt. Ltd. for using their advanced CRS. The CRS acts as an interface, providing information about different travel-related services like air transport, hotels, etc., thereby facilitating reservations.
The Issue
The case revolved around whether the commission or incentive received by Nitco World Travels for using Amadeus India’s CRS should be subject to service tax. The tax was considered under the term “Business Auxiliary Service,” as defined by section 65(19) of the Finance Act, 1994.
The Arguments
- The Counsel for Nitco argued that the issue was already resolved in favor of non-taxation by the Larger Bench in a previous similar case, i.e., Kafila Hospitality & Travels Pvt. Ltd. vs Commr. of S.T., Delhi.
- The Revenue, on the other hand, upheld the original findings, insisting that the commission was subject to service tax.
The Judgment
The Tribunal referred to a prior Larger Bench ruling, asserting that the commission in question was not liable for service tax. The decision was also substantiated by another judgment in the case of Asveen Air Travels (P) Ltd., which followed the Larger Bench’s ruling.
Implications
The judgment is significant as it sets a precedent for similar issues, particularly involving commissions or incentives received from CRS developers. It provides relief to travel agencies who rely on such commissions and clarifies that these are not subject to service tax.
Conclusion
The case of Nitco World Travels vs Commissioner of Service Tax elucidates the complexities surrounding the levy of service tax on commissions received by travel agencies from CRS developers like Amadeus India. The judgment by CESTAT Kolkata brings a sigh of relief for many in the travel industry, exempting them from the imposition of service tax on such commissions. This ruling is a pivotal one, as it not only addresses the issue at hand but also sets a precedent for similar future cases.
FULL TEXT OF THE CESTAT KOLKATA ORDER
Both the appeals are having common issue, therefore, both are disposed of by a common order.
2. The facts of the case are that M/s. Nitco, entered into an agreement with M/s. Amadeus India Pvt.Ltd., an Indian Corporation with Operational office at 3GH, Hansalaya, Barakhamba Road, New Delhi-110001. M/s. Amadeus CRS is an advanced computerized reservation system which works as an interface between the CRS user and different service provider, viz., airlines, hotels, car rental company, rail road, tour operation or other supplier of other travel relates services included or accessible through the Amadeus system. Amadeus CRS provides the user information regarding schedule, fares, availability of air transport and other travel related services and through which reservation can be made and/or tickets issued. It therefore appears that the said incentive/commission has been given to M/s. Nitco by M/s. Amadeus in as much as M/s. Nitco use the CRS of M/s. Amadeus and thereby promoting the business of M/s. Amadeus to work as an interface between the service provider, as aforesaid, and the clients/customers. Thus the said activity of M/s. Nitco appears to be classifiable under Business Auxiliary Service within the meaning of subsection 19 of section 65 of Chapter V of the Finance Act, 1994 as amended and service tax at appropriate rate appears to be payable on the commission/incentive so earned by M/s. Nitco in terms of section 66 of the Finance Act, 1994, as amended. Therefore, two show cause notices were issued to the appellant which were adjudicated and it was held that the incentive/commission received by the appellant from M/s. Amadeus India Pvt.Ltd. qualify as business auxiliary service under section 65(19) of the Finance Act, 1994 and they are liable to pay service tax. Accordingly, the demand of service tax was confirmed along with interest and penalties were also imposed. Against the said orders, the appellant is before us.
3. The Ld.Counsel appearing on behalf of the appellant submits that the issue is no more res integra in the light of the Larger Bench decision in the case of Kafila Hospitality & Travels Pvt.Ltd. vs. Commr. of S.T., Delhi [2021 (47) G.S.T.L. 140 (Tri.-LB)], which was followed by this Tribunal in the case of Asveen Air Travels (P) Ltd. vs. Commissioner of GST & Central Excise, Chennai vide Final Order No.40143/2022 dated 21.04.2022. Therefore, the impugned orders are to be set aside.
4. On the other hand, the Ld.AR for the Revenue reiterated the findings of the impugned order.
5. Heard the parties, considered the submissions.
6. On careful consideration of the submissions made by both the sides, the issue to be decided by us is that whether the incentive/commission received by the appellant for using CRS developer is subject to service tax or not.
7. The said issue has been settled by the Larger Bench of this Tribunal in the case of Kafila Hospitality & Travels Pvt.Ltd. (supra), which has been followed by this Tribunal in the case of Asveen Air Travels (P) Ltd. (supra), wherein this Tribunal has observed as under:-
“5. The issue that arises for consideration is whether the incentive received by the appellant for using the CRS Developer is subject to service tax or not. The Larger Bench in the case of Kafila Hospitality and Travels Pvt. Ltd. (supra) has held that the said incentive is not subject to levy of service tax. The relevant para is noted under :-
“2. Certain essential facts need to be stated for appreciating these issues. The appellant is an approved agent of International Air Ticketing Association [IATA] and is engaged in providing air tickets. The travel industry basically comprises of five key players namely airlines, travel agents, Central Reservation System [CRS] Companies, sub-agents and passengers. The airlines provide air transport services to passengers and discharge their service tax liability in terms of Section 65(3b) read with Section 65(105)(zzzo) of the Finance Act, 1994 [Finance Act]. The travel agents accredited by IATA are authorized to sell the air travel services provided by airlines to customers/sub-agents in the form of airline tickets. CRS Companies provide an online portal for booking of tickets offered by various airlines. They enter into agreements with airlines for rendering ‘Online Information Data Access and Retrieval‘ [OIDAR] services, wherein they collate data such as ticket availability, price, duration of journey, etc., for access by subscribers. CRS Companies also enter into subscriber agreements with IATA agents wherein the IATA Agents are permitted to use the data base available on the portal for booking of airline tickets for passengers/sub-agents. Sub-agents can also purchase airline tickets from the IATA agents for their customers (passengers). The passengers are the ultimate recipient of air travel services.
3. IATA agents are persons who have been authorized to sell airline tickets directly from the airlines to passengers/sub-agents. For sale of tickets, the IATA agents receive commission from the airlines. In addition to the said commission received for booking of airline tickets, the airlines also incentivize IATA agents by paying target-based incentives, which are linked to guaranteed booking of a minimum number of airline tickets. In certain cases, sub-agents also book airline tickets through IATA agents. In a situation where a sub-agent achieves a predetermined target of bookings through a particular IATA agent, the IATA agent pays an incentive to the sub-agent.
4. The CRS Companies provide OIDAR services to airlines. In lieu of these services, the airlines pay consideration to the CRS Companies in the form of ‘charges/commission‘. The CRS Companies also allow IATA agents to subscribe to their portals for booking tickets for the passengers/sub-agents. Earlier, the IATA agents were charged by the CRS Companies for access to the portals. However, due to increasing competition in the market, the CRS Companies stopped charging the agents for booking through the portal and instead, in order to increase the flow of business, the CRS Companies started to part with a portion of their consideration (charges/commission) and paid the same to the IATA agents when the agents achieve a minimum quantum of bookings through the concerned CRS portal. This incentive is normally termed as ‘CRS commission‘. The three CRS Companies involved are Amadeus India Private Limited [Amadeus], Interglobe Technology Quotient Pvt. Ltd. [Galileo] and Abacus India [Abacus].
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41. On a consideration of the entire matter it transpires that the following two main issues arise for determination :-
(Q) Whether service tax can be levied under the category of ‘business auxiliary service’ on target based incentives paid to the travel agents by airlines by alleging that the travel agents are promoting and marketing the business of the airlines; and
(Q) Whether the commission paid by CRS Companies to travel agents can be subjected to service tax under the category of ‘business auxiliary service’ by alleging that the travel agents are promoting and marketing the business of such companies.
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58. Thus, by rendering of services connected to travel by air, a travel agent would render “air travel agent” services, which services cannot be said to be for ‘promotion or marketing’ for the airlines.
(Q) Whether the air travel agent is promoting the business of CRS companies
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71. This apart, the definition of BAS would also reveal that the service provider must promote or market the service of a client. As noticed above, it is not a case where the air travel agent is promoting the service of airlines/CRS Companies. The air travel agent is, by sale of airlines ticket, ensuring the promotion of its own business even though this may lead to incidental promotion of the business of the airlines/CRS Companies. Thus, in terms of the provision of Section 65A(2)(a) of the Finance Act, the classification of the service would fall under “air travel agent” services and not BAS.
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80. It, therefore, clearly transpires from the aforesaid decisions that incentives paid for achieving targets cannot termed as “consideration” and, therefore, are not leviable to service tax under Section 67 of the Finance Act.
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84. The inevitable conclusion, therefore, that follows from the above discussion is as follows :-
(i) the air travel agent is promoting its own business and is not promoting the business of the airlines;
(ii) the air travel agent is not promoting the business of the CRS Companies;
(iii) in any view of the matter, the classification of the service would fall under “air travel agent” service and not “BAS” in terms of the provisions of Section 65A of the Finance Act; and
(iv) the incentives paid for achieving the targets are not leviable to service tax.
6. Following the said decision, we are of the considered opinion that the demand cannot sustain and requires to be set aside, which we hereby do. In the result, the impugned order is set aside. The appeal is allowed with consequential relief, if any.”
8. The issue is no more res integra in the light of the decision of the Larger Bench as well as followed by this Tribunal in the case of Asveen Air Travels (P) Ltd. (supra), we hold that the incentive/commission received by the appellant from M/s. Amadeus India Pvt.Ltd. is not liable to tax, in terms of section 65(19) of the Finance Act, 1994.
9. Therefore, we set aside the impugned orders and allow the appeals with consequential relief, if any.
(Operative part of the order was pronounced in the open Court.)
