Lufthansa German Airlines Vs Commissioner of Service Tax (CESTAT Chandigarh)
Introduction: In a recent judgment, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Chandigarh addressed the issue of whether passenger service fees and airport taxes collected from passengers should be included in the assessable value for the computation of service tax. The case, M/s Lufthansa German Airlines versus the Commissioner of Service Tax, dealt with the Department’s contention that service tax should be levied on these fees and taxes. Multiple show-cause notices were issued to the appellant, M/s Lufthansa German Airlines, leading to the confirmation of a demand of Rs. 6,28,72,273 along with interest and penalties in an impugned order dated 30.07.2012.
Detailed Analysis: The primary issue in this case revolved around the taxability of passenger service fees (PSF) and airport taxes that were collected from passengers. The Department argued that these fees and taxes should be included in the assessable value for the computation of service tax.
However, the appellant, M/s Lufthansa German Airlines, contended that the issue had already been settled in their favor in previous cases, and therefore, no service tax should be payable. They relied on several cases to support their stance, including Austrian Airlines (2020 and 2017), Air Astana (2018), United Airlines (2017), American Airlines (2016), and their own case, Lufthansa German Airlines (2018).
In their defense, the appellant pointed to Rule 6 of the Service Tax (Determination of Value) Rules, 2006, which excludes certain charges from the assessable value for service tax purposes. Rule 6 was particularly relevant because it had been amended with effect from February 22, 2010, and it stated that the value of taxable services does not include taxes levied by any government on any passenger traveling by air if shown separately on the ticket or invoice. In other words, if these taxes and fees were separately stated on the ticket, they should not be included in the assessable value for service tax.
The appellant further explained that the Airport Tax was collected in accordance with Section 22 of the Airport Authority of India Act, 1994, which empowered the authority to charge fees for amenities provided to passengers and visitors at airports. The Passenger Service Fee was collected in accordance with Aircraft Rules, 1937, which authorized the collection of this fee from embarking passengers at rates specified by the Central Government. Furthermore, they pointed out that the appellant had complied with the requirement of showing these charges separately on the tickets, as per Rule 6.
The Tribunal concurred with the appellant’s arguments and cited their earlier decision in the appellant’s own case. In that decision, it was ruled that the PSF and Airport Tax should not be included in the assessable value of services provided by the appellant. They relied on the exemption Notification No. 12/2010 dated February 12, 2010, which specifically excluded statutory taxes charged by any government on air passengers from the taxable value for the purpose of levy of tax. Therefore, the service tax was not payable by the appellant.
Conclusion: The CESTAT Chandigarh’s judgment in the case of M/s Lufthansa German Airlines versus the Commissioner of Service Tax clarified that passenger service fees and airport taxes collected from passengers are not includable in the assessable value for the computation of service tax. This decision is consistent with previous rulings in similar cases and provides important clarity for the airline industry regarding service tax on these specific charges. The CESTAT’s stance is based on Rule 6 of the Service Tax (Determination of Value) Rules, 2006, and the exemption Notification No. 12/2010, further strengthening the appellant’s position and offering a significant precedent for the industry.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
The issue in the present appeal, filed by M/s Lufthansa German Airlines, relates to the includability of passenger service fee and airport taxes collected from passengers in the assessable value for computation of service tax. Department was of the opinion that service tax is payable on the same and three show-cause notice dated 23.04.2009,23.04.2010 and 21.04.2011 to that effect were issued to the appellants and a demand of Rs. 6,28,72,273/- was confirmed along with interest and penalties vide impugned Order dated 30.07.2012.
2. Ms. Ashwini Chandrasekaran, learned Counsel for the appellants, submits that the issue is no longer res integra having been decided in their favour in their own case and in other cases. She relies on the following cases:
