Air India Limited Vs Principal Commissioner of Service Tax (CESTAT Kolkata)
The case concerns a dispute regarding Service Tax demands raised against an airline engaged in the transportation of passengers and goods by aircraft. The airline also offered promotional schemes to customers that included coupons for hotel stays and transportation to tourist locations along with other services for a lump sum amount. These promotional offerings were described as “tour packages.”
During the period from 2008–09 to 2010–11, the airline also incurred certain expenses on behalf of its erstwhile wholly owned subsidiary, Airline Allied Services Limited (AASL), and subsequently recovered these expenses from the subsidiary. The expenses included training charges, dry provisions obtained from the catering department, payments made towards repairs of different items, and adjustments for expenditure incurred on behalf of AASL. The airline had been filing its Service Tax returns on time for the relevant period.
A Central Excise Revenue Audit (CERA) conducted by the Office of the Principal Director of Audit, Central Excise, Kolkata examined the records for the period from 2008–09 to 2010–11. Following the audit, a show cause notice dated 24 September 2013 was issued by invoking the extended period of limitation. The notice alleged that the airline was not entitled to the benefit of abatement under Notification No. 01/2006-S.T. dated 1 March 2006 in respect of “Tour Operator Services.” According to the department, the airline had availed CENVAT credit on common input services that were also used for providing tour operator services, thereby violating the conditions of the notification. The notice also alleged that the airline had failed to pay Service Tax under the category of “Airport Service” in relation to services provided to AASL.
The Service Tax demand was divided into two parts. The first demand of ₹41,41,028 related to “Tour Operator Service” for the financial year 2010–11. The second demand of ₹13,59,238 related to “Airport Service” for the financial years 2008–09 and 2009–10. The adjudicating authority confirmed both demands along with interest and penalties.
The airline challenged the order before the Tribunal. Regarding the demand under “Tour Operator Service,” the airline argued that its tour packages did not fall within the statutory definition of tour operator service under Section 65(105)(n) of the Finance Act, 1994. The airline relied on an earlier decision of the Tribunal in its own case as well as a decision involving another airline. It was contended that the airline merely provided packages that included airfare, accommodation and other features, but it did not plan, schedule, organize or arrange tours for passengers.
The Tribunal examined the statutory definition of “tour operator” under Section 65(115) of the Finance Act, 1994. The definition includes persons engaged in the business of planning, scheduling, organizing or arranging tours, which may include accommodation or sightseeing services, or persons operating tours in a tourist vehicle covered by a permit under the Motor Vehicles Act. The Tribunal also referred to its earlier decision in the airline’s own case. In that earlier decision, the Tribunal had reviewed the package features and observed that the airline was not engaged in consultancy or activities involving planning, scheduling, organizing or arranging tours on behalf of passengers.
The Tribunal further referred to a previous ruling involving another airline where it was held that airline packages offering airfare, hotel accommodation, airport transfers and sightseeing do not amount to tour operator service when the airline does not plan or organize tours for passengers. Based on these findings, the Tribunal concluded that the airline’s activities did not fall within the scope of “Tour Operator Service.” Consequently, the Service Tax demand raised under that category was held to be unsustainable.
However, the Tribunal noted that the airline had already collected Service Tax from its customers and paid the tax after claiming abatement. Since the tax had been collected and paid, the Tribunal held that the amount was not refundable to the airline.
The second issue concerned the demand raised under the category of “Airport Service.” The demand related to services allegedly provided by the airline to its subsidiary during the financial years 2008–09 and 2009–10. The Tribunal examined the definition of “Airport Service” under Section 65(105)(zzm) of the Finance Act, 1994 as it existed prior to 1 July 2010. Under the definition applicable during the relevant period, taxable airport service meant any service provided to any person by an airport authority or by any person authorized by such authority within an airport or civil enclave.
The Tribunal observed that the airline was not a person authorized by the airport authority to provide services. Therefore, the activities undertaken by the airline could not be classified as airport service under the statutory definition applicable during the relevant period. The Tribunal also referred to an earlier decision where it was held that, prior to the amendment made in 2010, authorization from the airport authority was a necessary condition for taxing services under the category of airport services.
The Tribunal noted that the definition of airport service was amended with effect from 1 July 2010 to expand the scope of the service. However, the entire demand in the present case related to the period prior to the amendment. Accordingly, the Tribunal held that the services provided by the airline to its subsidiary did not qualify as airport service for the relevant period.
In light of these findings, the Tribunal concluded that both the demands raised by the department were not sustainable. As the Service Tax demands themselves were not maintainable, the associated interest and penalties were also held to be not imposable.
The Tribunal therefore set aside the impugned order confirming the demands along with interest and penalties and allowed the appeal with consequential relief.
FULL TEXT OF THE CESTAT KOLKATA ORDER
