No Service Tax on Convenience fee & cancellation charges for services to Airlines under BAS

Yatra Online Pvt Ltd Vs Commissioner, CGST, Gurugram (CESTAT Chandigarh)

The case Yatra Online Pvt Ltd Vs Commissioner, CGST, Gurugram (CESTAT Chandigarh) focuses on whether service tax is applicable on the ‘Convenience Fee’ and ‘Cancellation Charges’ collected by the appellant, Yatra Online Pvt Ltd, in the course of providing Air Travel Agent Services. The key points and arguments presented in the case are summarized below:

Key Issues and Arguments:

1. Nature of Charges:

• The appellant, Yatra Online Pvt Ltd, collected ‘Convenience Fees’ for facilitating online booking of air tickets and ‘Cancellation Charges’ for ticket cancellations.
• The Revenue contended that these fees should be categorized under ‘Business Auxiliary Services’ (BAS) and thus subject to service tax.

2. Reciprocity and Flow of Consideration:

• The tribunal noted that there is a direct reciprocal relationship between the appellant and the customers who pay the ‘Convenience Fee’ and ‘Cancellation Charges.’
• The airlines, although involved in the collection of these charges, do not have any vested interest in them. The relationship and the flow of consideration are strictly between Yatra Online Pvt Ltd and its customers.

3. Classification of Services:

• The appellant argued that all the activities they perform are incidental to the primary service of an Air Travel Agent as per Section 65(A) of the Finance Act.
• It was contended that the ‘Convenience Fee’ and ‘Cancellation Charges’ should be classified under ‘Air Travel Agent Services’ rather than BAS.
• The tribunal supported this view, emphasizing that these charges are integral to the booking process and cannot independently exist without the booking of air tickets.

4. Precedent Cases and Tribunal’s Stand:

• The tribunal referred to the larger bench decision in the case of Kafila Hospitality and Travels Pvt. Ltd., which had held that services related to the booking of air tickets fall under ‘Air Travel Agent Services.’
• The tribunal reiterated that the nature of services provided by the appellant is directly connected with the booking of passage for air travel.

5. Clarifications by CBIC:

• The tribunal referred to a CBIC circular (No. 178/10/2022-GST) which clarified that cancellation fees for various services (like hotel bookings and transportation) are considered part of the principal supply and should be taxed at the same rate.
• It emphasized that ‘Convenience Fees’ and ‘Cancellation Charges’ are naturally bundled with the principal service of booking air tickets.

6. Service Tax Liability:

• For the period before the negative list regime (before 01-07-2012), the tribunal found that the appellants had already discharged their service tax liability as per the prescribed rate under Rule 6(7) of the Service Tax Rules.
• For the period after the introduction of the negative list (post 01-07-2012), the tribunal noted that an option was available to pay service tax either on the value of services as determined or as a percentage of the basic fare under Rule 6(7).
• It was concluded that the ‘Convenience Fee’ and ‘Cancellation Charges’ cannot be subjected to additional service tax beyond what was already paid.

7. Bundling of Services:

• The tribunal highlighted the concept of naturally bundled services as per Section 66F of the Finance Act.
• It noted that the services of online booking and associated fees are inherently linked and should be treated as a single service for tax purposes.

Conclusion:

The tribunal concluded that:

• The ‘Convenience Fee’ and ‘Cancellation Charges’ collected by Yatra Online Pvt Ltd are integral to their service as an Air Travel Agent.
• These charges are naturally bundled with the primary service of booking air tickets and should be classified under ‘Air Travel Agent Services.’
• No additional service tax liability arises on these charges beyond what was already discharged under the specified rules.
• The tribunal’s decision reflects a comprehensive understanding of the nature of services provided by the appellant and supports the classification under ‘Air Travel Agent Services’ rather than ‘Business Auxiliary Services.’

This decision underscores the importance of correctly classifying services based on their essential characteristics and bundled nature, ensuring that service providers are not unduly burdened with additional tax liabilities.