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:
3. Shri Nikhil Kumar Singh assisted by Shri Narinder Singh, learned Authorized Representative for the Department reiterates the findings of the impugned order and submits that though, this Bench has decided the issue in favour of the appellants, an appeal has been filed by the Department before the Hon’ble Apex Court who have issued notice and directed to tag the same with Civil Appeal No.3239 of 2015 filed by Austrian Airlines.
4. Heard both sides and perused the records of the case. We find that the issue is no longer res integra having been decided in favour of the appellants in their own and in the cases of other airlines wherein the facts are identical. We find that this Bench in appellant’s own case cited above observed as follows:
7. The appellant is relying on Rule 6 of the Service Tax (Determination of Value) Rules, 2006, which has been amended with effect from 22-2-2010 which reads as under :-
“Rule 6. Cases in which the commission, costs, etc., will be included or excluded. –
(2) Subject to the provisions contained in sub-Rule
(1), the value of any taxable service, as the case may be, does not include –
(v) the taxes levied by any Government on any passenger travelling by air, if shown separately on the ticket, or the invoice for such ticket, issued to the passengers.”
We find that Airport Tax has been collected by the appellant as per Section 22 of Airport Authority of India Act, 1994 which empowers the authority to charge fees for the amenities given to the passengers and visitors at any Airport. Further, the PSF has been charged in terms of Aircraft Rules, 1937, wherein Rule 88 of the said Rules, authorise the licensee to collect fees to be called as Passenger Service Fee from the embarking passengers at such rates as the Central Government may specify, and is also liable to pay for security component to any Security Agency designated by the Central Government for providing the security service. We find that the said tax has been collected by the appellant and same has been shown separately on the tickets. Therefore, the appellant has complied with the condition of Rule 6 of Service Tax (Determination of Value) Rules, 2006 and the same are not includible in the assessable value of service provided by the appellant, as the impugned period is, post 27-2-2010 and the said issue has been examined by this Tribunal in the appellant’s own case wherein this Tribunal has made it clear that these charges are not to be included in the assessable value of the services provided by the appellant relying on the decision in the case of Continental Airlines v. CST, New Delhi (supra). Moreover, as per the exemption Notification No. 12/2010, dated 12-2-2010, statutory taxes charged by any Government on Air passengers would be excluded from the taxable value for the purpose of levy of tax and therefore, the service tax is not payable by the appellant.
8. In view of the above analysis, we hold that Passenger Service Fee (PFS) and Airport Tax are not includible in the assessable value of the services provided by them. Therefore, the impugned order deserves no merit, accordingly, the same is set aside. Appeal is allowed with consequential relief.
5. In view of the above decision in the appellant’s own case and in view of the consistent stand taken by the Tribunal in this regard, we are of the considered opinion that the appellant succeeds in their Learned Authorized Representative submits that though the Hon’ble Supreme Court’s website shows, that the cases, tagged with the case of the appellant before the Hon’ble Supreme Court, to have been disposed of as per Hon’ble Apex Court’s website; however, no copy of the order is available; it is also not known whether the appeal filed by the appellants is also disposed of. No copy of such order, Interim or Final, passed by the Hon’ble Apex Court in the case of the appellants or others on this issue, has been produced before us. Therefore, we need to consider the ratio of the cases as available now. Under the circumstances, we have no reasons, whatsoever, to differ from the stance taken by this Bench earlier. Consequently, we hold that passenger service fee and airport taxes collected from passengers is not includable in the assessable value for computation of service tax.
6. In the result, the appeal is allowed.
(Pronounced on 20/10/2023)