Case Law Details

Case Name : British Airways PLC Vs Commissioner of Service Tax, New Delhi (CESTAT Delhi)
Appeal Number : Final order no. st/a/412 of 2012-cus.
Date of Judgement/Order : 31/05/2012
Related Assessment Year :
Courts : All High Courts (3707) CESTAT Delhi (193)

CESTAT, NEW DELHI BENCH

British Airways PLC

v/s.

Commissioner of Service Tax, New Delhi

Final order no. st/a/412 of 2012-cus.

APPEAL NO. ST/183 of 2009

MAY 31, 2012

ORDER

Sahab Singh, Technical Member – This is an appeal filed by M/s. British Airways PLC- India Branch Office (hereinafter referred to as appellant) against order-in-original No. 80/VKG/2008 dated 19.12.2008 passed by Commissioner of Service Tax, New Delhi.

They started collecting service tax on Fuel/Insurance charges w.e.f. 18.9.2007. It was also noticed by the department that they issued tickets prior to 1.5.2006 against monetary consideration but tickets were used on or after 1.5.2006. Appellant paid Rs. 1,06,98,96,120/-along with interest Rs. 10,19,30,747/- during the investigation. A show cause notice dated 25.7.2008 was issued to them.

(i)  Demanding Service Tax amounting to Rs. 1,22,91,57,595/- for period 1.5.2006 to 30.9.2007 and Rs. 6,16,96,722/- for tickets sold prior to 1.5.2006 but used for journey afterwards, under proviso to Section 73 read with Section 66 and Section 68 of the Act.

(ii)  Demanding Education Cess amount to Rs. 2,45,83,152/- for the period 1.5.06 to 30.9.07 and Rs. 12,33,934/- for tickets sold prior to 1.5.06 but used afterwards under Section 91 read with Section 95 of Finance Act, 1994.

(iii)  Demanding Higher and Secondary Education Cess amounting to Rs. 45,26,210/- under Section 140 of Finance Act.

(iv)  Demanding Rs. 1,15,59,580/- collected by them in excess under Section 73A of the Act, 1994.

(v)  Demanding interest of Rs. 10,23,08,903/- on delayed payment under Section 75 of the Finance Act, 1994. It was also proposed in the show cause notice to impose penalty under Sections 76, 77 & 78 of the Act, on the appellant and to appropriate the amount of Service Tax and interest already deposited by them. Show cause notice was adjudicated by the Commissioner vide the impugned order who confirmed the amounts stated in the show cause notice with minor variation in Service Tax, Cess and Interest.

2. Brief facts of the case are that appellant is engaged in the business of providing services of “Transport of passengers embarking in India for International journey by Air Service” along with other services to its clients. This service became taxable w.e.f. 1.5.2006. Intelligence was gathered by officers of Commissionerate of Service tax that appellant was not paying Service Tax on gross value of the services provided under the category of service ‘Transport of passengers embarking in India for international journey by air service’ as per provisions of Section 67 of Finance Act, 1994 read with Service Tax (Determination of Value) Rules, 2006. Accordingly, investigations were started by the officers in August 2006. Though the appellant is registered with Service Tax Department for other services, they did not obtain registration for air transport of passenger for International Journey within one month from introduction of said taxable service in accordance with Section 69 of Finance Act, 1994 and they obtained registration only on 13.12.2007. During the course of investigations the officers also noticed that appellant was charging and collecting gross amount for provisions of the said taxable service from the passengers. However, appellant was not paying Service Tax on such gross amount to the Government. According to appellant gross amount included the following components.

(a)  Basic Fare

(b)  Fuel Surcharge

(c)  Insurance Charges

(d)  Passenger Service Fee

(e)  Other Statutory Fees and Levies

Appellant collected service tax on basic fare amount since 1.5.2006 and did not deposit the same with Government voluntarily prior to investigation amounts. Amount already deposited was appropriated. Penalty at the rate of 200 per day or amount calculated at the rate of 2% per month on tax due (whichever is higher) under Section 76 of the Act and penalty of Rs. 1,33,23,63,360/- was imposed under Section 78 of the Act. Rs. 1000/- was imposed as penalty under Section 77 of the Act. Appellant is in appeal before us.

3. Learned Counsel appearing for the appellant submitted that Service Tax on air travel was introduced w.e.f. 1.5.2006 as a separate category on any premium ticket issued anywhere in the world if passenger purchased the same for embarking at International Airport in India. Initially there was confusion in the industry and various permutations and contributions were required to be considered for discharge of this tax. He emphasized that it was in December 2006 that they received first communication on 7.12.2006 though earlier letters reportedly sent by the department were not received by them. In February 2007 they informed the department about the serious difficulty in computing the tax liability.

4. Regarding Service Tax payable on basic fare, he submitted that appellant started paying service tax from October 2006 from time to time on the basis of information available to them in India. All ticketing information is sent by computer of various outside agencies to their London Head Office. Considering that thousands of tickets were sold world wide, this was a massive task which took time for computation of tax liability Accordingly on the receipt of information appellant paid Rs. 95,78,63,497/- plus interest of Rs. 10,19,30,747/- towards basic fare component.

5. On the issue of service tax on Fuel/Insurance Surcharge, all airlines protested about this levy and CBEC in September 2007 clarified that tax is leviable on this component also. The appellant paid this tax amounting to Rs. 7,15,49,076/- plus interest Rs. 1,12,76,408/-though this tax was not recovered from the passengers prior to September 2007.

6. Learned Counsel further stated that it was their consistent stand that service tax is not leviable on the component on statutory levies and charges. He submitted that Passenger Service Fee (PSF) is levied under Rule 88 of the Indian Aircraft Rules, 1937. Section 22 of the Airports Authority of India Act, empowers it to collect fees for amenities given to passenger at airport. Similarly DF is levied under Section 22A of Airport Authority of India Act and UDF is levied under Rule 89 of the Indian Aircraft Rules. Airline is only an intermediary for collecting these levies/charges from passenger for paying to Government. No service is provided with regard to this component by appellant. He pleaded that Government itself realized that service tax cannot be levied on statutory levies/charges and amended Service Tax (Determination of Value) Rules, 2006 by adding sub-rule (v) to Rule 6(2) on 27.2.2010. This sub rule is clarificatory in nature and therefore service tax is not payable on these levies and charges.

7. Regarding Service tax on tickets issued prior to 1.5.2006 but journey undertaken after 1.5.2006, learned Advocate submitted that since tickets were issued prior to levy on 1.5.2006, all airlines protested against this levy. He submitted that Commissioner himself called a meeting on 10-9-2007 and suggested to all airlines to make representation to CBEC under Section 11C of the Act. Appellant made a representation on 28-1-2008 and Board communicated its response in November 2008 and thereafter appellant paid the entire service tax on this component under protest. He further submitted that under Rule 5 of point of Taxation Rule, 2011 no tax shall be payable to the extent invoice has been raised and payment received before such service became taxable. Therefore no tax is leviable on tickets issued prior to 1.5.2006.

8. On cancellation of tickets, learned Counsel submitted that 8658 tickets were cancelled between 1.5.2006 and 30.9.2007 and appellant is entitled to refund of the service tax paid on such tickets. Appellant self adjusted the service tax as per Rule 6(3) of Service Tax Rules for amount of Rs. 14,48,81,180/-. Commissioner did not allow this and confirmed this amount against them on the ground of lack of proof in respect of each and every ticket so self adjusted. He submitted that appellant has completed all the details and is in a position to justify its claim. Therefore, the confirmation of demand for Rs. 14,48,81,480/- is purely arbitrary and unsustainable.

9. Learned Counsel submitted that Commissioner has failed to invoke Section 80 with regard to imposition of penalty despite there being a reasonable cause for delay in payment and the default. He contended that the delay in payment of the service tax was due to lack of clarity in the taxability of various components of the fare like statutory fees and charges fuel and insurance charges and whether the tax is attracted on overseas booking and there was need to amend the worldwide ticketing system to comply such law. Therefore, these were reasonable causes in delay of payment and there was enough justification of invoking Section 80 in this case. Referring to para 27.5 of the order, he further stated that there is no mens rea on the part of the appellant, therefore there was no case for imposition of penalty. So called suppression mentioned in the show-cause notice is in respect of non-inclusion of certain elements in the value of the service. On inclusion of these elements airlines approached Central Board of Excise and Customs which issued clarification in October 2006 and September 2007. Therefore there is no any suppression on the part of the appellant. Moreover, appellant has paid the service tax amounting to Rs. 1,06,98,96,122/- voluntarily. Section 73(3) specifically prohibits the issue of show-cause notice when the tax is paid prior to issue of show cause notice. He further submitted that penalties cannot be imposed under Sections 76 and 78 of the Act, as penalties under these sections are mutually exclusive. It is therefore unfair, unjust and in appropriate to impose penalties under Sections 76 & 78 of the Act. He relied on the following decisions in support of his contention that no penalty is imposable on them.

(iCommissioner of Central Excise v. First Flight Courier Ltd. 2011 TIOL 67 HC Punj. & Har. ST

(ii)  ESS ESS Engineering v. CCE 2010 (20) STR. 669 (Tri. – Delhi)

(iii)  Kalpataru Power Transmission Ltd v. CST 2011 (22) STR. 206 (Tri. – Ahd.).

10. Shri A.K. Raha learned Counsel for the Revenue submitted that against actual receipt made by the appellant there was under statement of receipt in Returns filed by the appellant and no payment of service tax actually collected for May 2006 to September 2006 and short payment of service tax from October 2006 to September 2007 was made by them. Revenue could know the deliberate suppression when annexure “C” to their letter dt. 12.12.2007 was filed by the appellant giving receipt structures. As against collection of Rs. 1,14,32,28,224/- appellant deposited only Rs. 99,83,47,044/- with the Government and disclosed the gross receipt of Rs. 15,41,84,253/-. All these facts clearly demonstrate how appellant operated without disclosing the actual receipt in service tax Returns and appellant was enriched at the cost of Revenue without making payment of entire Service Tax collected to the Government. All these practices invited the provisions of Section 73A of the Finance Act for recovery of the short payment of entire amount realized but not paid to the Government and invited the interest liability under Section 73B when Section 73A operates. He submitted that show cause notice period began after 18.4.2006 and case is governed by Section 73 (1A) of the Act and in absence of payment of penalty to the extent of 25% of the service tax, the concession in that section cannot be ipso facto given to them. Therefore, deposit of Rs. 1,06,98,96,120/- shall not grant them immunity from penalty provisions of Sections 76 and 78 of the Finance Act.

11. Arguing on the dispute of Rs. 5,46,55,403/- learned Counsel for Revenue submitted that on statutory levy the defence claimed by the appellant is of no avail when there was no law permitting such levy to be excluded for determination of the assessable value. Post legislative amendment by enacting Rule 6(v) of Valuation Rules, 2006 does not grant relief retrospectively.

12. On the plea of self adjustment against levy of Rs. 14,48,81,190/-learned Counsel for the Revenue submitted that when return did not disclose how the adjustment is claimed by the appellant, such claim is not permissible Appellant has no choice of setting off the liability against refund unless that meets the scrutiny of law. Appellant has its own system of computerization and should have furnished the proper facts and figures to claim adjustment.

13. On dispute of service tax levy on tickets sold prior to 1.5.2006 amounting to Rs. 6,29,30,656/- learned Counsel submitted that since the service was provided after the levy was introduced, service tax is liable to be paid on ticket sold prior to 1.5.2006 and journey undertaken own and after 1 5.2006. He relied on the following case laws:

(i)  CCE&C v. Wipro Ltd. 2011 (269) ELT 490

(ii)  Commissioner v. Krishna Coaching Institute 2009 (14) STR 18 (Tribunal)

(iiiCCE v. Ashok Singh Academy 2010 (17) STR (Tri. – Delhi).

14. In reply to the Revenue’s contentions, the learned Advocate for the appellant submitted that appellant had not made any suppression of the fact since the procedure for determination of liability under law was under confusion and there was series of correspondence made between airlines and the government in that regard. The appellant furnished information and reply as and when it was called upon by Revenue to do so and it worked out duty liability on ad hoc basis much prior to issue of show cause notice, tax was calculated and paid. Therefore, there is no suppression of fact by appellant. In respect of statutory levy, the appellants claims exclusion from the assessable value as the taxes and levies do not go to the pocket of the appellant for which that does not make the part of the service. So far as the liability in respect of ticket sold prior to 1.5.2006 is concerned, it was reiterated that no tax shall be levied in absence the letters of law during the material period.

15. After hearing both sides, we find that the Service Tax was introduced on air travel from 1.5.06 as a separate category on all premium classes of the air travel by inserting Sub-clause (zzzo) of Clause (105) of Section 65 of the Act, which reads as under:-

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Section 65 “In this Chapter, unless the context otherwise requires -(105) “taxable services” means any service provided or to be provided (zzzo) “Transport of passengers embarking in India for International journey by air service’ as any service provided or to be provided to any passenger by an aircraft operator in relation to scheduled or non-scheduled air transport of such passengers embarking in India for international journey in any class other than economy class.”

Since the appellant was not paying the service tax, the department started the investigation in August 2006 and sought various information/records from them on the basis of which show-cause notice dt. 25.7.2008 was issued to the appellant. According to the appellant, the gross amount charged from the passengers included the following components :

(i)  Basic Fare

(ii)  Fuel Surcharge

(iii)  Insurance charges

(iv)  Passenger Service Fee

(v)  Other statutory fees and levies

The appellant has deposited the service tax amount of Rs. 106,98,96,120/- with regard to the basic fare and fuel/insurance surcharges and the excess amount demanded under Section 73A of the Finance Act. Appellant also paid an amount of Rs. 6,01,29,752/- under protest only on the basic fare and fuel/insurance surcharges in respect of the tickets booked before 1.5.2006 for travel after 1.5.2006. Appellant has not paid the amount of Rs. 5,46,55,403/- on statutory levies and charges and Rs. 14,48,81,180/- on account of self adjustment of the tax on cancelled tickets. Both sides agreed that there is no dispute with regard to the payment of the service tax on basic fare and fuel/insurance surcharges in the appeal. On these charges the only dispute is regarding the imposition of penalty. The appellant is disputing the payment of service tax on the three components namely the levy of service tax on amount realized by the appellant on account of statutory levies and charges imposed on the passenger tickets and the amount of self adjustment by the appellant on the account of cancellation of ticket. The appellant is also disputing the levy of service tax on tickets sold prior to 1.5.2006 but journey undertaken after 1.5.2006. Appellant has paid the service tax amount on the basic fare and fuel/insurance surcharges components in this category also. Appellant is also challenging the imposition of penalty on them under Sections 76 & 78 of the Finance Act.

16. Regarding the demand on levies and charges collected by the appellant on behalf of the various authorities and paid to them on actual basis the appellant’s contention is that these levies and charges do not form the part of consideration for the services rendered by them. These levies and charges were imposed on passengers by the various authorities and appellant was only the machinery for collection of such levies/charges. Appellant also contends that services for which these charges are levies are not provided by the appellant. Therefore there is no reason to charges of services tax on this components or on the ticket. We find that with regard to the valuation of taxable services, provisions of Section 67 as applicable w.e.f. 1.5.2006 read with provisions of Service Tax (Determination of Valuation) Rules, 2006 are required to be examined :

“The provisions of Section 67, as applicable w.e.f. 18.4.06 read as under:

“67. Valuation of taxable services for charging Service Tax

(1) Subject to the provision of this Chapter, service tax chargeable on any taxable service with reference to its value shall-

 (i)  in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him,

(ii)  in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged is equivalent to the consideration:

(iii)  in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner.

(2) ……..

(3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provisions of such service.

(4) ……………….

Explanation – For the purposes of this section.-

(a)  “consideration” includes any amount that is payable for the taxable services provided or to be provided;

The provisions of Rule 5(1) of the Service Tax (Determination of Value) Rules. 2006 are also reproduced below:

“5. Inclusion in or exclusion from value of certain expenditure or costs.-

(1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service”.

Exclusions are permissible to the extent they are permitted by law, Exclusions have been provided in Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006, which reads as follows:-

“5(2) Inclusion in or exclusion from value of certain expenditure or costs.-

(1) ……….

(2) Subject to the provisions of sub-rule (1), the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely:-

 (i)  the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;

(ii)  the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service.;

(iii)  the recipient of service is liable to make payment to the third party;

(iv)  the recipient of service authorizes the service provider to make payment on his behalf.

(v)  the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party;

(vi)  the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service.

(vii)  the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and

(viii)  the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

Explanation 1.– For the purposes of sub-rule (2), “pure agent” means a person who –

(a)  enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service;

(b)  neither intends to hold nor holds any title to the goods or services so procured or provides as pure agent of the recipient of service;

(c)  does not use such goods or services so procured, and

(d)  receives only the actual amount incurred to procure such goods or services.”

On going through these provisions we find that the service tax is chargeable on any taxable service on the gross amount charged by service provider for such service provided or to be provided and the gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after the provisions of service. The appellant also contends that Sub-rule (v) to Rule 6(2) was enacted w.e.f. 27th February 2010 and the taxes levied by any government on any passenger travelling by air if shown separately on the tickets issued to the passenger are to be excluded from the assessable value. We find that this enactment has not been given any retrospective effect. Therefore it will apply only from the date of enactment of the Sub-rule (v) of Rule 6 and appellants cannot claim any benefit on account of this period prior to the amendment. We find that these statutory charges and fees are collected by the appellant from the passengers and form the part of the gross amount of the air ticket under Section 67 of the Finance Act. There is no provision to exclude any of these charges from the taxable value. We also find inclusion and exclusion from the value of certain expenses and costs are given in the Rule 5 of the Service Tax Rules and Rule 5(1) clearly states that any expenditure or cost incurred by the service provider in the course of taxable service of such expenditure or costs shall be treated as for consideration for the taxable service. Therefore, all the expenditure incurred by the appellant on account of the statutory levies and charges in providing the taxable service shall be treated as a consideration for the taxable service and shall be included in the value for the purpose of charging service tax. There are exclusions of certain expenditures and costs as provided under Rule 5(2) of the Service Tax Rules, 2006 and those exclusions are mentioned at Serial Nos. (i) to (viii) of the Rule 5(2) and for exclusion all conditions are to be fulfilled by the service provider. In the present case appellant has not come forward to show that it fulfilled all the conditions of Rule 5(2). Therefore under Section 67 of the Finance Act and Rule 5 of the Service Tax (Determination of Value) Rules, 2006 no benefit can be given to the appellant on account of statutory levies and charges and the confirmation of demand on these charges by the Commissioner is liable to be upheld.

17. The second issue involved in the appeal is levy of service tax on tickets sold before 1.5.2006 and used after 1st May 2006. The appellant’s contention is that the appellant sold the tickets to the passenger prior to 1.5.2006 and at that time there was no provision under the law of charging service tax Therefore, the service tax cannot be demanded from them of tickets sold prior to 1.5.2006. On going through the definition of the taxable service under this category we find that Section 65(105) indicates that taxable service would mean the services provided by the service provider to the service recipient as well as would also mean the services to be provided at a later date. The appellant being a service provider is required to make payment of service tax on the taxable services which were required to be provided on and after 1.5.2006. The levy of Service Tax has no connection with the receipt of payment and the service tax is required to be paid when the service is provided. Since all tickets though sold prior to 1.5.2006 journey was undertaken on and after 1.5.2006 and at the time of journey undertaken the levy of service tax on the amount of taxable service was in force and, therefore the appellant is liable to pay the service tax on the air tickets sold by them prior to 1-5-2006 also. In this connection appellant also relied upon the Point of taxation Rules, 2011. We find that the Rules have not been given any retrospective effect and accordingly the appellant is not entitled to avail the benefit of these Rules. We find that Tribunal in the case of CCE v. Krishna Coaching Institute 2009 (14) STR 18 (Tri. – Delhi) has held that since service tax liability on commercial training and coaching institutes arising from 1.7.2003, tax on advance received prior to such date for service provided after said date is leviable, Tribunal in the case of CCE v. Ashok Singh Academy 2010 (17) STR 363 (Tri. – Delhi) following the decision of the Krishna Coaching Institute (supra) upheld the demand on advances received prior to 1.7.2003 holding that taxable event in service tax is providing of the service. Following these decisions accordingly, we uphold the confirmation of demand of service tax and cess by the Commissioner with regard to the air ticket sold prior to 1.5.2006 and journey undertaken on 1.5.2006 or thereafter.

18. The third dispute is with respect to denial of self adjustment of excess service tax paid by the appellant on account of cancellation of tickets. The appellant claimed that it had refunded the service tax amounting to Rs. 14,48,81,180/- to the passengers on account of the cancellation of tickets but demand on this account is also confirmed against them by the Commissioner. Appellant contended that under Rule 6(3) of the Service Tax Rules appellant is entitled for self adjustment of excess service tax paid against the service tax liability for the subsequent period For the sake of brevity the Rule 6(3) of the Rules is reproduced below:-

“6. Payment of service tax –

(3) Where an assessee has paid to the credit of Central Government service tax in respect of taxable service, which is not so provided by him either wholly or partially for any reason, the assessee may adjust the excess service tax so paid by him (calculated on a pro rata basis) against his service tax liability for the subsequent period, if the assessee has refunded the value of taxable service and the service tax thereon to the person from whom it was received”.

We find that on going through the Rule 6(3) assessee is eligible to adjust the service tax so paid by him against his service tax liability for the subsequent period if assessee has refunded the value of taxable service and service tax thereon to the person from whom it was received. We find that the Commissioner has denied this self adjustment on the ground that appellant had not produced anything documentary to provide and substantiate their claim of self adjustment. During the course of hearing Ld. Counsel submitted that appellant has the complete details of the adjustment and the department is free to examine these documents for their satisfaction and the appellant is legally eligible for the self adjustment. We find that the self adjustments were denied by the Commissioner merely on the ground of non-productions of the records/documents. Since the appellant is ready to produce all the details, this finding of the Commissioner on denial of the self adjustment is set aside and the matter is remanded back to the Commissioner on the issue of self adjustment of the service tax paid by them on account of cancellation of tickets after giving an opportunity of hearing to the appellant.

19. Coming to the issue of imposition of penalty we find that penalties have been imposed on the appellant under Sections 76, 77 & 78 of the Finance Act and appellant has challenged the penalties imposed under Sections 76 and 78 on them in the appeal. We find that penalty under Sections 76 is leviable for failure to pay the amount whereas the penalty under Section 78 provides for penalty for suppressing the taxable value. We find that there had been a failure on the part of the appellant in depositing duty of service tax to the credit of the Government account. This is also a fact that the appellant collected service tax on basic fare from the passengers and did not deposit the said service tax to the department. The period involved in non-payment is also more than 15 months. Hence, there is clearly violation of Section 76 for failure to pay service tax with regard to the service tax available on basic fare. Coming to the penalty under Section 78 the penalty is imposable when there is a suppression of taxable value by the assessee. It is the contention of the Revenue that in the service tax Returns filed by the appellant during April 2006 to September 2006 no disclosure of any amount of receipt towards international air travel service was provided in the Return. Similarly, the Returns of the period October 2006 to March 2007 show the extremely low amount of receipts and the real value of the taxable service was thus suppressed by the appellants. Therefore, there is the case of imposition of penalty under Section 78 of the Act. On the other hand, the appellant submitted that there was no wilful breach of law by the appellant to file the Returns and nor there was any mala fide for gross tax evasion and the appellant relied on para 27.5 of the adjudication order where the Commissioner has held that party has not indulged in fraud, collusion or wilful mis-statement and party has not contravened the provisions with intent to evade payment of service tax We find that Commissioner has held that party had failed to comply with the obligation cast upon it by the legislature and he has held that mere suppression is adequate for the purpose of the recovery of service tax for the extended period as well as for imposition of penalty.

20. Learned Counsel for the appellant relied upon the decision of the Tribunal in the case of Kalpataru Power Transmission Ltd. (supra). In this case a new service namely the construction service came under Service Tax w.e.f. 10.9.2004 and there was confusion prevalent during the relevant period on the new service. Thereafter the Board issued a circular clarifying that erection of transmission tower is taxable from 10.9.2004 and indicating confusion among taxpayers, department and audit. In this case it was held by the Tribunal that no penalties imposable under Section 78 of the Finance Act as there was delay of only 2 to 3 months in payment of service tax and penalty under Section 76 was also set aside. We find that ratio of this case is not applicable to the present case as there was delay of payment of service tax of more than 15 months in respect of service tax on basic fare, fuel and insurance surcharges. The appellant also relied on the Ess Ess Engineering (supra) where the appellants in that case were registered under erection, commissioning, installation. Service and they were not paying service tax on fabrication and dismantling charges due to belief of non-liability of tax on these charges. Tribunal in this case has set aside penalty under Section 78 treating the belief of non-liability of tax on fabricating and dismantling charges as a bona fide belief. This case is also not relevant for the present appeal as the appellant was not even registered under the new service up to 13.12.2007. Appellant also relied the case of M/s First Flight Courier Ltd. (supra) holding that Section 76 may not be justified if penalty had already been imposed under Section 78.

21. In the present case before us, we find that appellant was collecting the service tax on basic fare from the passengers but not depositing the amount with government and then service tax was deposited with government after 15 months attracting the provisions Section 76 of the Finance Act. Similarly taxable value showing the service in tax Returns filed by appellant to the department was also suppressed and in some of the months no value of the taxable service was shown in the Returns. Therefore, there was clearly suppression of the taxable value attracting provisions of Section 78 of the Finance Act.

22. From the above, we find that penalties imposable in respect of the component of basic fare was paid by the appellant before the issuance of the show cause notice along with the interest. It is the contention of the appellant that under Section 73(3) when the tax amount and interest is paid there is no need to issue even the show cause notice. On the other hand, the revenue contends that since the 25% of the tax amount payable as penalty was not paid by the appellant within 30 days appellant is not entitled for any reduction in the penalty. We find that Section 73(3) covers those cases where there is no suppression of fact and in case of suppression despite such payment of notice can be issued. We also find that under Section 73(1A), the reduction in penalty equal to 25% of the service tax amount is available to the assessee if the penalty is also paid along with interest and tax amount to the department within 30 days. We note that the Commissioner in the adjudication order has not given any option to the appellant that if the service tax along with interest and 25% of penalty is paid within 30 days from the receipt of the order, then penalty stand reduced to 25% of the total penalty imposed under Section 78 of the Act. We also find that Commissioner has apportioned the deposited amount. It was not fair on his part not to give an option to the appellant to pay the penalty equal to the 25% of the deposited tax amount within 30 days from the receipt of the order. We, therefore, hold that appellant is liable to get an option to pay the penalty equal to 25% of the tax amount paid by them as held by the Hon’ble High Court of Delhi in the case of K.P. Pouches (P.) Ltd. v. Union of India 2008 (228) E.L.T. 31 (Delhi). We accordingly, order that if the penalty equal to 25% of the deposited tax amount is paid by the appellant within 30 days of receipt of this order, the penalty in case of basic fare stands reduced to 25% of the tax amount on basic fare. If this option is not exercised, penalty stands confirmed equal to Tax amount on basic fare.

The appellant has contended that once the penalty under Section 78 is imposed there is no case of imposition of penalty under Section 76 of the Act. In this regard appellant relies on the decision of M/s. First Flight Courier Ltd. (supra). We find that the Hon’ble High Court of Delhi in the case of Bajaj Travels Ltd. v. CST 2012 (25) STR 417 (Delhi) has held that Sections 76 & 78 of Finance Act, 1994 prior to amendment of Section 78 w.e.f. 16.5.2008 operate in two different fields and the penalty was imposable under both sections separately even if offence were committed in course of same transaction. Following this decision we uphold the imposition of penalty under Section 76 of the Finance Act by the Commissioner.

23. However, we find that in case of service tax on fuel/insurance surcharges there was a confusion prevailing about the taxes leviable on these charges and finally Board issued a clarification on 18.9,2007 clarifing that service tax is leviable component also. Thereafter appellants have paid the entire amount along with interest to the department. The service tax on the fuel/insurance surcharges was not being recovered by the appellant from the passengers as in the case of basic fare. Therefore, the delay in payment of service tax on the fuel/insurance surcharges was because of confusion prevailing in industry. As and when the clarification was issued by the Board the appellant paid the entire amount with interest. Therefore, there is a reasonable cause in delay of payment of the service tax and therefore under Section 80 of the Act, no penalty is imposable with regard to the service tax on this component of the fuel/insurance surcharges.

24. Regarding the service tax on tickets issued prior to 1.5.2006 we find that it is the contention of the assessee that the meeting was called by the Commissioner of Service tax in September 2007 and he suggested to all air lines to make representation to the CBEC under Section 11C of the Central Excise Act and to state that no service tax is liable on such tickets. Appellant also made representation to Board on 28.1.2008. This representation was rejected by the Board on 3rd November 2008. Then appellant had paid the service tax and cess amount on the basic fare, fuel/insurance surcharges component in respect of these tickets sold prior to 1.5.2006. We note that when tickets were sold, there was no levy. We find that there is enough justification for invoking the Section 80 of the Finance Act for not imposing the penalty on them. The matter has gone up to the Board level on the advice of the Commissioner of Service Tax and the Board rejected their representation only in November 2008 just before the issuance of the adjudication order. We, therefore, hold that no penalty is imposable on the value of the tickets sold prior to 1.5.2006 and journey undertaken after 1.5.2006.

25. Now coming to the levy of the service tax on the component of statutory levies and charges. It was belief of the appellant that airlines are not liable to pay the service tax on the component of statutory levies and charges as these charges are not retained by the air lines and are going to the government account and air line is only acting as a nodal agency to collect their charges from the passenger and pay the same to the government. It is therefore their contention the no service whatsoever is rendered to any passenger in any manner with regard to this component by the appellant. It is the contention of appellant that in respect of this component there was a reasonable cause for delay in not paying service tax as appellant had bona fide belief that no tax is leviable on these levies and charges. We, find considerable force in the submission of appellant and hold that due to the confusion prevailing at the time of new levy and the belief of the appellant that no tax is leviable on these levies and charges as no service was provided by them and levies/charges are paid to the government there is a reasonable cause for delay in making such payment and the benefit of Section 80 of the Act for not imposition of penalty can be extended to the appellant.

26. In view of the above we hold :-

(i)  We uphold the confirmation of demand of service tax and cess along with interest on account of statutory levy and charges by the Commissioner;

(ii)  We uphold the confirmation of demand of service tax and cess along with interest by the Commissioner with regard to air ticket sold prior to 1.5.2006 and journey undertaken on 1.5.2006 or thereafter;

(iii)  We remand the matter back to the Commissioner on the issue of self adjustment of service tax paid by them on account of cancellation of tickets after giving an opportunity of hearing to the appellant.

(iv)  An option is given to the appellant to pay penalty equal to 25% of tax amount on basic fare within 30 days of receipt of this order failing which penalty equal to tax amount stands confirmed.

(v)  Penalty imposed under Section 76 of the Finance Act is upheld.

(vi)  The penalty with regard to levy of service tax on fuel and insurance charges, on tickets issued prior to 1.5.2006 and on the component of statutory levies and charges is set aside.

27. The appeal is disposed of in above terms.

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