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BRIEF FACTS OF THE CASE

1. M/s. Riya Travels & Tours (I) Pvt. Ltd., 6 & 7, Empire Tower, Near Associated Petrol Pump, C.G. Road, Ahmedabad (hereinafter referred to as ‘the said assessee’) are providing taxable services, i.e. “Air Travel Agency Service”, “Business Auxiliary Service” and “Banking & Financial Services” and are registered with Service Tax Registration No. No. AAACR3178BST006 dated 06.09.2004.

2. Based on an intelligence that some Air Travel Agents were evading service tax by way of not including the value of Fuel Surcharge (YQ charges) to the taxable value, a detailed inquiry was initiated from the Airlines Companies regarding their commission policies. Accordingly, it was observed that most of the Airlines are paying commission to their Air Travel Agents on Basic fare + Fuel surcharge (YQ charges).

3. The replies received from airlines in this regard are discussed here under:-

(i) M/s. Air India vide their letter AMD:SVC-TAX:427 dated 13.10.2013 submitted that:-(a) 3% commission is paid to Travel Agents as per International Air

Transport Association(IATA);(b) Basic Fare plus the Airline Fuel Surcharge(YQ) is considered for

calculating the commission to the Travel Agent; and(c) YQ means-Airline Fuel Surcharge. Commission is given to Travel

Agent on YQ.

(ii) M/s. Jet Airways vide their letter dated 12.10.2013 submitted that:-(a) 3% agency commission is given to the Travel Agents in India on the

basic fare of the ticket and the Fuel surcharge collected from passenger;

(b) The commission is not paid on mandatory levies such as Airport taxes, Service Tax etc. It is paid only on Basic and Fuel surcharge (YQ Tax);

(c) YQ means Fuel Surcharge. Commission is paid on this tax.

(iii) M/s. Kingfisher Airlines vide their letter dated 12.10.2013 submitted that:-

(a) As per current policy, travel agents are eligible to earn 3% commission on base fare+YQ for every ticked issued on Kingfisher Airlines in India;

(b) Only Base fare and Fuel Surcharge components of a ticket are considered for calculating commission due to agent.

(iv) M/s. Spicejet vide their letter dated 23.09.2013 submitted that:-(a) Commission is calculated on the value of basic fare and fuels

charges.(b) Commission is not calculated on the mandatory levies like airport

charges, insurance charges, and other taxes.(c) YQ stand for Fuel surcharge. Commission is calculated after

considering the YQ charges.

(v) M/s. IndiGo vide their letter dated 20.10.2013 submitted that:-(a) They pay only performance linked incentives(PLI). PLI is based on

performance/target achieved by travel agents and it is calculated on Base fare and/or Base Fare+Fuel Surcharge(YQ).

OIO NO. AHM-SVTAX-000-COM-004-15-16 DATED 27.10.2015

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4. As per explanation given under Rule 6(7) of Service Tax Rules, 1994, taxable value shall be that part of the air fare on which commission is normally paid to the air travel agent by the airlines. It thus became evident from the aforesaid letters that the Air Travel Agents are liable to discharge their service tax liability on Basic Fare + Fuel surcharge (YQ).

5. On inquiry, it was observed that the said assessee had opted for payment of service tax under Rule 6(7) of Service Tax Rules, 1994 and there was a short payment of service tax by them due to non-inclusion of fuel surcharge (YQ) to the taxable value. Sub-rule (7) of Rule 6 of Service Tax Rules, 1994, is reproduced as under:

“The person liable for paying the service tax in relation to the services provided by an air travel agent, shall have the option, to pay an amount calculated at the rate of 0.6% of the basic fare in the case of domestic bookings, and at the rate of 1.2% of the basic fare in the case of international bookings, of passage for travel by air, during any calendar month or quarter, as the case may be, towards the discharge of his service tax liability instead of paying service tax at the rate of specified in Section 66 of Chapter V of the Act and the option, once exercised, shall apply uniformly in respect of all the bookings of passage for travel by air made by him and shall not be changed during a financial year under any circumstances.Explanation - For the purposes of this sub-rule, the expression "basic fare" means that part of the air fare on which commission is normally paid to the air travel agent by the airline.” [emphasis given]

6. It appeared that the said assessee was paying service tax under the category of “Air Travel Agent Service” at the rate of 0.6% of Basic fare in case of Domestic Air Ticketing and 1.2 % of Basic fare in case of International Air Ticketing without including Fuel surcharge (YQ) to the taxable value (Basic fare) for the purpose of discharging their service tax liability.

7.1. A statement of Shri Saumil Patel, Manager (Accounts) and Authorised Signatory of the said assessee was recorded on 13.12.2011 under Section 14 of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1944 wherein he, inter alia, stated that the said assessee was engaged in the activity of the booking the Airlines Tickets which included Domestic as well as International Tickets (Air Travel Agent); that they were registered with Service Tax Department bearing Service Tax Registration No. AAACR3178BST006 for providing taxable services under service tax category of “Air Travel Agent Service”, and “Business Auxiliary Service” and Banking & Finance Services; that their company was paying the Service Tax under Sub-rule (7) of Rule (6) of the Service Tax Rules, 1994; and that they were paying service tax on domestic bookings @ 0.6 % of basic fare value which does not include YQ charges (Fuel surcharges). As regards the commission received from the Airlines on Air tickets booked by their company, he stated that they received commission on the Base Fare plus YQ charges; that this commission may vary from Airlines to Airlines and from time to time, and presently the average commission is 3% for most of the domestic Airlines. On being asked about the condition specified under the said Rule 6(7), he stated that he is well aware that during any calendar month or quarter, as the case may be, once the option of paying service tax either under Section 66 of the Finance Act, 1994 or Rule 6(7) of Service Tax Rules, 1994 is exercised, the same shall be applied uniformly in respect of all the bookings of passage for travel by air made by them and shall not be changed during a financial year under any circumstances. On being shown sub-rule (7) of Rule 6 of Service Tax Rules, 1994 according to which the Air Travel Agent has an option to pay Service Tax on the amount calculated at the rate of 0.618% (including Education Cess and Secondary & Higher Education Cess) of the basic fare in the case of domestic bookings, and at the rate of 1.236 % (including Education Cess and Secondary & Higher Education Cess) of the basic fare in


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the case of international bookings, he admitted that as per the said sub-rule (7) of Rule 6, basic fare also included the part of the air fare on which commission is normally paid to the air travel agent by the airline. He also admitted that till date their company was paying service tax on Basic Fare (Base Fare) and not on YQ charges. He further stated that in respect of Domestic Air Ticketing and International Ticketing, they are paying service tax as follows:

i. As far as those Airlines from whom they got commission on both the Base Fare and YQ charges, they were paying service tax on Base fare only which excluded YQ charges;

ii. For those Airlines where YQ was charged by the Airlines but commission was given only on the Base Fare, they were paying service tax on the Base Fare which excluded YQ charges;

iii. For those Airlines, where no commission (upfront commission) was received at the time of ticketing, they were paying service tax on Base fare only which excludes YQ charges.

7.2. During the statement proceedings, he was shown Invoice No. D1126903 dated 14.09.2011 issued in favour of Mr. Achanta/srikanth regarding Air India ticket No. 5378548755 issued for the domestic ticketing [HYD/AMD] and was asked to show where the entry of the said ticket is reflected in BSP statement for the billing period 01.09.2011 to 15.09.2011. In this regard he stated that the entry of the said ticket is reflected at line No 8 from the top of the said statement at Pg no 267. Further, he was asked that what does the said entry reflects in context of commission received by their company, he stated that the company has received commission of Rs 146/- [Calculated on Rs. 4865/-, i.e. Base fare of Rs 1365/- and YQ charges Rs 3500/-] from Air-India whereas they had charged and paid service tax of Rs 9/- only (calculated @ 0.6% on the Base fare 1365/- only) as per the above said invoice. He was also shown Invoice no. 11126421 dated 26.09.2011 issued in favour of Mr. Saifuddin regarding Air India ticket No. 5378931019 issued for the International ticketing [AMD/KWI] and were asked about the entry of the said ticket reflected in BSP statement for the billing period 16.09.2011 to 30.09.2011. In this regard, he stated that the entry of the said ticket is reflected at line No. 3 from the top of the said statement at Pg no 347. Further he was asked that what does the said entry reflects in context of commission received by their company, he stated that the company has received the commission of Rs 288/- [Calculated on Rs 9590/-, i.e. Base fare of Rs 6500/- and YQ charges Rs 3090/-] from Air-India whereas they had charged and paid Service Tax of Rs 81/- only (calculated @ 1.2% on the Base fare 6500/- only) as per the said invoice. He was also shown the aforesaid letters received from the airlines and admitted that the said assessee had received the commission from different airlines on the Base Fare and YQ charges but they have paid service tax on Base fare only.

8. As per the provisions of Rule 6(7) of Service Tax Rules, 1994, it became clear that the option, once exercised, shall apply uniformly in respect of all the bookings of passage for travel by air made by him and shall not be changed during a financial year under any circumstances. Hence, the service tax liability shall be uniformly applicable irrespective of commission received on Basic fare or YQ charges from particular Airlines in the case of Domestic Air Ticketing or International Air Ticketing. It appeared that the said assessee had opted for the above option of charging service tax @ 0.618 % or 1.236 % (as the case may be) on the Base fare only. It has also been admitted by Sh. Nemesh Bhaktibhai Patel, Partner and Authorised signatory in his statement dated 30.01.2012 that till date their company was paying service tax on Basic Fare Base Fare and not on YQ charges.


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9. Section 67 provides 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. Therefore, YQ charges so recovered by the said assessee from their clients should have been included to the taxable value for the purpose of computing service tax liability. Accordingly, the said assessee is liable to pay service tax on YQ charges.

10. The jurisdictional Superintendent of Service Tax, vide letter dtd. 13.04.2012 and summons dated 05.06.2012 and dated 25.06.2012 called for the details of YQ charges collected by the said assessee during the period from 2008-09 (i.e. from January, 2009) to 2011-12 and service tax paid on YQ charges. The said details were supplied by the said assessee vide letter dated 10.07.2012. The said assessee has only provided the YQ charges information vide letter dated 10.07.2012 to the Department and before this they have never declared such taxable income in their respective ST-3 returns filed with the Service Tax Department.

11. It was thus revealed that the said assessee paid service tax on Basic fare only at the applicable rate. They have not shown the YQ charges in their periodical ST-3 return nor paid service tax thereon. A detailed worksheet for calculating service tax short paid was prepared. It was observed from the said Annexure that the said assessee had received an amount of YQ charges to the tune of Rs. 38,12,45,372/- for domestic Air Ticketing and Rs. 83,13,06,053/- for International Air Ticketing. The total amount of YQ charges received towards providing Air Travel Agents Service during the period from 01.01.2009 to 31.03.2012 comes to Rs. 121,25,51,425/-. The service tax liability on YQ Charges @ 0.618 % is worked out to Rs. 23,56,096/- on Domestic Air Ticketing and Rs. 1,02,74,943/- @ 1.236% on International Air Ticketing. Thus, total service tax liability was worked out to the tune of Rs. 1,26,31,039/- as per Annexure-A to the show cause notice.

12. Section 67 of the Finance Act, 1994 provides that where service tax is chargeable on any taxable service with reference to its value then such value shall “in a case where the provision of service is for consideration in money, be the gross amount charged by the said assessee for such service provided or to be provided by him. The adjective “gross” means without deduction total as opposed to net. The gross amount charged would include besides the value of service provider’s labour and skill, the cost of all input goods and services when service is dominant. In the present case gross amount charged by the said service provider from customers was inclusive of Y Q Charges.

13. As per the provisions of Section 68 of Finance Act, 1994 read with Rule 6 of Service Tax Rule 1994 as amended, every person providing taxable service to any person liable to pay service tax at the rate prescribed in Section 66 to Central Government by the 5th of the month/quarter immediately following the calendar month/quarter in which the payments are received towards the value of taxable services (except for the month of March which is required to be paid on 31st March).

14. According to Section 70 of the Finance Act, 1994 every person liable to pay service tax is required to assess the tax himself due on the services provided by him and thereafter furnish a return to the jurisdictional Superintendent of Service tax by disclosing wholly and truly all materials facts in ST-3 returns. The said assessee had not disclosed full, true and correct information about the value of the service provided by them. Thus, it appeared that there was a deliberate withholding of essential and material information from the department about service provided and value realized


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by them. It appeared that all these material information had been concealed from the department deliberately, consciously and purposefully to evade payment of service tax. Therefore, in this case all essential ingredients exist to invoke the extended period in terms of proviso to Section 73 (1) of Finance Act 1994 to demand the Service tax not paid.

15. As per Section 75 ibid every person liable to pay the tax in accordance with the provisions of Section 68 or the rules made thereunder, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed is liable to pay simple interest (as such rate not below ten per cent and not exceeding thirty six per cent per annum, as is for the time being fixed by the Central Government, by Notification in the Official Gazette) for the period by which such crediting of the tax or any part thereof is delayed.

16. It thus appeared that the said assessee had not discharged their service tax liability correctly under the service category of “Air Travel Agency Service” for the financial year 2008-2009 (Jan’09 onwards) to 2011-2012 and, they have contravened the provisions of section 67 of the Finance Act 1994 in as much as they failed to determine the correct value of taxable service provided by them; and Section 68 of the Finance Act 1994 read with rule 6 of the Service Tax Rules 1994 in as much as they failed to determine and pay the correct amount of service tax.

17. The Government had from the very beginning placed full trust on the service provider so far service tax is concerned and accordingly measures like Self-assessments etc., based on mutual trust and confidence are in place. Further, a taxable service provider is not required to maintain any statutory or separate records under the provisions of Service Tax Rules as considerable amount of trust is placed on the service provider and private records maintained by him for normal business purposes are accepted, practically for all the purpose of Service tax. All these operate on the basis of honesty of the service provider; therefore, the governing statutory provisions create an absolute liability when any provision is contravened or there is a breach of trust placed on the service provider, no matter how innocently. From the evidence, it appeared that the said assessee had not taken into account all the incomes received by them for rendering taxable services for the purpose of payment of service tax and thereby minimize their tax liabilities. The deliberate efforts to misdeclare the value of taxable service and not taking service tax registration and not paying the correct amount of service tax in utter disregard to the requirements of law and breach of trust reposed on them such outright act in defiance of law appears to have rendered them liable for penal action as per the provisions of Section 78 of Finance Act 1994 for suppression, concealment and furnishing inaccurate value of taxable service with intent to evade payment of service tax.

18. Therefore, it appeared that, the said assessee had contravened the provisions of:

(i) Section 67 of the Finance Act, 1994 which provides that where service tax is chargeable on any taxable service with reference to its value then such value shall “in a case where the provision of service is for consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him. In the present case the said assessee failed to include the YQ charges to the gross amount and thereby evaded payment of service tax;

(ii) Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994 as amended, in as much as they failed to discharge the service tax liability correctly and thereby there is a non-payment/short


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payment of service tax as mentioned in foregoing paras for the period as discussed therein and failed to credit the service tax to the Government account within the stipulated time limit;

(iii) Section 70 of the Finance Act, 1994 in as much as they have not disclosed full, true and correct information about the value of the services provided by them. There was a deliberate withholding of essential and material information from the department about service provided and value realized by them. It appears that all these material information have been concealed from the department deliberately, consciously and purposefully and suppressed the facts with intent to evade payment of service tax. Therefore, in this case all essential ingredients exists to invoke the extended period in terms of Section 73 (1) of the Finance Act, 1994 to demand the service tax non paid/short paid.

19. All these act of contravention on the part of the said assessee appeared to have been committed deliberately by way of not declaring material facts to the department and not paying the correct service tax during the period of financial years 2008-2009 (Jan’09 onwards) to 2011-12, suppressing the correct taxable amount in the ST.3 returns filed with the department during the corresponding period and not paying service tax amount of Rs. 1,26,31,039/-. Therefore, Service Tax amounting to Rs. 1,26,31,039/- as detailed in the above paras which has not been paid by them is required to be demanded/recovered from them under the proviso to 73(1) of the Finance Act, 1994 by invoking extended period of five years. It further appeared that the contraventions, omissions and commissions on the part of the said assessee have been committed deliberately with an intention to evade the payment of Service Tax by wilful suppression of nature and value of service provided by them. All these act of contravention appeared to constitute offence of nature as described in Section 68, 70 of Finance Act 1994 read with Rule 6, and 7 of Service Tax Rules, 1994 and also rendered themselves liable for penal action under Section 76, 77 and 78 of the Finance Act,1994 as amended from time to time. They are also liable to pay interest at the appropriate rates for the period from due date of payment of Service Tax till the date of actual payment as per the provisions of Section 75 of the Finance Act, 1994.

20. Therefore, a show-cause-notice F.No. STC/4-34/O&A/13-14 dated 16.04.2014 was issued to the said assessee, calling upon them to show cause to the Commissioner of Service Tax, 1st floor, Excise Bhavan, Ambawadi, Ahmedabad as to why:-

(i) The amount of Rs. 121,25,51,425/- of YQ charges (Fuel surcharge) on which they have received commission from different Airlines during the period January, 2009 to 2011-12 should not be considered as taxable value realized towards providing taxable service viz. “Air travel agent Service” as defined under Section 65(4) of the Finance Act, 1994 and “taxable service” defined under Section 65(105)(l) of the Finance Act, 1994;

(ii) Service Tax amounting to Rs. 1,26,31,039/- should not be demanded and recovered from them under Section 73(1) read with Section 68 of the Finance Act, 1994 invoking extended period of five years;

(iii) Interest should not be charged and recovered from them on service tax liability of Rs 1,26,31,039/- under Section 75 of the Finance Act, 1994 for their failure to deposit the tax within the stipulated time limit;


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(iv) Penalty under Section 76 of the Finance Act, 1994 should not be imposed upon them for their failure to pay Service Tax as mentioned hereinabove within the stipulated time limit;

(v) Penalty under Section 77 of the Finance Act, 1994 should not be imposed upon them for their failure to self-assess correct service tax liability and to declare correct value of taxable service realized in the prescribed ST-3 returns; and

(vi) Penalty under section 78 of the Finance Act 1994 should not be imposed upon them for wilfully suppressing the value of taxable service from the department with an intent to evade payment of service tax;

DEFENCE REPLY

21.1. The said assessee, vide their letter dated 22.01.2015 filed their defence reply wherein they inter alia, stated that whenever demand is raised under section 73(1), it re-opens the entire assessment, and hence it is open for the company to make alternative submission for the purpose of determining the quantum of duty if any payable by the company; that therefore, they can adopt different method of valuation for determining the value of taxable service; and that service tax on commission computed on actual basis is Rs. 1,61,31,846/- as compared to amount paid of Rs. 5,01,23,059/- and thus service tax has already been paid by them on higher side. They have cited the following case laws to support their argument in this regard:-

Lili Foam Industries (P) Ltd. – 1990 (46) ELT 462 (Tribunal) Decora Ceramics Pvt. Ltd. – 1998 (100) ELT 297 (T) Veena Organics (P) Ltd. – 1992 (59) ELT 87 (T) Bakeman’s Home Product – 1997 (95) ELT 278 (T)

21.2. They have further stated that the amount of commission received by them from the airlines is the gross amount of consideration for the purpose of Section 67 for levy of service tax; that however, Rule 6(7) of Service Tax Rules, 1994 provides an alternative mechanism for payment of service tax on basic fare as against payment of service tax on commission; that payment of service tax on commission or through the alternative mechanism are in compliance with the levy of service tax under section 67; that during the period from January, 2009 to March, 2012 the said assessee had received commission whereupon the total amount of service tax works out to only Rs. 1,61,31,846/-; that however, as per ST-3 returns filed by them during the said period, they have paid service tax totalling Rs. 5,01,23,059/- ; that it is thus evident that the tax paid by the company is more than the tax required to be paid by them; that the said tax is being recovered by the company from the customers and therefore, the excess tax shall be considered as deposit under section 73A and when re-assessment of tax is made, the same should be adjusted; and that since the company has paid higher tax, no further tax is payable by the company on the amount of commission received by the company.

21.3. The said assessee further stated that commission on fuel surcharge is not normally a practice in the industry, and hence the same does not form part of the fare on which commission is normally paid nor it forms part of basic fare; that the explanation to Rule 6(7) seeks to include only that part of the fare on which commission is normally paid to the air travel agents by the airlines; that as per judgment in re X-Quiz - IT Vs State of Tamil Nadu – 1986 (25) ELT 6 (Mad), every word in taxing statute should be construed as it


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is understood by the trade; that the word “normally” is not defined in the statute and hence as per dictionary meanings, the same cannot be applied in their case; that the term “ordinarily” is a synonym to “normally” which has also been examined by Apex Court in the judgment of Varsha Plastics Pvt. Ltd. – 2009 (235) ELT 193 (SC); that the allegation in the show-cause-notice is incorrect in as much as it has erred in not considering the intent of using the word “normally” in the definition of basic fare; that if the intention of legislature was to treat any amount on which commission is paid by each airline as basic fare, then there was no necessity to use the word “normally” in the said definition, and the said explanation without the word “normally” would have sufficed the purpose; and that no words in the Act or Rules should be considered as redundant or surplusage. They have cited the following case laws to support their argument in this regard:-

Aswini Kumar Ghose Vs Arabinda Bose – AIR 1952 SC 369; Rao Shiv Bahadur Sing Vs State of UP – AIR 1953 SC 394; JK Cotton Spinning & Weaving Mills Co. Ltd. Vs State of UP – AIR 1961

SC 1170; The Privy Council in Quebec Railway, Light, Heart & Power Co. Vs

Vandry – AIR 1920 PC 181 186; Union of India Vs Hansoli Devi – AIR 2002 SC 3240; Hill Vs William Hill (Park Lane) Ltd. – (1949) 2 ALL ER 452; State of Bombay Vs Ali Gulshan – AIR 1955 SC 810; S Gurmet Singh Vs Pratap Singh Kairon – AIR 1960 SC 122; Ram Narain Vs State of UP - AIR 1957 SC 18; D Velusamy Vs D. Patachaiamal – AIR 2011 SC 479; Balwant Kaur Vs Chanan Singh – (2000) 6 SCC 310; Grasim Industries Ltd. – 2002 (141) ELT 593 (SC); and Jiyajeerao Cotton Mills Ltd. – 1984 (15) ELT 259 (Tri).

21.4. They further contended that there is one more reason to arrive at the above conclusion, as the wordings used in Rule 6(7) is that this rule shall apply “uniformly in respect of all the bookings of passage” would mean that the rule is prescribing the methodology to be adopted for all the airlines and all the booking and not with respect to any particular airline; that the term basic fare has to be construed as including only such part of the air fare on which there is a normal industry practice of the airlines to pay the commission; and that during the impugned period, they were dealing with 51 airlines, out of which only 3 airlines gave commissions on basic fare plus fuel surcharge, and have enclosed a chart showing the airlines who are giving them commission on basic fare only and also the airlines which pay commission on basic fare plus fuel surcharge.

21.5. The said assessee also submitted that the term “basic fare” is a specific term used in the airline trade and therefore have to be interpreted as per the meaning understood in the trade; that the practice prevalent in the airline industries is to pay commission only on the portion of amount which is reflected as fare in the ticket, which is to be considered as basic fare; and that YQ component of the ticket is not considered as the basic fare of the ticket. They have also enclosed a circular dated 23.12.2008 which indicates that basic fare and fuel surcharge are two different and separate terms. Similarly, they have submitted ticket documents issued by Indian Airlines and Jet Airways which shows both the components separately for the purpose of paying commission, and ticket documents of some airlines which do not pay commission on YQ charges, and argued that mere receipt of commission on a particular portion of ticket will not make that portion as basic fare.

21.6. They also stated that the demand is erroneously calculated as it include YQ charges on which airlines did not pay any commission, and have


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enclosed a revised calculation sheet indicating actual involvement of service tax as Rs. 47,61,069/-.

21.7. They further argued that they have not collected the service tax on the value of services specified in the SCN, hence they are eligible for cum-duty valuation in terms of explanation-2 to Section 67. In order to support their claim, they cited following case laws besides, Trade Notice No. 20/2002 dated 23.05.2002 of Delhi-II Commissionerate:-

Maruti Udhyog Ltd. – 2002 (141) ELT 3 (SC); Rampur Engineering Co. Ltd. – 2006 (5) STT 386 (Tri.Delhi); Advantage Media Consultant – 2008 (10) STR 449 (Tri. Kol); Advantage Media Consultant – 2009 (14) STR J49 (SC).

21.8. The said assessee claimed that the demand is time-barred, as they were under a bonafide belief that service tax is leviable only on base fare and not on YQ charges, and hence there was no intention to evade tax. They have relied upon the following decisions in this regard:-

Cosmic Dye Chemicals – 1995 (75) ELT 721 (SC); Chemphar Drug and Liniments – 1989 (40) ELT 276 (SC); Pushpam Pharmaceuticals Co – 1995 (78) ELT 401 (SC); Tamil Nadu Housing Board – 2004 (74) ELT 9 (SC); Mahakoshal Beverages Pvt. Ltd. – 2007 (6) STR 148; Pahwa Chemicals Pvt. Ltd. – 2005 (189) ELT 257 (SC); Anand Nishikawa Co Ltd. – 2005 (188) ELT 149 (SC).

21.9. It is also argued that the burden of proof is on the department to prove that there was malafide intention on their part to evade service tax, and cited Uniworth Textiles Ltd. – 2013 (288) ELT 161 (SC). They also claimed that the department was already in the knowledge of their paying service tax on the basic fare and was filing returns regularly.

21.10. As regards penalty, the said assessee argued that no penalty could be imposed on them under section 76 or 78 as there is no liability for payment of tax itself; that the SCN fails to bring out the essential ingredient of mens rea for imposition of penalty; that penalty under section 76 and 78 cannot be simultaneously imposed; that section 77 does not provide for penalty for failure to file correct returns; that they are also not liable to pay interest on under section 75 in the present case. In this regard, they have cited following case laws:-

Coolade Beverages Ltd. – 2004 (172) ELT 451 (All); Flyingman Air Courier (P) Ltd. – 2004 (170) ELT 417 (T); Gamma Consultancy (P) Ltd. – 2006 (4) STR 591 (T); Vinay Bele & Associates – 2008 (9) STR 350 (Bom); Sarup Tanneries Ltd. – 2005 (184) ELT 217 (T); Explicit Trading – 2004 (169) ELT 205 (T); Goyal MG Gases Ltd. – 2004 (168) ELT 369 (T); Kanturia Portfolios – 2003 (158) ELT 355 (T); Goenka Woolen Mills – 2001 (135) ELT 873 (T); First Flight Couriers Ltd. – 2011 (22) STR 622 (P&H)

PERSONAL HEARINGS

22. A personal hearing was held on 11.02.2015 wherein Shri Abhishek Ranjan, advocate and Shri Sharath Menon, Area Manager of the said


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assessee appeared for hearing. They stated that they have already filed a defence reply dated 22.01.2015; submitted compilation of case laws and definitions on the issue; made submission that written submission and relied upon case laws need to be taken into consideration while deciding the issue; and claimed cum-duty benefit for the purpose of computation of service tax. Shri Ranjan has asked a period of 10 days for supply of some additional documents which was granted.

23. Accordingly, M/s. Lakshmi Kumaran & Sridharan, Attorneys, vide letter dated 25.03.2015 submitted an affidavit of Shri Sharath Menon, Area Manager of the said assessee to affirm that they have not received IATA commission on the fuel surcharge (YQ) portion from the airlines mentioned in the annexure thereto during the period from January, 2009 to March, 2012. Similarly, they also furnished a CA certificate dated 18.03.2015 from M/s. P.S. Sanghvi & Co., Chartered Accountants to the effect that the said assessee has not received commission on fuel surcharge (YQ) from the airlines listed in the same list. The names of these airlines are: Ethiopian Airlines, Philippine Airlines, Qantas Airways Ltd., South African Airway, Air New Zealand, El Al Israel Airline, PT Garuda Indonesia, Cathay Pacific Airways, Emirates, Korean Air, Pakistan International, Thai Airways International, Kuwait Airways, Malaysia Airlines, Air Mauritius, China Airlines, Royal Jordanian, Aeroflot Russian International, Srilankan Airlines, China Eastern Airline, China Southern Airline, Oman Air, Virgin Atlantic Airways, Air China Ltd., Air Lanka, Etihad Airways, US Airways, Gulf Air, Egypt Air, Turkish Airlines, Kenya Airways and GMG Airline.

24. Due to change of adjudicating authority, another personal hearing was held on 08.10.2015 which was attended by Shri R. Nambirajan, Shri Jigar Shah and Ms Priyanka Kalwani, advocates from M/s. Lakshmi Kumaran & Sridharan, on behalf of the said assessee. They have furnished a written submission with copies of relevant cited case laws during the hearing. They reiterated the grounds of submission and also the contentions from their earlier reply to SCN, and had nothing more to say.

DISCUSSION AND FINDINGS

25. I have carefully gone through the case records, contents of the show-cause-notice, written submissions made by the said assessee and the record of personal hearings. The basic issue requires to be determined in this case is whether the said assessee has correctly paid service tax at the specified rate only on the “basic fare” charged by the airlines (and not the YQ charges); or whether service tax is also leviable by considering the “basic fare” as inclusive of YQ charges in terms of Rule 6(7) of the Service Tax Rules, 1994?

26. Air Travel Agent’s (ATA) services were brought under the net of service tax w.e.f. 01.07.1997. Section 65(4) of Finance Act, 1994 states that: “Air Travel Agent” means any person engaged in providing any service connected with the booking of passage for travel by air. As per section 65(105)(l), “Taxable service” means any service provided or to be provided to any person by an air travel agent in relation to the booking of passage for travel by air. Section 67 provides that where service tax is chargeable on any taxable service with reference to its value then such value shall, 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. However, the broad principles for determining the value of taxable service rendered by an ATA are mentioned in the Service Tax (Determination of Value) Rules, 2006. As per Rule 6(iv) of the said rules, the value of taxable service shall include the commission received by the ATA


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from the airlines. Similarly, Rule 6(2)(ii) of the said rules states that such taxable value does not include the airfare collected by the ATA in respect of the service provided by such ATAs. Notification No. 22/97-ST dated 26.06.1997 also provides exemption to that portion of taxable value which is in excess of the commission received by the ATA from the airline for booking of passage for travel by air. Thus, service tax is leviable at the appropriate rates on the gross amount of commission received by the ATA from the airlines.

27.1. However, an alternative mechanism of compounding provision has been specified vide Rule 6(7) of the Service Tax Rules 1994 for the purpose of payment of service tax by air travel agents, which reads as:-

“The person liable for paying the service tax in relation to the services provided by an air travel agent, shall have the option, to pay an amount calculated at the rate of 0.6% of the basic fare in the case of domestic bookings, and at the rate of 1.2% of the basic fare in the case of international bookings, of passage for travel by air, during any calendar month or quarter, as the case may be, towards the discharge of his service tax liability instead of paying service tax at the rate specified in Section 66 of Chapter V of the Act and the option, once exercised, shall apply uniformly in respect of all the bookings of passage for travel by air made by him and shall not be changed during a financial year under any circumstances.Explanation - For the purposes of this sub-rule, the expression "basic fare" means that part of the air fare on which commission is normally paid to the air travel agent by the airline.” [emphasis given]

27.2. In view of the specific provisions contained in the above Rule 6(7), option, once exercised, shall not be changed under any circumstances. In the present case, the said assessee has already exercised their option to pay service tax as per this compounding scheme which they cannot change under any circumstances. I have no doubt that the usage of the phrase “under any circumstances” would also cover the circumstances where department detects some irregularities of non-compliance by the assessees who have once exercised their option and start working under such scheme. Therefore, I am not inclined to accept the arguments made by the said assessee that the subject SCN re-opens the entire assessment, and hence they could change their option to pay service tax on the actual commission income in the manner as per section 67 read with Rule 6 Service Tax (Determination of Value) Rules, 2006. It is not the taxability or the rate of taxation which is proposed to re-open in the present proceedings, but what is being considered is non-fulfilment of the conditions specified under the compounding scheme while working under the said scheme by the said assessee. In other words, re-opening or re-assessment is proposed only to the extent of proper and legal compliance of the compounding system which was already opted by the said assessee. Having exercised their unassailable option and enjoyed its benefits and results, they cannot be allowed to turn around at a later stage just because the department detected some irregularities and non-compliance of some conditions with the resultant short-payment of service tax while working under the opted scheme. The legal provisions make it mandatory on the part of the said assessee to opt for either of the schemes provided under the law with all its pros and cons.

27.3. In this regard, I find that the various case laws cited by the said assessee to advance their argument have no relevance in the present context. The decision in re Lili Foam Industries (P) Ltd. (supra) is all about a dispute regarding the correct rate of duty for working out demand of differential duty, whereupon Hon’ble Tribunal upheld the right of the assessee to raise the issue of actual rate of duty. In the matter of Decora Ceramics Pvt. Ltd. (supra), Hon’ble Tribunal allowed reconsideration of the assessable value and rate of duty to verify if any omissions or errors committed in the


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computation. The decision in the case of Veena Organics (P) Ltd. (supra) is also on a different context as it allows consideration of the actual rate of duty applied. Similarly, Hon’ble Tribunal in case of Bakeman’s Home Product (supra) had allowed re-consideration of the correct classification of goods declared in the bill of entry. None of these cases pertains to re-opening the assessment through any alternate methodology after the department finding non-compliance of the provisions of an assessment scheme. Therefore, I do not accept the argument put forth by the said assessee for re-assessment of their taxability beyond the scope of their own option to pay service tax under Rule 6(7) of STR, 1994. For the same reasons, I do not find substance in the hypothetical calculation chart submitted by them showing excess payment of service tax under their own opted scheme, as against the service tax which would have been payable under the normal method.

28.1. Another argument put forth by the said assessee is that commission on YQ charges is not a normal trade practice in airline industry, hence such YQ charges should not form part of the “basic fare” for the purpose of Rule 6(7) of STR, 1994. In order to thrust their point, they cited the explanation given under the said rule wherein the term “basic fare” has been defined “as that part of the air fare on which commission is normally paid to the air travel agent by the airline.” It is their claim that they were receiving commission on YQ charges only from three airlines as against 32 airlines which were not paying commission on YQ charges.

28.2. I have examined the facts available on records placed before me. Accordingly, I find one letter F.No. SD-02/SCN-14/Riya Travels/13-14 dated 06.01.2014 received from the Assistant Commissioner, Service Tax, Division-II, Ahmedabad which is enclosed with a data CD titled as “BSP Statements for the period January, 2009 to March, 2013”, which also carries the signature of Shri Saumil Patel, Manager (Accounts) and Authorized Signatory of the said assessee. The letter states that the CD was received from the said assessee with regard to YQ charges on which service tax was demanded. I have verified the data available on the said CD randomly to ascertain the facts. The data consists of soft copies of periodical “IATA BSP Agent Billing Statement” which indicates details of all air ticket bookings along with names of concerned airlines, separately for domestic and international bookings. Each of such billing statement shows the name of airlines along with their distinct numerical codes, ticket/document number, transaction details showing various elements of taxes and YQ, etc., standard rate and amount of commission, balance amount payable, etc.

28.3. On going through the said documents pertaining to the entire period of demand, I find that the said assessee had booked air tickets for domestic travel only from five airlines. The names and the distinct numerical codes allotted to them are: Indian Airlines (058), Kingfisher Airlines (090), Air India (098), Jet Airways (589) and Jetlite India Ltd. (705). Para 3 of the subject show-cause-notice and the relied upon documents available on records indicate that all these airlines have categorically confirmed that they are considering the fuel surcharge (YQ charges) for the purpose of paying commission to the air travel agents. These facts have not been disputed by the said assessee during the present proceedings. Thus, so far as domestic bookings are concerned, I find that it was a systemic practice for the said assessee to receive commission income from the airlines on an amount which is always inclusive of YQ charges. Thus, the term “normally” used in the explanation given under Rule 6(7) of STR, 1994 would in no way negate the includability of YQ charges towards the base fare. Therefore, I find no substance in the arguments made by the said assessee in this regard.

29. I have also examined the aforesaid data CD showing the commission income in respect of the tickets booked by the said assessee for


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international travel from various airlines. Accordingly, I find that a good majority of international travel bookings have also been made with the aforesaid same airlines, ie. Indian Airlines (058), Air India (098), Jet Airways (589), etc. for which there remains no dispute that commission is paid on base fare including YQ charges. This fact itself proves beyond any doubt that the said assessee is normally receiving commission on an amount which is inclusive of YQ charges.

30. As per the provisions of Rule 6(7) supra, the option, once exercised, shall apply uniformly in respect of all the bookings of passage for travel by air made by the ATA. Accordingly, it is evidently clear that once the option is exercised, an ATA cannot resort to divergent practices of including or excluding YQ charges for domestic and international travel differently, or by including YQ charges for some airlines and excluding the same for some other airlines, etc. In other words, based on the fact that the said assessee was receiving commission on YQ charges involved in all the domestic bookings (from the aforesaid five airlines)and a good majority of the quantum of international bookings (from these same airlines), they have exercised their option to pay service tax under Rule 6(7). Once this option is exercised, they are required to pay service tax on the entire amount of YQ charges involved in all the bookings, both domestic and international and in respect of all the airlines, irrespective of the fact as to whether some airlines do not pay them commission on such YQ charges. Therefore, I find no merit in the arguments made by the said assessee to exclude the airlines which do not consider YQ charges for payment of commission.

31. Notwithstanding the aforesaid factual and legal position, I find that a large number of international airlines are showing YQ charges separately as could be seen from the aforesaid billing statements of the said assessee available on records. For example, Delta Airlines (06), Qatar Airways (157), British Airways (125), Qantas Airways (81), Royal Jordanian (512), Swiss International (724), Lufthansa (220), Thai Airways (217), Cathay Pacific (160), Air France (57), China Southern Airlines (784), etc. are all showing YQ charges as a separate component in their ticket charges. There are some other airlines which do not indicate YQ charges separately. However, none of the documents produced by the said assessee support their claim that these airlines are actually not paying commission on YQ charges. Even the Annexure-V and Annexure-VI to the defence reply dated 22.01.2015 produced by them to illustrate inclusion and exclusion of YQ charges for computing commission income, factually do not indicate the same. For example, as per their defence reply, Annexure-V shows billing statement of Air India, Jet Airways and Indian Airlines which indicate YQ charges separately on which commission is admittedly paid. Similarly, Annexure-VI shows billing statement of Thai Airlines, Ethiopian Airlines and Sri Lankan Airlines which indicate YQ charges separately on which commission is reportedly not paid. However, a careful perusal of these documents reveal that none of them actually provide details regarding inclusion or exclusion of YQ charges while computing commission amounts. Thus, although it is immaterial as to whether some airlines are not paying commission on YQ charges as the said assessee has received commission on the YQ charges involved in all their domestic bookings and a good majority of international bookings, they have failed to substantiate their arguments. Even the Annexure-III submitted by them with their defence reply is factually wrong as it lists only three airlines as having paid commission on YQ charges, whereas actually they were receiving commission from the aforesaid five airlines.

32. Another argument made by the said assessee is that payment of commission on YQ charges is not a normal practice in the airline industry, hence YQ charges cannot be considered for the purpose of their payment of service tax in the light of explanation given under Rule 6(7). I do not find any


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substance in this view as what matters is not trade or industrial practice, but whether the said assessee has “normally” received commission on YQ charges or otherwise. Having received commission YQ charges involved in all their domestic bookings and a major segment of their international bookings, I do not have an iota of doubt to hold that they have normally received commission on YQ charges. Moreover, had the legislature intended trade or industrial practice, there would not have been an explanation of the type given under Rule 6(7), but the rule would have specified inclusion or exclusion of any component which form part of such trade or industrial practice. They have cited various case laws to negate inclusion of their case within the explanation to Rule 6(7). However, considering the fact that they have received commission on YQ charges for all domestic and most of the international bookings, I do not find any arbitrary usage of the said provisions of the law.

33. Further, I find that Air Travel Agent’s services were brought under the net of service tax w.e.f. 01.07.1997. Section 65(4) of Finance Act, 1994 states that: “Air Travel Agent” means any person engaged in providing any service connected with the booking of passage for travel by air. As per section 65(105)(l), “Taxable service” means any service provided or to be provided to any person by an air travel agent in relation to the booking of passage for travel by air. Section 67 provides that where service tax is chargeable on any taxable service with reference to its value then such value shall, 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. Thus, taxability and point of levy are provided under the Finance Act, whereas the manner and methodology for valuation are provided under Service Tax Rules 1994 and Service Tax (Determination of Value) Rules, 2006. Rule 6(7) of STR, 1994 is only an alternative mechanism for such manner and methodology for valuation, which cannot override the provisions of Finance Act. The rate of service tax provided under this scheme is proportionate to the rates specified under Section 66 (now section 66B), and this is evident from the corresponding increase in the rates under Rule 6(7) as and when there is an increase in the rates under Section 66. When Section 67 provides for charging service tax on the ‘gross amount’ and when the rates under Rule 6(7) are worked out correspondingly, I find no reason to exclude the commission involved in the YQ charges for the purpose of collection of tax under Rule 6(7).

34. The said assessee has claimed cum-duty benefit on the gross amounts charged by them towards YQ charges. The records placed before me indicate that different airlines pay different rates of commission which vary from 1% to 7%. No evidences have been brought forward to indicate that the gross amounts received by them from the airlines were inclusive of service tax, and hence the provisions of Section 67(2) are not applicable here.

35. The said assessee has contested the proposal to invoke extended period of five years for demanding service tax not paid by them on YQ charges in the manner as discussed above. In this connection, I find that the assessee has suppressed or not declared the details of gross amounts charged by them from their clients, nor mentioned the same in their ST-3 returns. Considering the fact that they are not required to maintain any statutory records/registers under Service Tax Law, it is all the more important for them to disclose all relevant information while filing their ST-3 returns. Furthermore, the explanation given under Rule 6(7) unambiguously states that the ‘base fare’ should include all the charges which are normally considered for payment of commission by the airlines. In their case, the said assessee has never disclosed that they were receiving commission on the YQ charges involved on all the domestic ticket booking and on such charges involved on most of their international ticket booking. I am fully convinced


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that there can be no other reason for such suppression/non-disclosure of vital information, except their intent to evade service tax. Therefore, I hold that the demand made in the subject show-cause-notice by invoking the extended period of five years as per the proviso to Section 73(1) of the Act is sustainable, and the arguments made by the said assessee in this regard cannot be accepted. For their aforesaid acts of omission and commission and their deliberate contravention of the provisions of Section 68 and 70 of the Finance Act, 1994 read with Rule 6 and 7 of Service Tax Rules, 1994, they have also rendered themselves liable for penalty as provided under Section 77 and 78 of the Act, ibid. Although show-cause-notice proposes to impose penalty under both Sections 76 and 78, in the light of specific provisions given under Section 78 which prohibits imposition of penalty under Section 76 when penalty already payable under Section 78, I refrain from imposing any separate penalty under Section 76.

36. In view of foregoing discussions and findings, I pass the following order.

ORDER(i) I confirm demand of service tax amounting to Rs. 1,26,31,039/-,

[Rupees One Crore Twenty Six Lakhs Thirty One Thousands Thirty Nine only] from M/s. Riya Travels & Tours (I) Pvt. Ltd., Ahmedabad in terms of the proviso to Section 73(1) read with Section 68 of the Finance Act, 1994;

(ii) I order that the said assessee should pay interest as applicable under Section 75 of the Finance Act, 1994 on the above confirmed demand of service tax of Rs. 1,26,31,039/-;

(iii) I impose a penalty of Rs. 10,000/- under Section 77(2) of the Finance Act, 1994 for the failure to file correct ST-3 return showing the correct value of taxable service and the actual amount of service tax payable;

(iv) I impose a penalty of Rs. 1,26,31,039/- [Rupees One Crore Twenty Six Lakhs Thirty One Thousands Thirty Nine only] under Section 78 of the Finance Act, 1994.

(G.R. MEENA) Principal Commissioner of

Service TaxAhmedabad.

F.No. STC/4-34/O&A/2013-14 Date: - 27.10.2015

BY REGD POST AD.ToM/s. Riya Travels & Tours (I) Pvt. Ltd., 6 & 7, Empire Tower, Near Associated Petrol Pump, C.G. Road, Ahmedabad.

Copy forwarded to :


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1. The Chief Commissioner, Central Excise Zone, Ahmedabad2. The Assistant Commissioner, Service Tax, Div.-II, Ahmedabad3. The Superintendent, AR-X, Div.-II, Service Tax, Ahmedabad4. Guard file


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