The Supreme Court consisting of Justice K.M. Joseph and Justice B.V. Nagarathna has held that the International Air Transport Association (IATA) agent is not liable to service tax under the head Business Auxiliary Service (BAS) on incentives received from airlines.
BACKGROUND
M/s. SOTC Travels Services Private Limited is an air travel agent and offers various tour-related services, the Respondent generates revenue by providing customers an online portal through which they can book tickets offered by different airlines and other service providers in the travel industry.
Additionally the Respondent earns commissions from airlines in lieu of facilitating the ticket booking. The Revenue Department issued a Show Cause Notice dated October 21, 2011 for the period 2005-06 to 2009-10 demanding service tax on revenue earned under target based incentives schemes under the category of BAS by alleging that the travel agents are promoting and marketing the business of the airlines and in return they earn CRS commission, which is taxable under the category of BAS.
The Revenue Department contended that the demand under BAS is justified as there are three parties i.e the CRS Company, travel agent and a passenger and the passenger cannot be deemed to be a recipient for promotion of the business of CRS Companies since, the passenger can neither book directly through a CRS Company nor the passenger can be influenced by any travel agent to book through a particular CRS Company and passed an Order.
Aggrieved by the Order, the Respondent filed an appeal before the CESTAT and relied upon the judgement of Kafila Hospitality & Travels Pvt. Ltd. vs Commissioner, Service Tax, Delhi wherein tribunal noted that the air travel agents are rendering services to passengers by providing options relating to travel routes, accommodation, booking of tickets and increase in the number of bookings would automatically result in an increase in the business of the air travel agents and incidentally result in the increase in the business of the airlines, so it could not be treated as promotion and marketing services of airlines and it is only when the predetermined target of number of bookings is achieved the airline pays an incentive to the travel agent.
RULING
The Supreme Court held that it cannot be said that the travel agent is promoting the services of any airline. Incidentally, the airlines may benefit if more tickets are sold, but this would not mean that the travel agent is providing service of promotion of airlines and the CESTAT set aside the Impugned order vide the Order.
Case Title: PCIT Versus SOTC Travels Services Private Limited
Citation: CIVIL APPEAL NO. 3702/2023