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Rasi Travels and Cargo Pvt. Ltd V/S Commissioner of Central Excise, Trichy

    ST/286/2008 (Arising out of Order-in-Appeal No. 13/2008 dated 23.9.2008 passed by the Commissioner of Central Excise (Appeals), Trichy) and Final Order No. 41550/2017

    Decided On, 09 August 2017

    At, Customs Excise Service Tax Appellate Tribunal South Zonal Bench At Chennai

    By, THE HONORABLE JUSTICE: SULEKHA BEEVI C.S.
    By, MEMBER AND THE HONORABLE JUSTICE: MADHU MOHAN DAMODHAR
    By, MEMBER

    For Petitioner: Minchu Mariam Punnose, Advocate And For Respondents: A. Cletus, Addl. Commissioner (AR)



Judgment Text


1. The dispute is with regard to non-payment of service tax under the category of Air Travel Agent Services.

2. The appellants are accredited to IATA and provided services of air travel agent. After getting accredited to IATA in October 2002, they failed to discharge service tax and show cause notice was issued for the period 10/2002 to 9/2003 and after adjudication, Order-in-Original dated 24.2.2005 was passed confirming demand of service tax of Rs. 2,54,770/- and imposing penalty of Rs. 5,500/-. The appellants paid these amounts. In appeal, the same was confirmed vide Order-in-Appeal 30.8.2005. Though department filed appeal before Tribunal against reduced penalty the same was dismissed.

3. The appellant did not discharge service tax for the period October 2003 to September 2005 and alleging that appellants cannot discharge service tax on the basic fare but have to pay on the commission received, show cause notice dated 4.10.2006 was issued. After due process of law, the original authority confirmed the demand of Rs. 24,84,734/- along with interest and imposed equal penalty under Section 78 and penalty under Section 76 besides penalty of Rs. 1,000/- under Section 77 of the Finance Act. Being aggrieved they filed appeal before the Commissioner (Appeals) who upheld the same. Hence this appeal.

4. On behalf of the appellant, the Ld. counsel, Ms. Minchu Mariam Punnose put forward the following main submissions:-

(a) The Demand has been raised based on the Commission received by the Appellant from the Airlines. The Demand is clearly arbitrary as can be seen from the following:

i) Option is available to pay service tax on specified percentage on the basic fare instead of at the applicable rate on the Commission received.

ii) The relevant rule 6(7) of the Service Tax Rules, 1994 says that the Service provider shall have the option to pay at specified percentage on the basic fare during any calendar month or quarter, as the case may be, towards the discharge of service tax liability instead of paying service tax at the rate specified in section 66 of the Act.

iii) The option once exercised, shall apply uniformly in respect of all the bookings and shall not be changed during the financial year under any circumstances.

From a reading of the rule following inferences can be made

* The option is at the discretion of the service provider.

* The option is to be exercised during the financial year

* There is no condition that the option shall be exercised at the beginning of the year.

* There is no specific form in which the option is to be exercised.

* Hence if the payment is made on the basic fare basis and ST-3 return also evidences that, it is to be treated as sufficient compliance of having exercised the option.

* Once the option is exercised it remains till such time the service provider opts Out of the same.

2.1, b) Factual Position:

* ST-3 Return for the period October 2002 to September 2003 was filed working out the service tax liability on basic fare method, thereby exercising option provided under rule 6(7) of the service tax rules 1994.

* The same was not accepted by the Department for the reason that such options cannot be exercised retrospectively, meaning that the option had been exercised by the appellant and that this can be considered prospective only.

* It can be noted that the return was filed in the financial year 2003-04 and in any case the option is to be accepted for that financial year on wards.

* The liability for the period covered by the Order-in-Original that is from October 2003 to March 2006 is to be worked out on the basis of basic fare only.

3.1 Penalty Under Sections 76 and 78 of the Act:

Penalty under Section 76:

Penalty under this section is attracted only when there is a failure to pay Tax. That they paid the tax in full for the period up to September 2003 and have also made a payment of Rupees Two Lakhs for the period thereafter and as such the penalty under Section 76 cannot be imposed.

Penalty under section 78:

As there has been sufficient and reasonable cause as explained supra, we request the Hon. Commissioner take a sympathetic view and to set aside the demand towards penalties.

She relied upon the case in Nizam Sugar Factory Vs. Collector of Central Excise, Andhra Pradesh : 2006 (197) ELT 465 (SC) to contend that the department was already in the know-how of things and therefore no suppression of facts as alleged have taken place and appellant was always willing to discharge service tax on basic fare which was not acceptable by department. As there was already earlier show cause notice issued invoking extended period, the second show cause notice alleging suppression on same facts is not sustainable.

5. Against this the Ld. AR, Shri A. Cletus submitted that the appellant did not pay service tax and did not file ST-3 returns even after the first order passed by them and that therefore there is suppression of facts. Without filing returns, the department would not be able to know the facts. He submitted that appellants are liable to discharge service tax on the commission received and as they have not filed any intimation to the department informing the option exercised they are liable to pay service tax on the basis of the commission. The quantification is therefore right and proper. The show cause notice issued invoking extended period is sustainable as well as penalties.

6. Heard both sides.

7. The main ground raised by the learned counsel for the appellant is that the demand raised on the basis of commission is not correct for the reason that the appellants had filed ST-3 Returns for the period October 2002 to September 2003 working out the service tax liability on basic fare method. This was not accepted by the department asking the appellant to pay service tax on the basis of commission received. As per rule 6(7) of Service Tax Rules, 1994, the appellant has an option to pay service tax on that part of the basic fare method instead of discharging service tax on the rate applicable for the commission received. The said provision is reproduced as under:-

(7) The person liable for paying the service tax in relation to the services [of booking of tickets for travel by air] provided by an air travel agent, shall have the option, to pay an amount calculated at the rate of [0.7%] of the basic fare in the case of domestic bookings, and at the rate of [1.4%] 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 66B 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.
8. From the above, it can be seen that there is no procedure contemplated in the provision to intimate the department regarding the option exercised. The main reason for disallowing such option to pay service tax on the basic fare, as revealed from the impugned order, is that the appellant has not intimated the department with regard to the exercise of option. When no procedure is contemplated for such intimation, the option exercised by the appellant which is revealed from the service tax returns filed by them cannot be denied. The conduct of the appellant in filing ST-3 returns by calculating the service tax on the basic fare method in terms of the option available to them under Rule 6(7) is sufficient exercise of option. The department cannot force upon the appellant to pay service tax on the basis of commission received when the rules itself provide an option to the appellant/assessee. On this ground, we find force in the argument put forward by the learned counsel that the appellant is liable to discharge service tax only on that portion of the basic fare and not on the basis of the commission as quantified by the department in the impugned order. On such score, we find that the said issue has to be remanded to the adjudicating authority to requantify and redetermine the service tax payable for the disputed period on the basis of the basic fare.

9. The learned counsel has argued on the ground of limitation as well. She submitted that the appellant was issued an earlier show cause notice invoking extended period alleging suppression of facts. The said show cause notice was adjudicated and the dispute has attained finality. The period involved in the said show cause notice was from October 2002 to September 2003. That the department was on the complete know-how of the facts while issuing the first show cause notice and therefore the second show cause notice issued on the same set of facts is not sustainable. We do find that the earlier show cause notice is issued for the period from October 2002 to September 2003. In the case of Nizam Sugar Factory (supra) has held that allegation of suppression of facts cannot be sustained when the first show cause notice was issued on the same set of facts and these were within the knowledge of the authorities. Apart from this, we do take note that internal audit was conducted and as per report dated 13.10.2005, the appellants were asked to pay service tax for the period from October 2003 to September 2004 to the tune of Rs. 8,35,876/- which was collected by them on the basis of basic fare. The learned AR has opposed the arguments posed by learned counsel on the ground of limitation and contended that the appellant has not filed ST-3 r

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eturns or paid the service tax collected by them. This is countered by the learned counsel for the appellant who has submitted that the department was not accepting the ST-3 returns filed by them on 14.10.2005 contending that the appellant has to pay service tax on the basis of commission and not on the basis of basic fare. Thus, it is clear that there was much dispute and confusion as to whether the discharge of service tax on the basis of basic fare method is sufficient and proper, and the department has not been allowing the appellant to exercise the option which the law provides to them. It is also brought out that there was denial of right to exercise option by the department by which the appellant was put to much difficulties. On such score, we are of the considered view that the penalties imposed are unwarranted and the same are set aside. 10. In the result, the impugned order is modified by directing the adjudicating authority to ascertain the demand in terms of basic fare method and also by setting all the penalties aside. The appeal is allowed partly and partly remanded in the above terms.
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