International Travel House Ltd  VERSUS C.C.E. &  S.T.-Vadodara-I

Customs, Excise & Service Tax 

Appellate Tribunal West Zonal

Bench At Ahmedabad

 

REGIONAL BENCH- COURT NO. 3

Service Tax Appeal No. 11248 of 2013-DB

(Arising out of OIA-PJ-601-602-VDR-I-2012-13 dated 21/03/2013 passed by Commissioner of Central Excise, Customs and Service Tax-VADODARA-I)

 

International Travel House Ltd 

VERSUS

C.C.E. & S.T.-Vadodara-I

 

WITH

 

Service Tax Appeal No. 11249 of 2013-DB

(Arising out of OIA-PJ-601-602-VDR-I-2012-13 dated 21/03/2013 passed by Commissioner of Central Excise, Customs and Service Tax-VADODARA-I)

International Travel House Ltd Appellant

C/O, Welcome Hotel,

C/O, Welcome Hotel, R.C.Dutt Road, Vadodara, Gujarat

VERSUS

 

C.C.E. & S.T.-Vadodara-I ……Respondent

1st Floor…Central Excise Building, Race Course Circle,

Vadodara, Gujarat – 390007

APPEARANCE:

Shri Wasim Shaikh, Authorised Signatory appeared for the Appellant Shri Kalpesh P Shah, Assistant Commissioner (AR) for the Respondent

 

CORAM: HON’BLE MEMBER (TECHNICAL), MR. RAMESH NAIR HON’BLE MEMBER (TECHNICAL), MR. C.L.MAHAR

Final Order No. A/ 11271 – 11272 /2023

DATE OF HEARING: 20.04.2023 DATE OF DECISION: 14.06.2023

 

 

C.L. MAHAR

 

The brief facts of the case are that the appellant  are engaged in providing travel agent service and registered with the service tax

 

department under the taxable service category of Air Travel Agent, Cab Operator and Rail Travel agent service as per the provision of Section 69 of Finance Act, 1994. The appellant had been receiving “Overriding Commission” during the Financial Assessment year 2005 -2006 to 2007 – 2008. The appellant received an amount of Rs. 1,21,311/- as “ overriding commission” from various air lines. Similarly an amount of Rs 91,588 was also received for period April, 2010 to March, 2011 as “Overriding Commission”. The “Overriding Commission” which the appellant received from various Airlines was an incentive for achieving targeted business to booking Air Ticket for their customers.

2. It is a matter ofrecord that the appellant had entered into an agreement with the Airlines to enhance the business of Airlines by providing the efficient and value added service of booking of passenger for Air Travel. The appellant was to make a special effort to sell tickets of airline by display of time tables and advertising materials of the Airlines in their premises. It has been contention of the department that the “ Overriding Commission” paid by various Airlines to the appellant was nothing but promotion of the business of  the airline and therefore this kind of work falls under the category of business auxiliary service. Therefore, the appellant should have discharged their service tax liability on the above mentioned amount received by them as “Overriding Commission.”
3. On basisof the above the department came to issue two show cause notices dated 19.10.2010 for an amount of Rs. 44,473/- and show cause notice dated 04.05.2011 for an amount of Rs. 9,953/- along with interest and  These Show Cause notices were confirmed by the Adjudicating Authority and the same was challenged by the appellant before the Commissioner (Appeals) who vide the impugned order No. PJ/601- 602/VDR-I/2012-2013 sated 21.03.2013 adjudicated both Orders-In – Original and held that the amount of “Overriding Commission “ received by

 

the appellant from various airlines is taxable under business auxiliary service category. The same Order-In-Appeal has been challenged before us.

4. We have heard both sides and came to notice that the issue of “Overriding Commission “ has already been decided by the Larger Bench of this Tribunalin the case of M/s. Kafila Hospitality & Travels Pvt. Ltd  reported under 2021 (47) GSTL 140 (Tri.-LB-Delhi). The relevant extract of the same is reproduced here below:-

“72.The contention advanced by Learned Counsel of the interveners is that incentives cannot be construed as “consideration” and if it is so, no service tax can be levied on this amount because under Section 67 of the Finance Act, service tax is leviable on “consideration”, which is the gross amount charged by the service provider for rendering a particular taxable service.

 

73. It would, therefore, be appropriate to examine the scope of the term “incentives”. Incentives are generally given to encourage performance of a party. The factual position described above, reveals that incentiveshave been paid by the airlines or CRS Companies to travel agents when they achieve a pre-determined target of sales.

 

74. The relevant portion of Section 67 of the Finance Act, on which reliance has been placed by Learned Counsel for the appellant, is reproduced below :-

 

Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, – “67. (1)

 

• 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;

 

• in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration;

 

• 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.”

 

(emphasis supplied)

 

75. Section 67 of the Act deals with valuation of taxable services for charging service tax. Sub-section (1) of Section 67 provides that where service tax is chargeable on any taxable service with reference to its value, then such value shall, 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 the service provider.It is, therefore, clear that only such amount is subject to service

 

tax which represents consideration for provision of service and any other amount which is not a consideration for provision of service cannot be subjected to service tax.

 

76. In this connection, it would be appropriate to refer to the decision of theSupreme Court in Union of India  Intercontinental Consultancy and Technocrats [2018 (10) G.S.T.L. 401 (S.C.)]. The Supreme Court observed that service tax is on the “value of taxable services” and, therefore, it is the value of the services which are actually rendered which has to be ascertained for the purpose of calculating the service tax. It is for this reason that the expression “such” occurring in Section 67 of the Act assumes importance. The Supreme Court, therefore, observed that the authority has to find what is the gross amount charged for providing “such” taxable services and so any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as the amount is not calculated for providing “such taxable service.” This, according to the Supreme Court, is the plain meaning attached to Section 67, either prior to its amendment on 1 May, 2006 or after this amendment.

 

77. Consideration, which is taxable under Section 67 of the Finance Act, should be transaction specific. Incentives, on the other hand, are based on general performance of the service provider and are not to be related to any particular transaction of service. It needs to be noted that commission,on the other hand, is dependent on each booking and not on the target. If the air travel agent does not achieve the predetermined target, incentives will not be paid to the travel agents.

 

78. In this connection it will be appropriate to take note of the decision of the Federal Court of AustraliaAP Group. The Federal Court of Australia held that in order to levy tax, the payment must be attributable to a particular supply and not to supplies in general and so the target incentives paid by a motor vehicle manufacturer to a dealer would not qualify as consideration as the incentives would be in relation to all supplies and not in relation to a particular supply. The relevant portion of the decision of the Federal Court is reproduced below :-

 

“17.Insofar as the Ford “retail target incentive” payments are concerned, Ford agreed with its dealers to pay certain sums of money to dealers which achieved monthly and quarterly sales targets that Ford set based on the dealer’s size and past performance. Targets were based on the number of cars sold to eligible customers in the qualifying period, not the value of the cars sold. Once a car was sold and delivered to an eligible customer the details would be entered into the vehicle information system and, in about the middle of the following month, based on the information so entered Ford would issue the dealer with a tax invoice for the incentive payment plus 10% GST and shortly thereafter pay that amount to the dealer.

 

The Tribunal reached a different view about the Ford “retail target incentive” payments. It reasoned as follows at [I06]-[I08] : 30.

 

The last remaining payment type is Ford’s retail target incentive payment. It is clear from the “Drive for Success” program that the payment is triggered at the time, and by reason, of the Applicant’s recording of a level of new sales for a relevant period of eligible vehicles

 

to eligible customers in excess of a specified target set by Ford. Significantly, though, and unlike the fleet rebates and the run-out model support payments, the target incentive payment has no nexus with any one particular supply. It is a payment made in connection with supplies generally, or perhaps more accurately, it is a payment made in connection with the making of supplies generally. I06.

 

53.On analysis, the so-called supplies for consideration identified by the Commissioner are nothing more than the encouragement of an overall business relationship between the manufacture and the dealer to the mutual benefit of both. The relationship involves a whole raft of obligation from one to the other all, presumably, with the ultimate objective of maximizing their respective commercial positions. As the AP Group put it, the overall relationship contemplates a continuing dialogue between wholesaler and retailer in which promises are routinely exchanged, but to characterize this dialogue as involving supply after supply is unrealistic and impractical. To characterize the payment of the incentives intended to encourage the overall relationship to operate efficiently as involving supplies for consideration equally unpersuasive. A dealer will always wish to sell as many cars as practicable and to move old stock to make way for new stock. So too a dealer will always wish its ordering arrangements to be the most efficient and economically beneficial to it. The manufacture will have the same objectives. It is this context which underpins the Tribunal’s conclusion that the payments are not for the supply of anything by the dealer. As the Tribunal said at [86] the dealer (which must be inferred to act in an economically rational manner in the ordinary course) will always want to run the business in this way. The fact that the dealer receives a payment as an incentive when certain thresholds associated with running the business in this way does not mean that the dealer is supplying a service to the manufacturer for consideration. If the incentive payment were not available there is no basis to infer that the dealer would not behave in the same way for free. For these reasons there cannot be said to be any supply for consideration in these arrangements.”

 

(emphasis supplied)

 

79. Referencecan also be made to the decision of this Tribunal in Rohan Motors Limited  Commissioner of Central Excise, Dehradun [2020 (12) TMI 1014-CESTAT NEW DELHI]. The Tribunal held that incentives are not leviable to service tax. The relevant paragraph is reproduced below :-

 

The first issue that arises for consideration is whether service tax would be 9. leviable on incentives prior to July, 2012.

 

As noticed above, the appellant purchases vehicles from MUL and sells the same to the buyers. It is clear from the agreement that the appellant works on a principal to principal basis and not as an agent of MUL. This is for the reason that the agreement itself provides that the appellant has to undertake certain sales promotion activities as well. The carrying out of such activities by the appellant is for the mutual benefit of the business of the appellant as well as the business of MUL. The amount of incentives received on such account cannot, therefore, be treated as consideration for any service. The incentives received by the appellant cannot, therefore, be leviable to service tax. 10.

 

(emphasis supplied)

 

80. It, therefore, clearly transpires from the aforesaid decisions that incentives paid for achieving targets cannot termed as “consideration” and, therefore, are not leviable to service tax under Section 67 of the Finance Act.”

 

5. Since the matter has already been decided in the favour of the appellant on merit, we follow the same and allow the appeals.

 

 

 

(Pronounced in the open court on 14.06.2023)

 

RAMESH NAIR MEMBER (JUDICIAL)

C.L.MAHAR MEMBER (TECHNICAL)