No Service tax on incentives received by travel agents from airlines or CRS companies

The Hon'ble Supreme Court in Principal Commissioner Central Excise Delhi I v. SOTC Travels Services Private Limited [Civil Appeal No.3702 of 2023 dated May 15, 2023] dismissed the Appeal filed by the Revenue Department by relying on the judgement wherein it was held that the Performance linked bonus ("PLB") and Computer reservation service ("CRS") fees received by airline agents are not subject to service tax under the category of ‘Business Auxiliary Services' ("BAS").

Facts

M/s. SOTC Travels Services Private Limited ("the Respondent") 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 ("the SCN") 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 ("the 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 reported as 2021 (47) GSTL 140 (Tri- LB)] 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. 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. ("the Impugned Order")

Aggrieved by the Impugned Order, the Revenue Department filed an appeal before the Hon'ble Supreme Court.

Issue

Whether incentives paid by airlines or CRS Companies to travel agents for achieving predefined milestones would be liable to service tax?

Held

The Hon'ble Supreme Court in Civil Appeal No.3702 of 2023 held as under:

• Relied upon the judgement of Kafila Hospitality & Travels Pvt. Ltd. vs Commissioner, Service Tax, Delhi (Supra) held that PLB and CRS commission are not subject to service tax under the category of BAS.
• Dismissed the Appeal of the Revenue Department.