By TIOL News Service

MUMBAI, OCT 05, 2013: THE appellants are in the business of transporting passengers by air. While transporting the passengers, the baggage of passengers is also transported. There is a free allowance for carrying of baggage and any baggage in excess of free allowance is liable to transportation charges.

The Revenue smelt a ‘baggage' case here. It was of the view that charges collected by the Airlines for the excess baggage is liable to Service Tax under the category of "Transportation of Goods by Air" and accordingly, demand notices for recovery of Service Tax of Rs.58,30,000/- for the period 2005-06 to 2009-10 and Rs.3,14,43,719/- for the period 2010-11 were issued.

The Commissioner of Service Tax, Mumbai confirmed the demand notices in September, 2012 by which time the airlines was in the throes of death.

Be that as it may, before the CESTAT the appellant submitted that service undertaken by them was transportation of passengers, which is not taxable for the period prior to 1.7.2010; that the cost of transport of baggage of the passengers is included in the fares of the transport of passengers and, therefore, the services rendered by them is incidental to the transport of passengers and, therefore, the Service Tax demand cannot be made under the category of ‘transportation of goods by air".Reliance is also placed on the Board's Circulars No. 334/1/2008-TRU dated 29.2.2008 and No. 104/7/2008-ST dated 6.8.2008. Inasmuch as from the clarifications issued it is apparent that the classification of a service depends upon the nature of the service rendered and in the present case, the principal service rendered is transportation of passengers by air. Therefore, the question of ‘transportation of goods by air' service would not arise separately in respect of excess baggage. The appellant also pleaded financial hardship, as currently they were not operating the airlines.

The Revenue representative justified the demand by relying on the definition of taxable service of ‘transportation of goods' contained in Section 65(105)(zzn) of FA, 1994.

The Bench observed -

"5.1 We find merit in the argument of the learned Counsel for the appellant that the principal service involved in the present case is transportation of passengers by air. While rendering the services to passenger, his baggage is also transported free of cost within specified limits and the cost of transportation of baggage is included in the fare of transportation of the passenger by air. When the weight of the baggage exceeds the free allowance limits, they collect excess baggage charges from the passengers, and this does not mean that they are transporting goods by air. Transportation of baggage is not an individual or separate service, but it is a component of the principal service, and the principal service is transportation of the passenger by air. The Board has also clarified this position vide the circular dated 29.2.2008 which states that - for the purpose of classification of a service covering number of separate services, a view has to be taken as to whether an individual service is merely a component of the overall supply or is itself a distinct and independent supply.

5.2 In the present case, we are of the considered view that the transportation of baggage is not an individual or a separate service, but it is a part of transportation of passengers' service by air. In the case of N. Rajashekar& Co. Vs. Commissioner of Central Excise, Mysore - (2008-TIOL-1531-CESTAT-BANG), an issue arose whether transportation of limestone boulders from outside the mine site to yard for breaking into jelly in mine yards and its further transportation, can be taxed under "cargo handling service". The Tribunal after examining the issue in detail held that the activities are incidental to mining service and hence not taxable under ‘cargo handling service'…."

Holding that the appellant had made out a strong prima facie case, the Bench grantedan unconditional waiver from pre-deposit of the adjudged dues and stayed the recovery.

Fly Kingfisher!

(See 2013-TIOL-1463-CESTAT-MUM)