By TIOL News Service

MUMBAI, AUG 23, 2014: A total service tax demand of Rs.8,71,86,127/- for the period 01/04/2004 to 31/03/2012 along with interest and penalties has been confirmed against the appellant by classifying the services rendered by the appellant to computerised reservation system (CRS) companies under the taxable service category of 'Business Auxiliary Service'.

Before the CESTAT the appellant inter-alia submitted that they have entered into agreements with CRS facility providers like M/s. Galileo India Pvt. Ltd., M/s. Abacus Distribution System (India) Pvt. Ltd., M/s. Amadeus and M/s. Sabre; that under these agreements, the CRS companies provided IT software for booking of airline tickets, car rentals and hotels and for the usage of this software, the appellant received consideration called 'support fee'. Inasmuch as since the appellant is not promoting the business of the CRS companies and the software is used for booking of tickets for travel by air, therefore, if at all services are taxable they would merit classification under 'Air travel agent service' and not under 'Business Auxiliary Service'. Reliance is placed on the decision in Airlines Agents Association vs. Union of India 2003-TIOL-143-HC-MAD-ST. The ground of the demand being time barred was also taken in appeal.

The Bench adverted to the agreements and observed -

++ The question is why is the appellant getting paid by way of incentives and for what purpose? There is no dispute about the fact that it is for usage of the CRS software the appellant is getting paid. What is the service provided in the transaction? The service provider gains by marketing the CRS software and by also advertising that the appellant is using their software which would enable other similarly situated persons to buy their software. In other words, the sale or marketability of the product of the service provider is enhanced / improved by the usage of the software: otherwise, there is no need for any agreement in this regard. It is a settled position in law that it is not the wordings of the agreement that is relevant but the substance of the agreement as held by the apex Court in the case of Bhopal Sugar Industries Ltd vs Sales Tax Officer 1977 AIR 1275 // 1977 SCR (3) 578. If one sees the substance of the agreement, it is for the promotion of the software of the CRS companies and not for any other purpose.

++ The CRS software can be used not only for booking of air tickets but also for hotel booking, car rental and for other purposes. Therefore, merely because the software is used in the booking of air tickets, it cannot be said that services rendered is in relation to the air travel agent's services.

++ The decisions relied upon (by appellant) were rendered in a different context altogether and the issue of transaction between CRS companies and air travel agent was not one of the issues therein. It is a settled position in law that when the facts are different and distinguishable, the ratio of a decision cannot be blindly applied. [ Al Noori Tobacco products India Ltd. 2004-TIOL-85-SC-CX refers.]

Taking a prima facie view that the services rendered by the appellant would merit classification under 'business auxiliary services' and that the question of time bar is both a question of fact and law which would be examined at the time of final hearing, the Bench also noted that no financial hardship was pleaded and, therefore, directed the appellant to make a pre deposit of Rs.5.8 crore within 12 weeks and report compliance. 

(See 2014-TIOL-1581-CESTAT-MUM)