CESTAT Quashes ₹7.4 Crore Service Tax Demand; Travel Agency Allowed to Collect Tax From Sub-Agents
Pranav B Prem
The Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi has set aside a demand of ₹7,40,44,131 raised against Benzy Tours and Travels, holding that the travel agency was legally entitled to collect service tax from its sub-agents and had not violated Section 73A of the Finance Act, 1994. The adjudicating authority’s order confirming the demand along with interest was therefore quashed in full.
The proceedings originated from an investigation by the Directorate General of Central Excise Intelligence (DGCEI), which alleged that Benzy Tours and Travels, an IATA-accredited travel agent, had charged service tax from non-IATA sub-agents who purchased airline tickets through the appellant for resale to their customers. The department contended that the commission received by the appellant from airlines was the full consideration for services rendered and already included service tax. According to the department, the appellant was not entitled to collect any service tax from its sub-agents and had illegally retained such amounts.
The adjudicating authority accepted the department’s reasoning and invoked Section 73A(2) of the Finance Act to demand recovery of tax that was allegedly collected as representing service tax but not deposited with the government. This led to confirmation of the substantial demand under the impugned order dated 18 March 2021.
Before the Tribunal, the appellant maintained that air travel agent services were rendered by the appellant to the sub-agents, not to the airlines. The commission paid by airlines was linked to the business volume generated through sub-agents for ticket sales to passengers rather than consideration for any services rendered to the airlines. It was contended that, as service providers to the sub-agents and passengers, the appellant was justified in collecting service tax from sub-agents, who were the actual recipients of the service.
The Bench consisting of Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member) agreed with the appellant and relied on the Tribunal’s earlier rulings in Riya Travel & Tours (India) Pvt. Ltd. and Akbar Travels of India Pvt. Ltd.. In both cases, the Tribunal had held that travel agents do not provide services to airlines and that service tax collected from sub-agents is lawful, since sub-agents are the true service recipients. The Bench reiterated that the phrase “full compensation for services rendered to the carrier” in the Passenger Sales Agency (PSA) Agreement does not imply that service tax is subsumed in the commission received from airlines.
Benzy Tours and Travels clarified that until 2011–12, it followed the Basic Fare Model under Rule 6(7) of the Service Tax Rules and thereafter shifted to the Commission Model under Section 68. In both phases, the appellant paid service tax on its commission income. The Tribunal accepted this explanation and held that Section 73A could not be invoked to demand service tax allegedly collected in excess when the appellant had duly discharged its tax liability on its own commission earnings.
Once the relationship between the appellant and its sub-agents was established, the demand under Section 73A collapsed. The Tribunal found no basis to treat funds collected from the true recipients of service as illegal retention, and therefore the adjudicating authority’s conclusion could not stand. Accordingly, the Tribunal set aside the order dated 18 March 2021 and allowed the appeal filed by Benzy Tours and Travels in full, giving complete relief from the tax demand.
Appearance
Counsel For Appellant: Manoj Chauhan, Chartered Accountant
Counsel For Respondent: Aejaz Ahmed, Authorized Representative
Cause Title: Benzy Tours and Travels Versus Additional Director General (Adjudication)
Case No: Service Tax Appeal No. 50819 of 2021
Coram: Justice Dilip Gupta (President), Hemambika R. Priya (Technical Member)
