2024-VIL-237-CESTAT-AHM-ST
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SERVICE TAX CESTAT Cases

Service Tax – Classification of charter operation - Non-payment of service tax on supply of chartered flights to various organization – Demand under “Supply of Tangible Goods Services” - Whether the activity of appellants providing chartered aircrafts to clients/ customers is classifiable under the taxable category of “Supply of Tangible Goods Services” defined under Section 65 (105)(zzzj) of Finance Act, 1994 or under the category of “Air Transport of Passengers Services” defined under Section 65(105)(zzzo) of the Finance Act, 1944 - Appellants case said services fall under the category of “Air Transport of Passenger Service” and not under SOTG services – HELD – Charter operation is a sub-category of non-scheduled aircraft operations. The definition of charter operations is contained in that part of The Civil Aviation Requirements (CAR) dated 1-6-2010 which pertains to Minimum Requirement for grant of permit to operate non-scheduled Air Transport Services. Hence, charter operations do not cease to be aircraft operations by reason of the fact that the entire aircraft is chartered by the client from the aircraft operator. Charter operations are essentially aircraft operations, and cannot be categorized as supply of aircraft by the aircraft operator to the charterer - it is evident that in case of charter operation, no ticket is required to be sold to the individual passenger. Further, the charter may be for single journey or for multiple journeys over a period of time. Regardless of this the services remains one of charter operation - the services rendered by the appellants fall within the category of non-scheduled air transport services. Further, the appellant is in the business of providing service to its customers embarking in India for domestic journey. Hence, the conditions for coverage under the “transport of passengers by air service” are satisfied. Therefore, the service provided by the appellant is covered under the taxable service category of “transport of passengers by air service” - the appellant are paying service tax w.e.f. 1-7-2010, therefore, during the period prior to 1-7-2010, their activity cannot be subjected to tax by treating the same as supply of tangible goods. It is well settled law when an activity becomes taxable from a particular date, it is to be treated as non-taxable for the previous period, therefore, for the period prior to 1-7-2010, the appellant’s activity cannot be treated as supply of tangible goods service - the impugned orders are set aside and appeals are allowed - Whether the appellant is liable to pay service tax on the Banking and Financial Services and Management, Maintenance and Repairs services, received from the parties located aboard – HELD - appellant has accepted their liability and paid the entire service tax alongwith interest before the issuance of show cause notice and appellant only argued that since the service tax amount in dispute was paid along with interest before issuance of show-cause notice, benefit of sub-section (3) of Section 73 of Finance Act, 1994 should be available to the appellant – since the appellant has already paid service tax along with interest before issuance of show cause notice. Therefore, in terms of Section 73(3) of the Finance Act, 1994 the proceedings were not required to be initiated against the appellant and therefore, penalty imposed on the appellant is set aside - Whether the hiring of charter aircrafts by the appellant is liable to service tax under the category of “Supply of Tangible Goods Service” and appellant being recipient of these service is liable pay service tax under reverse charge mechanism as per Rule 2(1)(d)(iv) of Service tax Rules, 1994 read with Section 66A of the Finance Act, 1994 – HELD - hiring of charter aircrafts was of air transport services from Ahmedabad to Moscow and Back. As already held, the said service is appropriately classifiable under the category of “Transportation of Passengers embarks in India for International Journey by Air Services” defined under Section 65(105)(zzzo) and not under the category of “Supply of Tangible Goods Services” – Further, on the said services appellant also not liable for payment of service tax under the taxable category of “supply of Tangible Goods Service” as the said service falls under Section 65(105)(zzzzj), which is excluded from Rule 3 under Sub-rule (iii)(a) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 - the appellant cannot be held liable for payment of service tax under the reverse charge mechanism in respect of Aircrafts not located in India during the entire period of their use.
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