2026-VIL-1734-CESTAT-DEL-ST
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SERVICE TAX CESTAT Cases

Service Tax – Taxability of cancellation fee, refund fee and no show fee collected by an airline as Declared Service under Section 66E(e) of the Finance Act, 1994 - Appellant, an airline carrying passengers by air, collected cancellation, refund and no show charges from passengers and paid service tax on the abated value of these charges as part of its transport service – Dept-Respondent treated them as a distinct service of tolerating an act, demanded service tax on the full amount without abatement along with interest by invoking the extended period, and imposed penalties - Whether the cancellation charges collected from passengers are consideration for a declared service under Section 66E(e) chargeable to service tax on the full amount - HELD - The promise of the airline to carry the passenger and the promise of the passenger to pay the fare form the consideration for each other. Where the contract itself fixes the amount payable on default, such amount is liquidated damages, and the intention of the parties at the time of buying the ticket is that the passenger would fly and not that the ticket be cancelled so that the airline gets some money. The cancellation charges are intended to compensate the airline to some extent for the failure of the contract. They are in the form of compensation for failure of the contract and are not consideration, and there is no separate agreement with an intent that the passenger would default so that the airline would get compensation. The contention of the Respondent that passengers were aware at the time of booking that a cancellation fee could be charged and that it is an integral part of the agreement does not alter this position. Section 66E(e) can be invoked only if the purpose of the agreement itself is to tolerate an act, and it does not apply where the agreement is to do an act and compensation is charged for default by one of the parties. This interpretation of the expression tolerating an act has also been accepted by the Board in its Circular with respect to GST. Even though the Appellant wrongly paid service tax on the compensation after availing abatement, once there is no charge of service tax at all, it is irrelevant whether abatement was availed or not - The demand of service tax on the cancellation fees cannot be sustained, the impugned order is set aside, and the appeals are allowed
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