Service Tax Not Prima Facie Leviable On Amounts Claimed As Performance Linked Incentives/Commission: Delhi High Court

The Delhi High Court has prima facie observed that service tax is not leviable on amounts claimed by an Assessee as commission or performance linked benefit.

A division bench of Justices Yashwant Varma and Dharmesh Sharma cited the decision of a Larger Bench of the CESTAT in Kafila Hospitality & Travels Pvt. Ltd. vs. Commr. Of S.T., Delhi (2023).

In that case, the Tribunal dealt with the issue of whether the incentives paid by airlines to travel agents for achieving targets was liable to service tax under the category of ‘Business Auxiliary Service’.

It had concluded that Service tax is leviable on “consideration” and incentives cannot be construed as consideration and therefore cannot be subjected to levy of service tax.

In the case at hand, Petitioner sought waiver of pre-deposit under Section 35F of the Central Excise Act, 1944, so as to impugn levy of service tax on its ‘commission income’, the consequent demand and other liabilities.

The incentive payments were received by the petitioner in connection with the use of the Computer Reservation System, to book air tickets of various Airlines. (CRS companies give incentive/commission to travel agents to increase the use of their CRS facility.)

In Kafila Hospitality (supra), the CESTAT had also dealt with the question whether use of CRS by travel agents could be exigible to tax.

The High Court noted that admittedly, no appeal was preferred by the Revenue against the Kafila Hospitality judgment and thus the position stands authoritatively settled.

“All of the above, leads us to conclude that the petitioner appears to have a strong prima facie case and that the test of “likelihood of success” is liable to be answered in its favour,” High Court concluded.

It proceeded to invoke its writ jurisdiction and directed that pre-deposit to be made by the Petitioner shall be calculated after excluding the demand raised qua the incentive income.

Also read: Service Tax Not Leviable On Incentives For Achieving Sales Target: CESTAT

Appearance: Sanjeev Anand, Sr. Adv with Mr. Sameer Sood, Ms. Madhumita Singh and Mr. Jatin Mandovaria, Advs for Petitioner; Mr. Bhagvan Swarup Shukla, CGSC with Mr. Sarvan Kumar, Adv. for UOI; Mr. Piyush Beriwal and Mr. Sandip Munian, Advs. for R-2 to 4

Case title: Just Click Travels Private Limited v. Union Of India & Ors.

Case no.: W.P.(C) 8896/2023

Click Here To Read/Download The Order

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