Hiring of chartered aircraft is classifiable under

PJ/Case Laws/2012-13/1414

Case:- M/s KARNAVATI AVIATION PVT LTD Vs COMMISSIONER OF SERVICE TAX, AHMEDABAD

Citation: - 2013-TIOL-150-CESTAT-AHM

Brief facts:- The Appellant is providing chartered flights to various organizations which according to them fall under the category of Air Transport of Passenger service, and Management, Maintenance or Repair service. After completion of investigation and proceedings, the impugned order has been passed wherein it has been held that hiring of chartered aircraft by the appellant is classifiable under the category of "supply of tangible goods services" and leviable to tax. On this ground, Service Tax amounting to Rs.1,73,92,144/- along with interest has been demanded and penalty equal to this amount has also been imposed. In addition, smaller amounts have also been demanded which are mainly payable as service receiver by the appellant in respect of services received from the service provider abroad and all these small amounts have been paid by the appellant and appropriated by the adjudicating authority and since the amounts are small and paid, Tribunal do not consider it necessary to discuss these services while considering the stay application.

Appellant’s Contention: - The ld. counsel on behalf of the appellant submitted that the supply of tangible goods service and transport of passengers by air service was introduced in the year 2008-2009. At the time, the transport of passengers by air service was limited to service provided in relation to scheduled or non-scheduled air transport of passengers embarking in India for international journey in any class other than economy class. This definition was amended in the year 2010 and according to the definition introduced w.e.f. 01.07.2010, the service provided to passengers embarking in India for domestic journey was also covered. He submits that it is the appellant's claim that they are liable to pay Service Tax only under the category of transport of passengers by air service and not under supply of tangible goods service as held by ld. Commissioner in the impugned order. He submitted that supply of tangible goods service gets attracted only when there is supply of aircraft and according to the concept of supply, it cannot be said that there is a supply of air-craft. He relies upon the decision in the case of Indian National Shipowners Association - 2009 (14) STR 289(Bom.) = (2009-TIOL-150-HC-MUM-ST)to submit that the decision in that case was taking a view that SOTG service is not attracted when the right of possession and effective control is not parted with. The vessels given on time chartered basis, therefore may not be considered as supply of tangible goods. For a service to be covered by SOTG service, it is essential that the recipient of the service is provided with the goods which he is free to use in any manner within the desired time limit. According to him, the service provided by them is service of transportation and not supply of aircraft. Further, in the supply of tangible goods service, the service recipient is putting tangible goods into use and in this case there is no such situation.

Respondent’s Contention:- The ld. A.R., on the other hand submit that the observations of Hon'ble High Court in Para 37 in the case of Indian National Shipowners Association shows that when the vessels are given on time charter basis to oil and gas transporters to carry out off-shore exploration and production activities, the right of possession and effective control of such machinery, equipment and appliances is not parted with. In such a case, the activities are clearly covered by SOTG services. He submits 'that in the appellant's case, they provide air-crafts on time charter basis only and the charges are levied according to the use and distance travelled. He submits that the transport of passengers by air service cannot cover the service provided by the appellant since the appellants are not providing any service to the passengers. In this case, the charges are not levied on the basis of number of passengers but based on the distance to be travelled and the time to be taken. Whether the aircraft carries one passenger or 10 passengers, the charges would remain the same. He submits that the appellants have cleverly resorted to levy charges on the basis of number of passengers but in reality, they are just dividing the total cost by number of passengers and there is no service provided to passengers but for hiring of air-craft. He relies upon the decision of the Tribunal in the case of Atwood Oceanic Pacific Ltd - Final Order No.A/1296-1298/WZB/AHD/2012,dt.30.08.2012to submit that in view of the fact that right of possession and effective control remain with the appellant only and aircraft has been provided for use, levy is correctly attracted.

Reasoning of Judgment:- The Tribunal Held that in the case of the appellant, the service is provided to various companies, who chartered the aircraft for specific time or for specific journey. The payment is not based on number of passengers and the appellant is not concerned with travelling also. No tickets are issued to the passengers and no charges are collected from the passengers. Therefore, the service provided cannot be considered as transport of passengers, but has to be considered as charter of air craft. There is no doubt that the right of possession and effective control while in use by the charterer is not parted with. Further, it is also quite clear that as mentioned by the Board at the time of introduction of service, the services where VAT is payable may not be covered by this service, would also apply here since no VAT is levied or collected in respect of these transactions. It was also submitted that subsequently the assessee has been paying on the basis of number of passengers travelled and the payments are being made based upon the total amount received divided by number of passengers. It was submitted that in the present system of taxation, the assessee himself classifies the service, quantifies the Service Tax liability and pays the same. There is no concept of assessment on a regular basis or acceptance of details in the returns as correct officially by the Department and therefore the claim of subsequent assessment have been accepted cannot be accepted unless documentary evidence is produced to show that the Department has accepted the assessment made by the assessee and has agreed that the classification of the service is not under SOTG service. No conclusive documentary evidence was produced for this purpose. Needless to say that the agreement, nature of transaction and other details are required to be considered, which can be considered at the time of final hearing. The above detailed discussion would show that the appellant has not been able to make out a prima facie case for complete waiver. No financial difficulty has been pleaded. Thus it appropriate that the appellant deposits an amount of Rs.35 lakhs (Rupees Thirty Five Lakhs only) as pre-deposit within eight weeks from the date of order and report compliance on 2.1.2013. Subject to compliance of pre-deposit as directed above, the requirement of pre-deposit of balance amount is waived and stay against recovery of the same during the pendency of the appeal is granted.

Decision:- Part pre-deposit ordered.

Comment:- It was concluded in this case that the service of providing aircraft when the charges are collected on the basis of time and distance travelled would squarely be classified as “Supply of Tangible Goods Service” as no service is provided to the passengers and consideration is received irrespective of number of passengers travelling. Moreover, no VAT is levied in respect of such transactions.

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PJ/Case Laws/2012-13/1414

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