The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi has allowed the appeal by setting aside service tax demands aggregating to ₹45.31 crore, along with interest and penalties, holding that the appellant was not rendering Business Auxiliary Service or intermediary service, but was providing end-to-end transportation of goods by air on a principal-to-principal basis, which was either exempt prior to July 1, 2012, or not taxable thereafter as the place of provision was outside India.
The dispute arose from two show cause notices dated October 20, 2015 and April 12, 2018, covering the period 2010–11 to June 2017, alleging that Delmos Aviation, appointed as a General Sales and Service Agent (GSSA) of Aeroflot Russian Airlines, had rendered taxable Business Auxiliary Service to exporters before July 1, 2012 and intermediary service thereafter. The Department contended that since Delmos did not own or operate aircrafts and facilitated cargo booking on behalf of Aeroflot, the consideration received from exporters was liable to service tax. The demands were confirmed by the Order-in-Original dated May 16, 2019.
While examining the appeal, the Bench comprising Ms. Binu Tamta (Member-Judicial) and Mr. P.V. Subba Rao (Member-Technical) noted that although the GSSA agreement described Delmos as an agent of Aeroflot, the actual manner of business was materially different. The Tribunal found that Delmos issued single airway bills, charged exporters a consolidated amount for transporting cargo from the exporter’s premises up to the final overseas destination, bore domestic transportation costs, and paid Aeroflot and other airlines on its own account. There was no direct relationship between exporters and Aeroflot, and Delmos neither earned commission from Aeroflot nor acted as an intermediary.
The Tribunal held that the services rendered were not Business Auxiliary Services, as Delmos was not procuring services for exporters but was itself providing a composite transportation service. For the period prior to July 1, 2012, the Tribunal held that Delmos qualified as an “aircraft operator” under Section 65(3b) of the Finance Act, 1994, since ownership or operation of aircraft is not a statutory requirement, and the service of transport of goods by air was exempt under Notification No. 29/2005-ST dated July 15, 2005.
For the period after July 1, 2012, the Tribunal rejected the Department’s classification of Delmos as an intermediary and held that Rule 10 of the Place of Provision of Services Rules, 2012 applied, under which the place of provision for transportation of goods is the destination of the goods. Since the destinations were outside India, the services were held to be outside the taxable territory, and no service tax was payable.
Accordingly, the CESTAT set aside the impugned order in its entirety, quashed the service tax demands, interest and penalties, and allowed the appeal.
Appearances:
For the Appellant – Chartered Accountant A.K. Batra,
For the Respondent – Authorised Representative Aejaz Ahmad,
