Air Passenger Transport Service

September 16, 2016   admin  Service Wise Implications
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  • Taxability as settled by precedents / Circulars / Trade notices

ActivityWhether falls within the scope of present serviceReference
An international journey commencing from an Indian airport involves stopover / transfer at intermediate airports outside India before reaching the destination (say Mumbai-Dubai-London-New York).NoCircular No 96/7/2007-ST, dated 23.08.2007
An international journey (say Delhi-Mumbai-London) includes travel in a domestic sector (Delhi - Mumbai) as part of the international journeyYesCircular No 96/7/2007-ST, dated 23.08.2007
An international journey commences from an airport outside India and completed at an airport outside India but including a sector wherein the passenger disembarks and subsequently embarks at an Indian airport as part of international journey (say Sydney-Mumbai-Dubai-Singapore-Sydney)NoCircular No 96/7/2007-ST, dated 23.08.2007
Tickets sold outside India for the journey commencing from IndiaYesMaster Circular No 96/7/2007, dated 23.08.2007
Cancellation of ticketNoUpon cancellation of ticket, the airlines must refund the service tax so collected by them from the passengers
Instructions F No. V/DGST/30-MISC.-58/2006/4383, dated 12.12.2006
YO and YR Charges collected by airlines from passengersYesLetter No 341/52/2006-TRU, dated 18.09.2007

  • Value of Taxable Service

Section 67 read along with Service Tax (Determination of Value) Rules, 2006 provides the manner of determining the value of taxable services on which services tax should be levied.

In respect of Air passenger Transport Services, it has been provide under Rule 6(2)(iv), Service Tax (determination of value) rules, 2006, that the value of taxable service shall not include the taxes levied by any government on any passenger travelling by air, provided the said taxes are shown separately on the ticket so issued.

  • Abatement

Vide Notification No. 26/2012 dated June 20, 2012 an abatement has granted to the extent of 60% of the consideration towards provision of such services.

In its Draft Circular F.No. 354/146/2012 – TRU dated 27-9-2012, the following positions were proposed to be clarified (the Circular was for field formations and has still not been published as a Circular):

  • Abatement shall apply to all charges directly related to journey like, re confirmation fees, date change fee, upgrade fee, preferred fee charge, additional fare relating to any other changes for journey.
  • Abatement shall not apply to charges which are not directly related to journey like meal on order, escort charges etc.
  • Abatement meant for transport passenger is not available for excess baggage charges and pet charges.
  • Abatement is available to cancellation charges when such amounts are held back on cancellation of a ticket by a passenger. However, if such charges are taken separately after refunding the entire amount for journey, such abatement is not available as cancellation fees takes nature of administrative fees.

  • Exemptions available

      1. General Exemption
      • Small Service Provider

      Vide Notification No 33/2012-ST, dated 20.06.2012 – Exemption to Small service providers having taxable turnover of less than 10 Lakhs and providing services other than by way of under a brand name.

      • Import of Technology

      Vide Notification No. 14/ 2012-ST, dated March 17, 2012 – Exemption in respect of Taxable service involving import of technology, from so much of service tax, as is equivalent to the extent of amount of R&D Cess payable on the said transfer of technology under the provisions of section 3 of the Research and Development Cess Act, 1986.

       

      • To Foreign Diplomatic missions and their personnel

      Vide Notification No 27/2012-ST, dated 20.06.2012 – Exemption for all the taxable services provided by any person, for the official use of a foreign diplomatic mission or consular post in India, or for personal use or for the use of the family members of diplomatic agents or career consular officers posted therein.

      • Services by TBI or STEP

      Vide Notification No 32/2012-ST, dated 20.06.2012 – All taxable services provided by TBI or STEP have been exempted

      • Services provided to SEZ

      Vide Notification No 40/2012-ST, dated 20.06.2012, all taxable services received by a Unit located in a Special Economic Zone (SEZ) or Developer of SEZ for the authorized operations, has been exempted from the levy of whole of the service tax.

      1. Specific Exemptions:
      • Notificaiton No. 25/2012-ST, exempts Exemption has been provided to transport of passengers, with or without accompanied belongings, by air, embarking from or terminating in an airport located in the state of:
      • Arunachal Pradesh,
      • Assam,
      • Manipur,
      • Meghalaya,
      • Mizoram,
      • Nagaland,
      • Sikkim,
      • Tripura
      • Bagdogra located in West Bengal.
      • Provisions relating to point of taxation

      Normally, in case of services provided by Air Passenger Transport services, payment is received before the actual service is provided. The point of taxation of services provided by courier agency will be governed by Rule 3 of Point of Taxation Rules, 2011.

      As per Rule 3 of Point of Taxation Rules, 2011, the point of taxation shall be-

      1. a) Time when the invoice for the service provided or to be provided is issued. As per Rule 4A of Service Tax Rules, invoice shall be issued within 30 days from the date of completion of service. In case invoice is not issued within 30 days from the completion of service, the point of taxation shall be the date of completion of service.
      2. b) In case where the person providing the service receives payment before the time specified above, the date of receipt of payment shall be the point of taxation

      In many cases, the service provider would receive advance for such transportation. As per rule 3(b), the service tax will be payable on receipt of advance even if the services are rendered later.

      • Provisions relating to Place of Provision
      1. Passenger Transport service

      Rule 11 of Place of Provision of Service rule, 2012, provides that location for Services provided in relation to transportation of passengers will be the place from where they embarks on the conveyance for a continuous journey.

      1. Services Provided on Board Conveyance [Rule 12]

      Rule 12 of Provision of Services Rules, 2012, provides that location for services provided in relation to services provided on board of conveyance and consumed on conveyance will be the place of first scheduled departure of the conveyance for the journey.

      • Provisions relating to reverse charge

      The service is not covered under reverse charge and thus, the liability remains on service provider.

  • Related Circulars and Notification

      • Press release dated 24-9-2007- issue as to inclusion of YQ and YR charges
      • Circular no. 96/7/2007-ST, dated 23-8-2007, as amended by Circular no. 98/1/2008-ST, dated 4-1-2008- clarification on technical issues relating to taxation of services under finance act, 1994
      • Relevant extract of ministry’s Circular letter D.O.F. No. 334/1/2010-tru(annexure b),dated 26-2-2010 –
      • Relevant extracts of letter D.O.F. no. 334/03/2010-tru, dated 1-7-2010
      • Instruction F.No. V/DGST/30-Misc/58/2006/4383 dated 12-12-2006
      • Letter No. 341/52/2006-TRU dated 18-9-2007
      • Press Release dated 24-9-2007

      The Central Board of Excise & Customs (CBEC) has clarified the issue of inclusion of YQ and YR charges in taxable value of services provided by aircraft operator to passenger embarking in India for international journey.

      In its letter F. No. 341/52/2006-TRU, dated 18-9-2007, issued to the Chairman, Board of Airline Representative in India, the Board has clarified that YQ and YR charges collected by the Airlines from the passengers are includible in the value of taxable service provided by aircraft operator to passenger embarking in India for international journey.

      The clarification reads as under:

      “As per section 67 of the Finance Act, 1994, value of a taxable service shall be the gross amount charged by the service provider for the services provided and includes any amount received towards the taxable service before, during or after provision of such service. Provisions relating to determination of the value of taxable service contained in Service Tax (Determination of Value) Rules, 2006 are clear and unambiguous. As YQ and YR charges are integral part of the consideration received for the services provided, method of vivisecting may not be of any relevance as long as the amount is in the nature of the consideration paid for the services provided.”

      • Circular no. 96/7/2007-ST, dated 23-8-2007, as amended by Circular no. 98/1/2008-ST, dated 4-1-2008- clarification on technical issues relating to taxation of services under finance act, 1994
      Reference CodeIssueClarification
      -1-2-3
      086.01/23.08.07An international journey commencing from an Indian airport involves stopover /transfer at intermediate airports outside India before reaching the destination (say Mumbai-Dubai-London-New York).Aim of the passenger is to
      Whether service tax would be liable in such case on the value indicated in the ticket for the entire journey or only on that part of the value attributable to the first sector (Mumbai-Dubai) of the journey?travel from Mumbai to New
      York. Actual destination of
      the international journey is
      the criterion to decide the
      value of the service (in this
      case, New York).
      Stopover/transfer at intermediate airports, being
      merely incidental and part of the main journey, is of no
      relevance or consequence for levy of service tax under section 65(105)(zzzo) read with section 66.
      Service tax in such cases is
      leviable on the total consideration of a single composite service relating to the entire journey, i.e., value indicated on the ticket for the entire journey.
      086.02/23.08.07An international journey (say Delhi-Mumbai-London) includes travel in a domestic sector (Delhi-Mumbai) as part of the international journey.In this case, the journey is a single composite journey.
      Whether service tax is liable on the value of whole journey or after excluding the value attributable to the domestic sector from the total value of the ticket?The aim of the passenger is to travel from India to a place outside India. Part of the travel in the domestic sector cannot be segregated from the single journey. Service tax is, therefore, leviable on the total value of the ticket treating the domestic sector as integral part of the international journey without excluding the value attributable, if any, to travel in the domestic sector.
      086.03/23.08.07An international journey commences from an airport outside India and completed at an airport outside India but including a sector wherein the passenger disembarks and subsequently embarks at an Indian airport as part of international journey (say Sydney-Mumbai-Dubai-Singapore-Sydney).In this case, the journey being a single one and the aim of the passenger is not to travel from India to a place outside India, service tax is not leviable under section65(105)(zzzo).
      Whether service tax is liable for Mumbai-Dubai sector only or on the total value of the ticket?
      086.04/23.08.07Whether ticket issued outside India for an international journey commencing from India (say Delhi-London) is liable to service tax?Service tax is payable by the service provider, namely aircraft operator, for the taxable service provided. Place of purchase/issue of ticket is of no relevance or consequence to determine the levy of service tax under section 65(105)(zzzo) read with section 66. Service tax is leviable as long as the passenger embarks in India for an international journey, in any class other than economy class.
      086.05/23.08.07Whether service tax is liable on the total value of the ticket or only half the value of the ticket in the case of round trip/return ticket (say Delhi-London-Delhi)?Service tax is leviable on the total value of the ticket.
      • Relevant Extract of Ministry’s Circular Letter D.O.F. No. 334/1/2010-TRU(Annexure B), dated 26-2-2010
      1. Transport of passengers by air service:

      4.1   The taxes on transport of passengers travelling by air were in operation in the past. These were not in the nature of service tax but operated through separate legislations. Inland Air Travel Tax [@ 15%] was levied on domestic travel in 1989. Foreign Travel Tax [@ Rs. 500 per trip, except to neighboring countries for which the rate was Rs. 150 per trip] was levied on international travel in 1979. These taxes were withdrawn in the interim Budget 2004. In 2006, tax was imposed on international air travel by a passenger embarking in India and travelling in higher [other than economy] classes. This tax continues.

      4.2 The taxable service is being suitably amended to extend this levy to cover all domestic and international air passengers embarking in India. The modalities of working out the tax amount including exemptions, abatement etc. would be prescribed at the appropriate time.

      • Relevant Extracts of Letter D.O.F. no. 334/03/2010-tru
      1. Transport of passenger by Air service:

      3.1 As stated in the Letter D.O.F. no. 334/03/2010-tru, dated 26th February 2010, in Budget2010, service tax on transport of passengers by air was extended to cover all domestic and international air passengers embarking in India with effective tax rates as given below:

      (a)  ten per cent (current rate of service tax) of the gross value of the ticket or rupees one hundred per journey, whichever is less, for passengers travelling in any class, with in India;

      (b)  ten per cent (current rate of service tax) of the gross value of the ticket or rupees five hundred per journey, whichever is less, for passengers embarking in India for an international journey in economy class:

      The aforesaid rates are subject to non-availment of CENVAT credit. (Refer Notification no. 26/2010-ST, dated 22-6-2010, as amended by Notification no. 4/2011-ST,dated 1-3-2011 (w.e.f. 1-4-2011). All charges except statutory levies (levied under a law for time being in force), if any mentioned in a ticket is to be taken as ‘gross value of the ticket’ for this purpose.

      3.2 Exemption from service tax has also been provided on journeys to and from North-Eastern States (i.e. Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura) from the service tax (Refer Notification no. 27/2010-ST, dated 22-6-2010). Considering that Bagdogra airport, though located in West Bengal being the gateway airport for Sikkim, has also been accorded this benefit.

      3.3 Doubts have been raised that in case a ticket covers more than one domestic journey/flight/sector (say Mumbai-Delhi-Mumbai), whether Rs. one hundred would be charged for each journey/flight/sector (i.e. in the aforementioned example one for Delhi-Mumbai flight and one for Mumbai-Delhi flight) or would it be charged once for the entire ticket. In this regard, it is clarified that since the taxable activity relates to ‘embarkation in India for domestic journey….’, each time such embarkation in India takes place the tax is chargeable. In other words tax would be separately chargeable for each journey/flight/sector. In this regard the clarifications issued vide Circular no. 96/7/2007-ST, dated 23-8-2007, as amended by Circular no. 98/1/2008-ST, dated 4-1-2008- clarification on technical issues relating to taxation of services under finance act, 1994 has no application as the said Circular did not cover situations of multiple embarkations in India. Similarly, in round trip tickets involving multiple journeys/flights/sectors with one of the sector involving embarkation or disembarkation North-Eastern States/Bagdogra, the journey/flight/sector that involves embarkation or disembarkation at North-Eastern States/Bagdogra would alone be covered under aforesaid exemption.

      3.4 Since the scope of air transport of passenger service has been modified vide Finance Act, exemption, which were available earlier to crew of the aircraft operator, and international transit passengers by way of definition in the Act have been retained vide Notification (Refer  Notification no. 25/2010-ST, dated 22-6-2010)

      3.5          The scheme of tax on passengers embarking in India for an international journey in higher classes (i.e. other than economy class) remains unchanged.

      • As per the provisions of rule 4A of the Service Tax Rules, 1944, invoice/bill/challan is required to be issued by the provider of taxable service within 14 days of the provision of the taxable service or the receipt of the consideration. In case of air-travel, the airlines or the agent may not issue a separate invoice to the passenger but may issue the ticket showing the price of such ticket as well. In such a case, the requirement of an invoice would cast an additional compliance burden on the service provider. Hence the said rule is amended to provide that incase of this taxable service, the ticket (in any form, including electronic form whatever may be the name) showing the name of the passenger, description of the journey (details like place of embarking and disembarking, class of travel, flight number, etc.,) and the amount of service tax collected would be deemed to be the invoice/bill/challan for the purposes of the rule (Refer Notification No. 39/2010-Service Taxas corrected vide corrigendum dated 30th July, 2010).

 

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