Of agents, services and tax relief

Q 1 We are an association of air travel agents. Our members are registered under the taxable category of 'Air Travel Agents' and pay service tax on commissions received from airlines for tickets sold. Our members also undertake work related to passport renewals and assist their customers in getting visas, etc. In consideration, they charge incidental expenses, including xerox copies, and conveyance from their customers.

Are they liable to pay service tax on these charges under Business Auxiliary Services?

Reply: We understand your members primarily provide services of air travel agency, for which they are appropriately registered under the taxable category of ATA, and duly pay service tax. This category covers services provided by an air travel agent in relation to the booking of passage for travel by air. Therefore, any service provided in relation to air travel is covered under the aforesaid category. Services such as passport renewal and assistance for visas will be considered as ancillary to the prime service of booking of passage for air travel and be considered as services in relation to the service of an air travel agent and hence, be covered under the taxable head of air travel agent services. In case such services are alone carried out, without any underlying service relating to the booking of passage for air travel, an argument can be made that such services are not taxable. The category of business auxiliary services will not be applicable to the facts as described.

Q.2 A white goods company deals in both, goods and services. The company procures goods from a third party and sells them in the open market. Subsequently, the company provides for the installation and maintenance of the goods it sells to its customers. We provide clearing and forwarding services to such a company in relation to the sale of these goods.

In consideration, we get commissions and reimbursements of the expenses incurred by us on salary of staff, rent, loading and unloading of goods etc. We are liable to pay service tax on the consideration so received by us, and hence collect the tax from the company. Our question is whether the company can avail input credit of such service tax as an offset against its service tax liability on installation and maintenance services.

Reply: Under the Cenvat Credit Rules, 2004, service taxes paid on 'input service' used by a service provider for providing a taxable output service, can be claimed as input credits to offset the output service tax liability. For the purpose of the said rules, input service means any service used by a service provider of taxable service for providing an output service.

The company in question is into trading of goods and also provides the taxable service of installation and maintenance, which is its only taxable output service.

Since input credits can be availed only for those services, which are used for provision of the said output service, and since the services of clearing and forwarding are not used for the provision of the taxable service of installation and maintenance, input credits on the taxes paid by you and charged to the company cannot be availed.

The writer is leader, indirect tax practice, PwC. Readers are requested to send their queries to taxqueries@business-standard.com