Air Travel Agency Entitled To Collect Service Tax From Its Sub-Agents: CESTAT Quashes Rs. 7.4 Crore Demand

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Delhi, has set aside a service tax demand of Rs. 7,40,44,131 against a travel agent, holding that the travel agency was entitled to collect service tax from its sub-agents and had not violated Section 73A of the Finance Act, 1994. The bench of Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member) has quashed the adjudicating authority’s ruling that had confirmed the substantial tax recovery along with interest. The core dispute stemmed from the allegation that Benzy Tours and Travels, an IATA-accredited travel agent, had wrongfully collected service tax from sub-agents—non-IATA agents who purchased airline tickets through the appellant for resale to end customers—and failed to deposit the collected amount with the government. The Directorate General of Central Excise Intelligence (DGCEI) had initiated investigation, culminating in a show cause notice in October 2015. The department argued that the commission received from airlines constituted full consideration inclusive of service tax. The agency was not entitled to collect any service tax from sub-agents. The adjudicating authority later confirmed the demand under Section 73A(2), which deals with recovery of amounts collected as representing service tax but not paid to the exchequer. However, the Tribunal dismissed the department’s reasoning. Relying heavily on its earlier landmark rulings in Riya Travel & Tours (India) Pvt. Ltd. (2024) and Akbar Travels of India Pvt. Ltd. (2024), the Bench reiterated that Travel agents render services to sub-agents/customers—not to airlines. The commission paid by airlines is directly linked to services rendered by the travel agent to customers, not to the airlines. Therefore, service tax was correctly collected from sub-agents, who were the true recipients of the service. There was no bar under the law preventing the appellant from recovering service tax from these recipients. The Tribunal also emphasized that the wording in the Passenger Sales Agency Agreement (PSA Agreement)—specifically the phrase “full compensation for the services rendered to the carrier”—does not mean that service tax is included in the commission. Benzy Tours and Travels had clarified that until 2011-12, it used the Basic Fare Model (Rule 6(7) of the Service Tax Rules). From April 2012 onwards, it switched to the Commission Model under Section 68. In all cases, it paid service tax on its commission arising from transactions. The Tribunal accepted this explanation, observing that the agency had duly discharged tax on its own earnings, and therefore Section 73A could not be invoked to demand service tax supposedly collected in excess. The CESTAT held that non-IATA sub-agents necessarily rely on IATA agents to issue airline tickets. The appellant was therefore the actual service provider to these sub-agents. Charging service tax from sub-agents was perfectly lawful. Funds collected as service tax from the true service recipients cannot be construed as illegal retention. Once this relationship was established, the demand under Section 73A collapsed entirely. Given the binding nature of the earlier Riya Travels and Akbar Travels rulings, the Bench concluded that the adjudicating authority had erroneously confirmed the tax liability. Accordingly, the order dated 18 March 2021 was set aside, and the appeal of Benzy Tours and Travels was allowed in full. Case Details Case Title: Benzy Tours and Travels Versus Additional Director General (Adjudication) Case No.: Service Tax Appeal No. 50819 of 2021 Date: 24.11.2025 Counsel For Appellant: Manoj Chauhan, Chartered Accountant Counsel For Respondent: Aejaz Ahmed, Authorized Representative Click Here To Read Order Read More: Pandora’s Box for GSTAT – Risk of Reboot?

Air Travel Agency Entitled To Collect Service Tax From Its Sub-Agents: CESTAT Quashes Rs. 7.4 Crore Demand

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