SRILANKAN AIRLINES Vs. COMMISSIONER OF SERVICE TAX, CHENNAI

JUDGEMENT

(1.) THE appellants are engaged in the business of transportation of cargo by air. For the period March 15, 2005 to June 23, 2005 they did not pay any service tax on such services rendered by them. The Revenue issued show -cause notice demanding service tax and education cess totalling to over Rs. 1.80 crores for the said period and the notice has been adjudicated confirming the demand along with interest and penalties. The appellants also have filed an application for raising additional grounds which they submit are legal grounds. This application is also being considered in this proceeding. The said service was exempted from payment of service tax under Notification No. dated September 17, 2004. However, this exemption was withdrawn by Notification No. dated March 3, 2005 with effect from March 15, 2005. When Notification No. 10/2005 -ST was issued, Export of Services Rules, 2005 was also notified by Notification No. dated March 3, 2005 to be effective from March 15, 2005. As per the said Rules the question whether any service was exported was to be decided based on classification of the service under three categories as per the said Rules. In respect of property based services, the services were to be reckoned as exported if the property.' was situated abroad. In the second category, the services were reckoned as to be exported if the services were performed outside India. For this category if services were partly performed outside India, it was to be considered that the service was performed outside India. In the case of a third category of services, the services were to be considered as exported if the recipient of the services was located outside India.

(2.) IT is agreed that transportation of goods by air was specified in the second category in the said rules, that is to say if the services were partly performed outside India it was to be considered as exported. In the case of transportation of goods by air, the exporter hands over the goods to the airlines. But the exporting activity takes place when the goods are carried across the border. So the appellants were eligible for relief from service tax. However, Notification No. dated June 7, 2005 was issued amending sub -rule (2) of rule 3 of the Export of Services Rules, 2005 by which a condition that the payment should have been received in foreign exchange was incorporated in the said Rules in respect of such services with effect from June 16, 2005. The appellants say that they were not aware of the change in legal position and hence could not collect tax from the exporters. From June 24, 2005 they started collecting such tax and paying to the Government.

(3.) THUS the appellants could not get waiver from service tax on such services during the period June 16, 2005 (date on which Notification No. 28/2005 -ST took effect) to June 23, 2005 (appellant started paying service tax from June 24, 2005).