According to TRADE NOTICE NO. 6/97-SERVICE TAX DT. 1.7.97
3. AIR TRAVEL AGENTS
3.1 As regards the services rendered by air travel agents, the person responsible for collecting the services tax will be the air travel agents and the measure of the tax is the commission received by the air travel agent from the air lines for booking of air tickets.
3.2 It is understood that the air travel agents receive certain commission for domestic tickets and for international tickets from the airlines. The details of the commissions payable by the air lines is indicated in the agency agreement entered into between the air line and the air travel agent. the travel agent files a fortnightly return to the airlines indicating the details of tickets booked, the fare collected the commission earned along with other particulars. After the commission earned along with other particulars. After adjusting the commission, he remits the balance amount to the air lines. This fortnightly return could be made the basis for assessment of service tax in respect of air travel agents.
3.3 However, an option is also being provided to the air travel agent to pay the service tax at the rate of 0.25% of the basic fare in the acse of domestic tickets and 0.5% of the basic fare in the case of international tickets towards discharge of his service tax liablity instead of paying the tax @ 5% on the actual commission received from the air lines. (Notification No. 20/97-ST refers). Basic fare is defined as that part of the fare on which commission is payable by the air lines.
3.4 Cancellation or modification of tickets is a very common and frequent feature in air travel. The air travel agent in his fortnightly return gives the particulars of tickets cancelled or modified and adjusts the commission accordingly subject to final approval by the airlines. Since the commission is adjusted automatically and the service tax is paid on the net commission received, the question of separately claiming refund of service tax may not arise. However, care may be taken to ensure that no adjustment of Commission for the period prior to 1st July, 1997 (when no service tax was leviable) is done from the commission payable from 1st July, 1997 onwards leading to escapement of service tax on the services rendered from 1st July.