In a reprieve to JetLite (formerly known as Sahara Airlines), a tax tribunal today set aside the revenue departments demand of Rs 257 crore raised on the domestic airline for carrying advertisements of a group company on its tickets.

The demand raised comprised Rs 128.9 crore of service tax and Rs 128.9 crore of penalty and interest for the period between July 2003 and January 2007.

The Central Board of Excise and Customs had issued a showcause notice to the airline in 2008, seeking to charge service tax for promoting the real estate and housing business and area operations of Sahara India Commercial Corporation Ltd (formerly known as Sahara India Housing Ltd).

Sahara Airlines had entered into an agreement with the flagship company of the Sahara Group, Sahara India Housing Ltd, in 2003. The agreement provided for various activities to be carried on by Sahara Airlines, including the printing of the SAHARA logo on the aircraft, boarding passes, baggage tags. Sahara Airlines was paid on a per-ticket basis for this activity under the agreement.

The department said this activity was taxable under the Business Auxiliary Services head, as it amounted to service in relation to promotion or marketing of service provided by the client. The departments contention was that Sahara Airlines, taken over by JetLite in 2007, was targeting the passengers of the airline as potential customers to promote the business of the housing projects.

The Customs, Excise and Service Tax Appellate Tribunal has ruled that mere printing of a logo or the promotion of a brand without reference to any particular service provided by the client is not covered under Business Auxiliary Services.

The tribunal also said construction of immovable property on its own behalf and its sale does not constitute a service. So, even if such activities were promoted, it did not amount to promotion or marketing of service provided by the client.

Brand promotion as a service has been brought in as a separate taxable service under Section 65 (105) by the Finance Act, 2010, and before the effective date of this service coming into force, brand promotion activities were not taxable under Business Auxiliary Services.