Landmark Service Tax Judgment - Tour Operator’s Services 

Earlier Tour Operator Service was introduced on 01-09-1997, but remained in force only for short time, i.e. it was exempted from levy of Service Tax from 18-07-1998 to 31-03-2000 vide Service Tax Notification No.52/98 dated 18-07-1998. However, as this Service Tax Notification was effective till only 31-03-2000, from 01-04-2000 Tour Operator services were again treated as taxable Service.

According to Section 65 (105) (n), any service provided or to be provided to any person, by a tour operator in relation to a tour is a ‘taxable service’

According to Section 65 (113), ‘Tour’ means a journey from one place to another irrespective of the distance between such places.

According to Section 65 (114), "tourist vehicle" has the meaning assigned to it in clause (43) of section 2 of the Motor Vehicles Act 1988 (59 of 1988). Accordingly tourist vehicle" means a contract carriage, constructed or adapted and equipped and maintained in accordance with such specifications as may be prescribed in this behalf;

According to Section 65 (115), “Tour Operator” means any person engaged in the business of planning, scheduling, organizing or arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport, and includes any person engaged in the business of operating tours in a tourist vehicle or a contract carriage by whatever name called, covered by a permit, other than a stage carriage permit, granted under the Motor Vehicles Act, 1988 or the rules made thereunder.

Explanation - For the purposes of this clause, the expression “tour” does not include a journey organized or arranged for use by an educational body, other than a commercial training or coaching centre, imparting skill or knowledge or lessons on any subject or field.

All people who are engaged in planning, scheduling, organizing or arranging tours by means like rail, air, waterways etc are included in the scope of this service. All facilities supplied in connection to a tour as a whole would be included in the purview of this service.  Service not only contemplates travel plans but also includes boarding-lodging arrangements, joy rides, boating, sightseeing, provision for medical emergency, baby sitting service, porter service etc.

Journeys organized by an educational body other than a commercial training or coaching centre, imparting skill or knowledge or lessons on any subject or field. 

Operating tours in a contract carriage covered by permit, other than a stage carriage permit is included in the scope of this service.
Tours in vehicles under covered by below mentioned permits would attract Service Tax:

(1)    Permits issued under Section 74 of Motor Vehicles Act, 1988 and authorization certificate issued under Motor vehicles Rule 1993 is covered.

(2)    Besides permit granted under Section 88(9) in accordance with Section 74 of Motor Vehicles Act, 1988 for tourist vehicles for promotion of tourism is also covered.

Point to point services (Journey from one place to another) in a vehicle with contract carriage permit not meeting the criteria of tourist will attract Service Tax under this category. Here if this service is used by educational bodies other than a commercial training or coaching centre, imparting skill or knowledge or lessons on any subject or field would be excluded.

The word “tour” would include journey from one place to other irrespective of distance, whether situated in the same state or other, to n number of places but must be within the Indian Territory. Services rendered by tour operators in respect of tour abroad will not attract Service Tax (including tour to Bangladesh, Sri Lanka, Maldives, Nepal, Bhutan).

Tourist vehicle means a contract carriage constructed or adapted and equipped and maintained in accordance with such specifications as may be prescribed in this behalf (Section 2(43) Motor Vehicles Act). Specification provided under Motor Vehicle Rules are in respect of Dimension, structure, passenger entrance & exit, emergency doors, driver entry &exit, windscreen(front-rear), windows, ventilation, luggage, light luggage rack, seat and its arrangements, painting and finishing, lighting, fittings & accessories.
Once a vehicle is constructed or adapted, equipped and maintained in accordance with the specifications mentioned above, registration book of the vehicle is endorsed with the remark “Complied with rule 128 of Motor Vehicle Act”. If the vehicle does not comply with above rule it cannot be considered as tourist vehicle and tour conducted in such a vehicle will not attract Service Tax.

Contract carriage means a motor vehicle which carries passengers for a hire or reward and is engaged in contract whether express or implied, entered into by the person with the holder of permit in relation to such vehicle or with any person authorized by him. The consideration can either be on time basis or from one place to another. The vehicle should not stop to pick up or set down passengers included in the contract anywhere during the journey. It would include a maxi-cab or motor-cab.

Stage carriage means a motor vehicle constructed or adapted to carry more than six passengers excluding driver for hire or reward at separate fares paid by or for individual passengers, either for the whole journey or for stages of the journey. Here the passengers have a right to board or alight from such carriages according to their choice or convenience and such passengers individually pay the fares for the journey.
A person worked as an agent of a permit holder of a stage coach and other carriages and he earned commission by booking bus tickets but didn’t operate tours was not liable to pay tax under this category.

Once concerned authorities had permitted a person for using a particular vehicle as tourist vehicle having verified various perimeters, such vehicle by the virtue of its being used otherwise cannot be de-classified and treated as a “non tourist vehicle”.
Vehicles reserved under stage carriage permits but capable of being used as “contract carriage” under special permits would attract Service Tax under this category.
Person engaged as a tour operator may or may not have a tourist permit, but it is the owner of the vehicle who should have tourist permit to attract Service Tax under this category.

Permit means a permit issued by a state or Regional Transport Authority or an authority prescribed in this behalf under this act authorizing the use of a motor vehicle as transport vehicle(Section 2(31) of Motor Vehicles Act). Permit may be for single journey or under separate scheme. It is the tourist vehicle which is to be covered under permit.

If a motor is covered under Rent-a-cab scheme as framed by central government it will be excluded under this head.

Tour performed in a Gondola or ropeway would not attract levy under this head as rope-way is not a tourist vehicle.

Tour operator employ booking agents for commission to reservation of space in tourist vehicles. These booking agents cannot be taken as operating tour so are not liable to taxed under this category.

If the tour operator takes tourist vehicle on hire and pays rent to the owner of vehicle, it is the tour operator and not the owner of the vehicle who is liable to pay Service Tax.

The tour operator cannot get any abatement in respect of the rent paid.

Packages by means of Discount in hotel accommodation provided by airlines cannot be considered as organization of tour but it is merely a facility provided by airlines.
No Service Tax is payable in respect of this type of services provided in Jammu & Kashmir. In case of, composite tour that includes destinations in India as well as abroad Service Tax will be applicable only on services for tour in India.

Plying of taxis between city and airport cannot be considered as tour operator service.
Many Companies own buses and use them for moving employees from near residence to office site. They even don’t charge employees for this service. This a service rendered by a company to itself. Hence, no Service Tax is chargeable.

(a)  Small service providers whose aggregate value of taxable services rendered in the previous year has not exceeded the limit of Rs. 10,00,000/-  (Service Tax Notification No. 8/2008-ST dated 01.03.2008)

(b)  Services provided to the United Nations or International Organisations

(c)  Services provided to Special Economic Zones (SEZ) units (including unit under construction) and SEZ developers

(d)  Services which are exported as per ‘Export of Services’ Rules

(e)  Services provided for official or personal use of foreign diplomatic missions and family members of diplomatic missions.

(f)  Services provided to Reserve Bank of India

(g)  Out of total value of service provided proportionate value of goods and material provided by the Service Provider

(1)    For Tour Operator services provided by in relation to a package tour, abatement of 75% is available. Thus, effective rate of Service Tax leviable would be 25% of normal rate. Provided bill issued must indicate that it is inclusive of charges for such a tour. Here, ‘package tour’ means a tour wherein transportation, accommodation for stay, food, tourist guide, entry to monuments and other similar services in relation to tour are provided by the tour operator as part of the package tour to the person undertaking the tour.

(2)    Service is provided solely for arranging or booking accommodation for any person in relation to a tour, abatement of 90% is available. Thus, effective rate of Service Tax leviable would be 10% of normal rate. Provided Invoice, bill or challan must indicate that it is towards charges for such accommodation. Exemption shall not be available if amount billed includes only service charges and does not include the cost of accommodation.

(3)    For services other than package tour and booking of accommodation, abatement of 60% is available. Thus, effective rate of Service Tax leviable would be 40% of normal rate. Provided The bill issued must indicate that the amount charges is the gross amount charges for such a tour.

The above exemptions will not be available if:-

(a) CENVAT Credit of duty on input and capital goods or the CENVAT Credit of Service Tax on input services used for providing such taxable service has been taken under the provisions of the CENVAT Credit Rules, 2004.

(b) the service provider has availed benefit under notification of the Government of India in the Ministry of Finance (Dept. of Revenue)No.12/2003-Service Tax, dated the 20th June, 2003.

(4)    Amount received prior to 10-9-2004 by a person other than a tour operator engaged in the business of operating tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act, is fully exempt from tax.

(5) Tour operator service is exempted from levy of Service Tax if the taxable service is provided or to be provided to any person, by a tour operator having a contract carriage permit for inter-state or intrastate transportation of passengers, excluding tourism, conducted tours, charter or hire service.

VIVEK MUKUND MODHE Vs COMMISSIONER OF CENTRAL EXCISE, NASIK (STO 2007 CESTAT 1308)

SHRINATH TOURIST AGENCY Vs COMMISSIONER OF C. EX., JAIPUR (STO 2007 CESTAT 474)

RISHABH TRAVELS Vs COMMISSIONER OF C. EX., JAIPUR (STO 2006 CESTAT 675)