2013 (12) TMI 1024 - AT - Service Tax

Demand of service tax - Tour operator service - Whether the activity of providing services in relation to outbound tours i.e. tours in locations outside the territory of India including the operation of tours and the planning scheduling organising or arranging of such tours falls within the ambit of tour operator service and is consequently subject to levy and collection of service tax - Held that - Tour operator qua Section 65 (115) of the Act defines the expression in terms of two facets. The business of planning scheduling organizing or arranging tours by any mode of transport (including arrangement for accommodation sightseeing; or similar services) including where the tour is by a tourist vehicle covered by a permit issued under the provisions of the Motor Vehicles Act 1988 or the Rules made thereunder is one facet of the definition. Operating of tours in tourist vehicle covered by a permit granted under the provisions of the 1988 Act or the Rules made thereunder (including the planning scheduling organizing or arranging of such tours) is another and a distinct facet of the definition. Within the scope of first facet of the definition the activity of operating of the tour is excluded; As a consequence of the interpretation of tour operator vide a where a person pursues a composite activity of operating tours and the planning scheduling organizing or arranging of such tours by a mode of transport other than by a tourist vehicle (covered by a permit issued under the provisions of the Motor Vehicles Act 1988 or the Rules made thereunder) such activity falls outside the scope of the definition of tour operator ; The consideration received for operating and arranging outbound tours (provided by the appellants and consumed by tourists beyond the territory of India) is not liable to levy and collection of service tax under the provisions of the Act since the taxable event is the provision of a taxable service; and not the pursuit of the profession of a taxable service providers. The Act authorizes the levy and collection of tax for providing a destination and consumption based taxable service but does not authorize levy and collection of tax for a service provided and consumed beyond the Indian territory; and Planning and scheduling of outbound tours may not be components of services provided to tourists would amount to an incidental activity undertaken as a prelude to providing tours and thus the service if at all provided is to the service provider itself. Nevertheless since organizing and/or arranging of outbound tours are components of the service provided to tourists and these are the primary and substantive purposes of the service provided and consumed the composite activity of planning scheduling organizing or arranging tours falls within the scope of the taxable service defined in Section 65(115) of the Act. Whether an outbound tour amounts to export of service and is thus immune to levy of service tax under the Export of Service Rules 2005 is not decided and is left open as not necessary in view of our ruling on other issues. The assessees would be entitled to abatement benefits in terms of any exemption/abatement benefits provided qua Notifications issued by the Central Government under Section 93(1) of the Act but subject to fulfilment of the conditions enjoined in such Notifications; Invocation of the extended period of limitation for assessment and levy of service tax interest and penalties is unjustified. Levy and collection of service tax interest and penalties within the normal period limitation would however be valid; Imposition of penalties in the circumstances of the lis is unjustified. No penalties could be imposed; the statutory discretion under Section 80 of the Act is applicable in the facts and circumstances of the cases; and ought to be invoked. Decided in favor of assessee.

Issues Involved:

1. Scope of the expression "tour operator" post-amendment by the Finance Act, 2004.
2. Whether "outbound tours" are outside the purview of the taxable service.
3. Extra-territorial reach and operation of the Act.
4. Planning, scheduling, organizing, or arranging outbound tours as incidental to operating and conducting outbound tours.
5. Whether outbound tours amount to export of service.
6. Entitlement to abatement benefits.
7. Invocation of the extended period of limitation.
8. Imposition of penalties.

Issue-wise Analysis:

1. Scope of the expression "tour operator" post-amendment by the Finance Act, 2004:

The definition of "tour operator" was expanded w.e.f. 10-9-2004 to include any person engaged in planning, scheduling, organizing, or arranging tours by any mode of transport, and includes those operating tours in a tourist vehicle covered by a permit under the Motor Vehicles Act, 1988. The definition has two facets: (i) a generic facet involving planning, scheduling, organizing, or arranging tours, and (ii) an inclusionary facet involving operating tours in a tourist vehicle covered by a permit. The interpretation indicates that the generic facet does not include operating tours, and the inclusionary facet specifies operating tours in a tourist vehicle.

2. Whether "outbound tours" are outside the purview of the taxable service:

The assessees are engaged in composite activities of planning, scheduling, organizing, and operating outbound tours, which are performed entirely outside India. The services provided and consumed outside Indian territory are not liable to Service Tax under the Act. The consideration received for outbound tours, even if falling within the definition of "tour operator," is not subject to Service Tax as the Act does not have extra-territorial operation.

3. Extra-territorial reach and operation of the Act:

The Act extends only to the whole of India except Jammu and Kashmir. Service Tax is a destination-based consumption tax, levied on services provided within the country. Services provided and consumed outside Indian territory are beyond the purview of the Act. The principle of apportionment applies, and only the part of the service provided within India is taxable.

4. Planning, scheduling, organizing, or arranging outbound tours as incidental to operating and conducting outbound tours:

The planning, scheduling, organizing, or arranging of outbound tours by the assessees is incidental and subservient to the actual operation of the tours, which is the principal service. The assessees provide pre-planned package tours, and the planning and scheduling are services to themselves, not to the tourists. The organizing and arranging of tours are integral components of the service provided to tourists.

5. Whether outbound tours amount to export of service:

This issue was not decided as the primary conclusion was that outbound tours fall outside the scope of the Act. However, the assessees contended that outbound tours should be treated as export of service under the Export of Service Rules, 2005, and thus not liable to Service Tax.

6. Entitlement to abatement benefits:

If the assessees were otherwise liable to Service Tax, they would be entitled to abatement benefits under the relevant notifications, subject to fulfilling the conditions specified therein.

7. Invocation of the extended period of limitation:

Invocation of the extended period of limitation was found to be unjustified. There was no fraud, collusion, or suppression of facts by the assessees. The extended period can only be invoked if there is an intention to evade tax, which was not established in this case.

8. Imposition of penalties:

Imposition of penalties was found to be unjustified. The assessees had a bona fide belief that outbound tours were not taxable, and the statutory discretion under Section 80 of the Act was applicable, warranting no penalties.

Summary of Conclusions:

(a) The definition of "tour operator" includes planning, scheduling, organizing, or arranging tours by any mode of transport, excluding the operation of tours unless in a tourist vehicle covered by a permit.
(b) Composite activities of operating and arranging tours by modes other than tourist vehicles fall outside the definition of "tour operator."
(c) Consideration for outbound tours provided and consumed outside India is not liable to Service Tax.
(d) Planning and scheduling of outbound tours are incidental to organizing and arranging tours, which are the primary services provided to tourists.
(e) The issue of whether outbound tours amount to export of service was not decided.
(f) Assessees are entitled to abatement benefits subject to conditions.
(g) Invocation of the extended period of limitation is unjustified.
(h) Imposition of penalties is unjustified.

The appeals were allowed, and the orders were set aside to the extent they were inconsistent with these conclusions.

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