2025 (5) TMI 315 - AT - Service Tax

Calculation of service tax of tour operator service - inclusion of value of air and train ticket charges collected from clients in the taxable value of the Tour Operator service - HELD THAT - The issue involved in the present appeal has already been covered by the decision of the Tribunal Chennai in the Appellant s own case 2023 (9) TMI 78 - CESTAT CHENNAI where it was held that the demand of Service Tax on the consideration and for booking of tickets in respect of domestic travel is not a taxable event and hence to this extent the direction of the Commissioner (Appeals) cannot sustain. Conclusion - Mere booking or trading of air/train tickets without arranging or organizing a tour does not constitute a taxable Tour Operator service under the Service Tax regime. The value of such ticket bookings cannot be included in the taxable value for service tax computation under the Tour Operator category. Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered by the Tribunal was whether the appellant, registered under the Service Tax Department as a 'Tour Operator', is liable to include the value of air and train ticket charges collected from clients in the taxable value of the Tour Operator service for the purpose of service tax computation. Specifically, the Tribunal examined whether the activity of booking or trading air/train tickets falls within the ambit of Tour Operator service taxable under service tax law or whether it is a separate service, possibly exempt or non-taxable under the relevant notifications and legal framework.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Inclusion of Air/Train Ticket Charges in Taxable Value of Tour Operator Service

Relevant Legal Framework and Precedents: The appellant's liability was assessed under the Finance Act, 1994, and the Service Tax provisions applicable to Tour Operator services. Notification No. 1/2006-ST dated 01.03.2006, which grants exemption to certain services, was central to the appellant's claim. The appellant relied on the existence of a distinct taxable service category for 'Air Travel Agent' services, separate from 'Tour Operator' services. The Tribunal also referred to its own earlier decisions in the appellant's cases (F.O.No. 40738/2023 dated 31.08.2023 and F.O.No. 40938/2023 dated 13.10.2023) as binding precedents.

Court's Interpretation and Reasoning: The Tribunal analyzed the nature of the appellant's activities, distinguishing between the core Tour Operator service and the mere booking or trading of air/train tickets. It was observed that the appellant did not arrange tours involving air or rail travel but merely facilitated ticket bookings, charging clients the original ticket price while retaining the discount obtained from air travel agents. The Tribunal noted that the appellant was not an IATA agent and did not earn commission from airlines, which was relevant to the classification of the service.

The Tribunal interpreted the definition of Tour Operator service as encompassing a range of activities related to organizing tours, but not mere trading or selling of air/train tickets. It concluded that the booking of tickets without arranging a tour or providing additional tour-related services does not constitute a taxable event under the Tour Operator service category.

Key Evidence and Findings: The appellant's invoices and accounts showed that charges for ticket bookings were separately raised and collected. The appellant's admission of paying service tax on other activities, but not on the margin or markup earned from ticket bookings, was noted. The absence of any commission or agency relationship with airlines or IATA was a significant factual finding supporting the appellant's position.

Application of Law to Facts: Applying the legal framework and the Tribunal's prior rulings, the Tribunal concluded that the value of air/train ticket charges collected by the appellant could not be included in the taxable value of the Tour Operator service. The service tax demand raised by the Department on these charges was therefore unsustainable.

Treatment of Competing Arguments: The Department argued that the appellant was not eligible for exemption under Notification No. 1/2006-ST because the gross charges collected were not indicated as inclusive of ticket booking charges, and that the ticket booking formed part of the Tour Operator service. The Tribunal rejected this, holding that the mere booking or trading of tickets did not fall within the Tour Operator service. The appellant's contention that the activity was akin to trading of services, outside the scope of service tax, was accepted.

Conclusions: The Tribunal set aside the impugned orders confirming service tax demands and penalties, holding that the appellant was not liable to pay service tax on the margin or markup earned from booking air/train tickets. The appeal was allowed with consequential relief.

3. SIGNIFICANT HOLDINGS

The Tribunal's key legal reasoning is preserved in the following verbatim excerpt from its earlier decision, which was applied in the present case:

"It is the case of the appellant that the dispute pertains to the trading air tickets as bought from travel agents and sold to the customers, with or without profit, and same did not include any other activities other than mere selling of or trading in such air tickets. It is an admitted fact on record that insofar as the other activities are concerned, the appellant has admitted and paid applicable Service Tax. It is also an undisputed fact that the appellant is not a member or agent of IATA and that it is not the case of the Revenue that the appellant had earned any commission from IATA or any other airlines when it sold or traded in air tickets. Moreover, from the definition of tour operator service, we find that the same involves a gamut of activities and there is nothing to suggest that trading in air tickets per se invited Service Tax.

In view of the above, we hold that the demand of Service Tax on the consideration and for booking of tickets in respect of domestic travel is not a taxable event and hence, to this extent, the direction of the Commissioner (Appeals) cannot sustain. Consequently, we set aside this part of the impugned order, by holding that the appellant is not liable to pay Service Tax on the mark-up or margin earned for booking tickets with regard to domestic travels."

The core principle established is that mere booking or trading of air/train tickets without arranging or organizing a tour does not constitute a taxable Tour Operator service under the Service Tax regime. The value of such ticket bookings cannot be included in the taxable value for service tax computation under the Tour Operator category.

The final determination was that the appellant's appeal succeeds, the service tax demands and penalties imposed on the value of air/train ticket charges are set aside, and the appellant is entitled to consequential relief as per law.

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