TMI Blog2013 (12) TMI 1024X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 under the provisions of the Finance Act, 1994 (the Act), is the core issue arising in these appeals. 2. Appellants are the assessees and have preferred the appeals against adjudication orders assessing specified liability to Service Tax and penalties, for having provided Tour Operator service. The relevant particulars in brief, of the appeals are set out in the following tabular form : Appeal No. Date of adjudication order Show cause notice date Period involved Service Tax Rs. Penalty Rs. ST/915/10 21/RDN/2010, dated 31-3-2010 17-4-2008 10-9-2004 to 30-9-2007 5,25,29,187/- 1000/- u/s 77 52529187/- ST/1875/10 39/40/RDN/ 2010, dated 27-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formed entirely outside India, to facilitate Indian tourists visit various locales, in territories outside India. 7. The dispute presented in the appeals before us is confined to outbound tours only. 8. Proceedings were initiated against the assessees, invoking the extended period of limitation under the proviso to Section 73(1) of the Act proposing assessment and levy of Service Tax, interest and penalties, for having provided the taxable Tour Operator service, by way of outbound tourism. After a due process the impugned adjudication orders ensued. 9. To the extent relevant material for the purposes of these appeals the facts; the statutory provisions and the contentions urged by the respective parties; the precedents and departmental circulars, etc., relied upon in support of the competing contentions, in ST/915/2010 is considered by us as illustrative of the facts and circumstances and the relevant and operative legal profile applicable to all appeals. We therefore analyse the facts in ST/915/2010 as illustrative of the facts and issues in all the appeals. 10. Before we proceed with the analyses of the relevant facts and contentions presented for consideration, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 (59 of 1988) or the rules made thereunder (amendments are emphasised). (f) Other relevant provisions of the Act : (i) Section 64(1) enacts, that this Chapter (Chapter V) extends to the whole of India except the State of Jammu and Kashmir; and sub-section (3) thereof provides that the provisions of the Chapter apply to taxable services provided on or after the commencement of this Chapter. (ii) Section 66, the charging provision, authorises levy of service tax at the specified percentage of the value of the taxable service referred to in the enumerated sub-clauses of Section 65(105); and enjoins that the tax shall be collected in such manner as may be prescribed. Tour Operator , the taxable service enumerated in Section 65(105)(n) is among the taxable services specified in this provision. (iii) Section 66A enacts that where any service specified in Section 65(105) is provided or to be provided by a pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of outbound tourism from the ambit of Service Tax liability, in fact in a verbatim reproduction of its earlier Circular dated 22-8-1997. (iv) 8-10-2001 : Board Circular No. 36/4/2001-S.T. clarifies that levy of Service Tax extends to the whole of India except the State of J K; that the expression India includes the territorial waters of India; that Indian territorial waters extend up to twelve nautical miles from the Indian land mass; that Chapter V which governs the levy of Service Tax has not extended the levy to the designated areas in the continental shelf and the exclusive economic zone of India; and therefore the services provided beyond the territorial waters of India are not liable to Service Tax as provisions of Service Tax have not been extended to such areas so far. (v) The Circular dated 22-8-1997 was apparently withdrawn vide the Circular No. 93/04/2007-S.T., dated 10-5-2007; but not TRU Circular No. 1/2000, dated 27-4-2000. (vi) 12-10-2007 : The Commissioner (Service Tax), under the letter-head of the C.B.E. C. addressed to the Commissioner of Service Tax, Delhi (in apparent response to the Delhi Commissioner s letter dated 27-8-2005), on the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any person in relation to a tour and not the cost of such accommodation; that no credit of duty paid on inputs is availed under the Cenvat Credit Rules, 2004; and that the Tour Operator should not have availed benefits under Notification No. 12/2003-S.T., dated 20-6-2003. This exemption Notification came into force w.e.f. 1-9-1997; (ii) 5-2-2004 : Notification No. 2/2004-S.T., dated 5-2-2004 extended exemption of Service Tax, leviable on 60% of the gross amount charged from any person by a tour operator (other than service in relation to a packaged tour) for services provided in relation to a tour and where the bill issued for this purpose indicates that the amount charged in the bill is the gross amount charged for such tour; subject to conditions specified therein. The Explanation to this Notification clarified that the expression packaged tour means a tour in which provisions for transport and accommodation for stay of the person undertaking the tour has been afforded by the Tour Operator ; (iii) 1-3-2006 : By Notification No. 1/2006-S.T., different rates of exemption were granted for different categories of services provided by Tour Operator . Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s amended by Notification No. 12/2004-S.T., dated 10-9-2004 and by Notification No. 1/2006-S.T., dated 1-3-2006 exempt the taxable service provided by a tour operator to the extent of 60% of the gross amount charged for the service provided in relation to a tour when a package tour provided and the bill issued for this purpose indicates that it is inclusive of charge and on condition that no Cenvat credit of duty paid on inputs or capital goods was availed under the provisions of the Cenvat Credit Rules, 2004 or benefits under Notification No. 12/2003-S.T., dated 20-6-2003 were availed; that the assessee in its declaration letter dated 10-12-2007 asserted that it had not claimed credit of Service Tax paid on input service; however, no specific reference regarding availment of Cenvat credit on capital goods or inputs is asserted in its certificate; and therefore the assessee is presumed to have availed Cenvat credit on capital goods/or inputs during the period in issue; and consequently the benefit of abatement under Notification No. 1/2006-S.T., is inadmissible; (e) Case of the assessee : (i) Service Tax being a destination based consumption tax and consumption of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urs by any mode of transport is now treated as an ingredient of the definition of tour operator . Engaging in the business of operating tours in tourist vehicles covered by permits however continues, but as another and a distinct ingredient of the definition, of tour operator ; (ix) without prejudice to the substantive contention, of immunity to tax for outbound tours, the assessee is entitled to 60% abatement benefits vide Notification No. 12/2004-S.T. and 1/2006-S.T. since it had not availed Cenvat credit on input, input service or capital goods; (x) without prejudice to the above, the assessee is not liable to Service Tax on the value of export of services; (xi) invocation of the extended limitation period is unwarranted; and (xii) there is in any event no justification for levy of penalty. (f) Discussion and findings in the adjudication order : (i) with effect from 10-9-2004, the definition of tour operator was amended and the scope expanded. In view of the amendment; planning, scheduling, organising, or arranging tours including arrangements for accommodation, sight-seeing or other activities by any mode of transport amount to tou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax and non-disclosure of the consideration received on outbound tours provided, non-filing of returns and non-remittance of tax, amounts to wilful suppression of facts with intent to evade tax. Consequently, the adjudicating authority assessed liability to the specified quantum of Service Tax, interest and penalties. 16. In view of the core dispute between the parties, the following are the substantive issues that fall for determination : a) (i) What is the scope of the expression tour operator defined in Section 65(115) of the Act, post-amendment of the definition by the Finance Act, 2004 (w.e.f. 10-9-2004)? (ii) Does the 2004 amendment alter the contours of the expression and if so, to what extent? (b) Whether outbound tours are outside the purview of the taxable service enumerated in Section 65(105)(h) of the Act? 17. Analysis : (a) We have noticed (at para 10), evolution of the definition of tour operator since its inception as a taxable service in 1997. We are concerned in the present lis with the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come within the fold of tour operator . In our considered view the definition (post the amendment), has two facets; (i) the generic facet, of engagement in the business of planning, scheduling, organising or arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport; and (ii) the specific component, brought into the definition by the inclusionary clause. Under the inclusionary fold a person engaged in the business of operating tours in a tourist vehicles, covered by a permit granted under the Motor Vehicles Act, 1988 or the rules made thereunder would also be a tour operator . On a true and fair construction of the amended definition, the amendment expands the scope of the expression to include in the taxable service, engagement in the business of planning, scheduling, organising or arranging tours (which may include arrangements for accommodation, sightseeing or similar services) by any mode of transport (not limited to tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act, 1988 or the rules made thereunder). The generic facet of the definition does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Privy Council in Quebec Railway, Light, Heat Power Co. v. Vandry - AIR 1920 PC 181, 186 observed that the Legislature is deemed not to waste its words or to say anything in vain and a construction which attributes redundancy to the Legislature will not be accepted except for compelling reasons - see also Union of India v. Hansoli Devi - AIR 2002 SC 3240; Ghanshyamdas v. Regional Asstt. Commr., Sales Tax - AIR 1964 SC 766; and State of Orissa v. Joginder Patjoshi - AIR 2004 SC 1039. In Hill v. Williams Hill (Park Lane) Ltd. - (1949) 2 ALL ER 452 the House of Lords pointed out that : When the Legislature enacts a particular phrase in a statute, the presumption is that it is saying something which has not been said immediately before. The rule that a meaning should, if possible, be given to every word in the statute implies that, unless there is good reason to the contrary, the words add something which would not be there if the words were left out. The above decision of the House of Lords was quoted with approval and referred to in Umed v. Raj Singh - AIR 1975 SC 43. The doctrine of a construction avoiding assumption of surplusage is illustrated in several other cases - vide S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tour at the Indian destination is normally by air transport, to and from a foreign location. It is asserted by the assessees, an assertion that is not disputed by Revenue, that the facilities provided by each of the assessees includes providing a tour leader to accompany the touring party throughout the tour; besides scheduling the tour package, operating the packaged tour, fixing the probable dates and venues, the itinerary; booking accommodation in hotels at foreign locations; planning and arranging travel through various modes in foreign locations; sightseeing, boarding and lodging abroad; providing foreign guides, air ticketing and arranging visa and travel insurance, etc. These activities clearly comprise operating the tour, in addition to planning, scheduling, organising or arranging the tour. (f) The nature of the composite services provided by the assessees, in relation to outbound tours, is thus clearly outside the locus of the definition of tour operator , qua the first facet of the definition, even after amendment of the definition, w.e.f. 10-9-2004. 18. Do provisions of the Act have an extra territorial reach and operation : (a) Section 64 enacts that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ole of the profits of which accrue or arise without British India where such business is carried on by or on behalf of a person who is resident but not ordinary resident in British India unless the business is controlled in India : Provided further that where the profits of a part only of a business carried on by a person who is not resident in British India or not ordinarily so resident accrue or arise in British India or are deemed under the Indian Income-tax Act, 1922, so to accrue or arise, then except where the business being the business of a person who is resident but not ordinarily resident in British India is controlled in India, this Act shall apply only to such part of the business, and such part shall for all the purposes of this Act be deemed to be a separate business : Provided further that this Act shall not apply to any business the whole of the profits of which accrue or arise in an Indian State; and where the profits of a part of a business accrue or arise in an Indian State, such part shall, for the purposes of this provision, be deemed to be a separate business the whole of the profits of which accrue or arise in an Indian State, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a is of no material consequence; and (d) since all activities in connection with the offshore supply were outside India, therefore cannot be held to accrue or arise in India. In respect of offshore services, the Court also ruled that there should be sufficient territorial nexus between the rendition of services and territorial limits of India, to make the income taxable; and that applying the principle of apportionment to composite transactions which have some operation in one territory and some in other, is essential to determine taxability of the several operations. (f) In a recent judgment, in G.D. Builders v. UOI and others - 2013-TIOL-908-HC.DEL = 2013 (32) S.T.R. 673 (Del.), the Delhi High Court ruled that as a corollary of the position that a composite contract, as for instance involving labour/services and deemed sale of goods could be vivisected to identify and tax the sale element thereof, a composite contract could be vivisected and the service element identified for levy of service tax but only on the service element therein (para 31). (g) Board Circular No. 36/4/2001, dated 8-10-2001 also clarifies the issue that since (at present) levy of service tax ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration received therefor, that the present proceedings relate to. On the authority of the precedents i.e. Ahmedbhai Umarbhai Co. and Ishikawajma-Harima Heavy Indus. Ltd., it is clear that even composite transactions involving a raft of apparently taxable services are susceptible and ought to be, vivisected, to ascertain which of the services or components thereof fall within the ambit of the Act and which services fall outside such ambit. As services provided for outbound tours are provided and consumed outside the Indian territory; are beyond the province and purview of the provisions of the Act, the consideration received which corresponds and is relatable to services provided outside the Indian territory require to be excised by applying the doctrine of apportionment. On such vivisection, the consideration attributable to services provided outside the Indian territory must be excluded, as this is not subject to levy and collection of Service Tax, under provisions of the Act. This conclusion is also the logical corollary of the non-derogable premise that Service Tax is not a tax on the pursuit of the profession of providing a taxable service but is a tax on the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice, of operating outbound tours apart from engaging in the business of planning, scheduling, organising or arranging such tours; and by a mode of transport other than in a tourist vehicle, the service falls outside the definitional locus of tour operator [vide the analysis on Issue (a), at para 17 supra]. 19. Other issues : (a) The planning, scheduling, organising or arranging outbound tours is merely incidental to the operating and conducting of outbound tours : (i) According to Revenue, the planning, scheduling, organising or arranging of the outbound tours is carried out by the assessees in India and hence the taxable service is provided in India, within the ambit of tour operator , defined in Section 65(115) of the Act. (ii) The assessees provided pre-planned package tours to outbound tourists; as standard packages developed by each of them; and offered to a variety of customers. An outbound tour is entirely and meticulously pre-planned and scheduled; and the composite package offered as a product. On this basis, the assessees contend, the planning and scheduling is not a service provided to the recipient tourists but is a service provided to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and since organising or arranging of the tours is an integral component of the definition of tour operator [in the first facet of the definition in Section 65(115)], the contention that it is a service provided by the assessees to themselves does not merit acceptance. The Budget Circular dated 28-2-2006, on which reliance is placed by the assessees does not provide any assistance either. Paragraph 3.2 of this Circular merely annotates the purport of Section 65A(2)(b) of the Act. (vi) We therefore hold that this contention is without merit of force. The assessees had clearly organised and arranged the tours for the benefits of tourists and have received consideration for this service provided; and this is the substantive purpose and basis of the service. We reject this contention. (b) Outbound tours amount to export of service and hence no Service Tax is payable : (i) Assessees contend that service provided by way of outbound tours amounts to export of service under the Export of Service Rules, 2005 and there is thus no liability to Service Tax incurred on such service. Reliance is placed on Rules 3 and 4 of the 2005 Rules and the decisions of this Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided by the assessees are not liable to service tax, vide the analyses and conclusions on Issues (a) and (b), we refrain from a detailed analyses of this contention. Suffice it to state that if the assessees are otherwise liable to service tax, for providing outbound tours, they would be entitled to the benefits of any exemption/abatement notifications issued under Section 93(1) of the Act; and subject to fulfilment of the conditions enjoined therein. (d) Invocation of the extended period of limitation is unjustified. (i) In view of the facts and particulars set out in the tabular statement in paragraph 2 of this judgment, the assessees contend that a substantial part of the period involved in the provision of the service, brought within the fold of the impugned assessment orders, is on invocation of the extended period of limitation under the proviso to Section 73(1) of the Act. The assessees contend that invocation of the extended period of limitation is fundamentally misconceived since the ingredients specified in the proviso to Section 73(1), are absent. There is also no allegation of fraud, collusion or misstatement on the part of the assessees nor was there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act shall be imposable on the assessee, if it proves that there was a reasonable cause for the said failure. (ii) We agree with this contention. We have earlier herein concluded and for the reasons recorded, that invocation of the extended period of limitation is unwarranted. In the circumstances and for reasons alike, provisions of Section 80 are clearly attracted. Consequently, imposition of penalties is unjustified. We hold accordingly. (iii) The above conclusion is again without prejudice to our substantive conclusion that there is no liability to Service Tax on outbound tours service provided by the assessees. 20. In the adjudication order pertaining to one of the assessees (M/s. Cox and Kings India Ltd.) the adjudicating authority referred to a clarification letter dated 12-10-2007 issued by the Commissioner, Customs and Service Tax, purportedly issued by the C.B.E. C. This clarification was in response to a letter dated 27-8-2005 addressed by the CST, Delhi seeking guidance on the leviability of Service Tax on the outbound tourism. The 12-10-2007 letter states that the Board is the view that a service provided by an operator located in India to a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction cannot be created by rule making as it is an exclusive legislative function, is the contention. We do not consider it necessary to deal with the several nuances of this contention, in view of our conclusions on the other issues. 21. Summary of our conclusions : (a) 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; (b) As a consequence of the interpretation of tour operator vide (a), where a person pursues ..... X X X X Extracts X X X X X X X X Extracts X X X X
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