No Service Tax on Outbound Tour Packages Performed Outside India: CESTAT Mumbai

Travel Corporation of India Limited Vs Commissioner of CGST & Central Excise (CESTAT Mumbai)

The appeals before the CESTAT Mumbai arose from a common Order-in-Original confirming service tax demand of ₹15.97 crore, along with interest and penalties, on the appellant in respect of outbound tour services for the period 01.04.2005 to 31.03.2010. The Revenue also appealed against the impugned order on the limited issues of recovery of interest up to the actual date of payment, imposition of penalty under Section 76, and correction of certain typographical errors. The Tribunal also allowed miscellaneous applications seeking substitution of the respondent’s name following changes in CGST jurisdiction.

The appellant was engaged in providing tour operator, air travel agent, cruise transport, cab operator and rail travel agent services and was centrally registered under the service tax law. The department alleged that the appellant had failed to pay service tax on receipts from outbound tours amounting to ₹135.91 crore and issued a show cause notice proposing recovery of service tax, interest and penalties under the Finance Act, 1994. The Commissioner confirmed the demand, imposed penalties under Sections 76, 77 and 78, and ordered recovery of interest up to 09.05.2008, leading both sides to file appeals.

The appellant explained that its business consisted of domestic tours, inbound tours and outbound tours. While service tax had been paid on domestic and inbound tours, no tax was paid on outbound tours because those tours commenced and concluded outside India and were wholly performed outside India. The appellant also submitted that airfare was separately billed and taxed under the “Air Travel Agent” category, while service tax had been discharged on the non-air Indian rupee component of outbound tours from 23.08.2007. It further claimed eligibility to the benefit of abatement under the applicable notifications.

The Revenue contended that the services fell within the definition of “tour operator” under Section 65(115) of the Finance Act, 1994. It further argued that the consideration having been received in Indian currency, the services did not qualify as export under the Export of Service Rules, 2005, and sought enhancement of interest and penalties.

The Tribunal examined the statutory provisions governing “tour operator”, “tour”, “taxable service” and the charging provisions under the Finance Act, 1994, together with the legislative amendments made from 1997 onwards. It also considered departmental circulars and budget instructions explaining the scope of service tax on tour operators. The Tribunal observed that the original departmental instructions issued in 1997 specifically clarified that outbound tours, namely tours abroad, did not attract service tax, while later amendments in 2004 expanded the definition of “tour operator” to include package tour operators organising tours by any mode of transport.

The Tribunal also relied extensively on the Larger Bench decision in Cox & Kings India Limited, which examined the amended definition of “tour operator” and clarified that taxability depends upon the nature of services rendered and the statutory framework contained in Sections 65, 66 and 67 of the Finance Act, 1994. The Larger Bench had observed that although planning, scheduling, organising and arranging tours were brought within the expanded definition, disputes regarding taxability must be decided on the facts of each case and in accordance with the charging provisions.

After analysing the nature of outbound tour packages offered by the appellant, including examples of tours conducted entirely outside India, the Tribunal observed that the actual journey commenced only after the tourist reached the foreign destination and concluded outside India. Although booking formalities, documentation and package arrangements were undertaken in India, the journey itself was performed and consumed entirely outside India.

FULL TEXT OF THE CESTAT MUMBAI ORDER

This appeal being No. ST/85792/2013 has been filed by M/s Travel Corporation of India Limited, Mumbai (herein after, referred to as ‘the appellant’), assailing Order-in-Original No. 36/ST/SB/2012-13 dated 19.11.2012 (herein after, referred to as ‘the impugned order’) passed by the Commissioner (TAR), Mumbai.

1.2 Revenue has also filed appeal being No. ST/86005/2013 against the impugned order, to the extent it has not recovered interest till the actual day of payment of confirmed service tax demands under Section 75 of the Finance Act, 1994; not aligned imposition of penalty under Section 76 ibid along with the findings and not correcting certain typographical errors in wrong imposition of penalty beyond 10.05.2008.

1.3 Both the appellant and Revenue have filed the Miscellaneous applications bearing No. 85981, 86103 both of 2025, seeking change of name and address of the respondent arising on account of change in jurisdiction of the Central Goods and Service Tax authorities. The prayer made by both the appellant and Revenue is considered and revised name has been duly incorporated in the cause title and accordingly, the Registry is also directed to incorporate the following changed name and address of the respondent in the appeal records for the purpose of disposal of the appeal:-

“Commissioner of Central Goods Service Tax & Central Excise,
Mumbai South Commissionerate,
13th Floor, Air India Building, Marine Drive
Nariman Point, Mumbai — 400 021”.

2.1 Brief facts of the case, leading to this appeal, are summarized herein below:

2.2 The appellant M/s Travel Corporation of India Limited, Mumbai inter alia, is engaged in providing various services under the category of ‘Tour Operator service’; ‘Air Travel Agent service’; ‘Transport by Cruise Ship service’; ‘Cab operators service’; ‘Rail Travel Agent services’ etc., and for the purpose of payment of service tax and for compliance with service tax statute are centrally registered with Service Tax, Division-II, Mumbai holding Service Tax Registration No. AAACT6856CST005. Prior to such centralized registration for the purpose of service tax, they had obtained 15 different individual registrations for various locations viz., Mumbai, Goa, Ahmedabad, Baroda, Chennai, Cochin, Patna, Jaipur, Udaipur, Jodhpur, Delhi, Lucknow, Agra, Varanasi and Hyderabad with their jurisdictional service tax authorities.

2.3 During the course of obtaining centralized registration, the department had noticed that the appellant had not paid service tax on the gross amount received towards rendering of ‘outbound tour services’ and different Show Cause Notices (SCNs) had been issued under the erstwhile jurisdiction of Delhi, Mumbai, Cochin and Hyderabad. Therefore, the department had sought for complete details with respect to the ‘outbound services’ provided by the appellant. Upon scrutinising the details submitted by the said appellant including ST-3 returns, the department had interpreted that for the total receipts with respect to ‘outbound tours’ of Rs.135,91,96,294/- for the period 01.04.2005 to 31.03.2010, the appellant TCIL had not paid the service tax due of Rs.15,97,82,742/- and therefore issued SCN dated 26.11.2010 proposing for the following actions:

i. Service tax amounting to Rs.15,97,82,742/- should not be demanded and recovered from the appellant TCIL under Section 73(1) read with Section 68 of the Finance Act, 1994 read with Rule 6 of Service Tax Rules, 1994;

ii. interest at appropriate rate should not be charged and recovered from the appellant under Section 75 of the said Act of 1994;

iii. Penalty under Section 76,77 and 78 of the Act of 1994 should not be imposed for various omissions on the part of the appellant.

2.4 The said SCN dated 26.11.2010 was adjudicated by the learned Commissioner vide impugned order dated 19.11.2012 in confirmation of the service tax demands as proposed in the SCN. However, for recovery of interest learned Commissioner had restricted the same upto 09.05.2008 and imposed penalties on the appellants under Section 76, 77 and 78 ibid. Feeling aggrieved with the impugned order, both the appellant and Revenue have filed these appeals before the Tribunal.

3.1 Learned Advocate for the appellant submitted that they organize pre-planned package tours. In other words, the appellant schedules a tour based on their understanding, costing, travel seasons, availability of flights, hotels etc. and prepares a “pre-planned package tour” to be offered to the customer for sale. Such activity of the appellant can be classified into three broad categories: (a) Domestic tours; (b) Inbound tours and (c) Outbound tours. In case of domestic tours category, tours are provided within India for Indian residents. In case of inbound tours category, tours are for the places within India, but provided for foreign tourists. The said inbound tour package would commence, be wholly performed and terminate in India. He further stated that the appellant has been paying service tax under the taxable category “Tour Operator” both in respect of domestic tours and inbound tours. The tax has been paid on inbound tour also, as the tour is in India even though the service recipient, i.e., the foreign tourist is located outside India. This practice has been followed by the appellant even prior to 10.9.2004 and post 10.9.2004 also.

3.2 Learned Advocate further stated that in case of outbound tours category, the tours are between places which originate and terminate outside India for Indian residents. The tour in such case starts from the place of arrival outside India and gets complete at the place of destination outside India. Thus, the tour will be wholly performed outside India. In illustrating such tours he stated that these are for e.g., Escorted Coach Tours of CANADA, Philippines “More than the usual”, Egypt “Land of the Pharaohs” etc. Since, these outbound tours are conducted outside India, the appellant was of the understanding that there is no legal requirement for payment of service tax and hence did not pay service tax. However, the appellant had discharged service tax on Non-Air INR component of the outbound tour for an amount of Rs. 14,53,822/- w.e.f. 23.8.2007. He further explained the modality of payment of service tax in an illustrative case as follows:

Example: In a case, where Mr. A books an Outbound Tour to Dubai and total tour cost to Mr. A is Rs. 2,00,000/-. Out of 2,00,000/-, foreign currency component (for spending abroad) is say Rs. 1,50,000/-(equivalent forex which is drawn from Authorised Dealer on behalf of Mr. A for overseas expenses such as hotels, meals, sightseeing etc). This amount is not treated as consideration for taxable services in India because the services are performed outside India. Further, an amount of Rs. 30,000/- which is attributable towards Airfare which is separately billed and charged to Mr. A; on this service tax on such air transportation is paid by respective airline on air transportation service and on the commission of the appellant, the appellant has paid service tax under the ‘Air Travel Agent service’ category by following composition scheme under Rule 6(7) of Service Tax Rules 1994. Balance 20,000/- is the “Non-Air INR component” on which the appellant paid service tax under Tour Operator service even for outbound tours. On this amount, the Appellant has availed abatement and then discharged tax.

3.3 In explaining the aforesaid nature of outbound tour, he further submitted that the airfare for transportation from India to outside India is not part of the Tour Package. The service provided by the appellant as tour operator commences from destination outside India. The customer has the option to book their own flight tickets or through any other source. However, if the customer books the flight tickets separately through appellant, then the appellant raise a separate invoice for such air travel. The airline pays service tax on the air transportation service provided by the airline, as applicable. This is for the reason that the air transport service has always been treated as a distinct and independent taxable service, separate from “Tour operator” service. He also submitted that under service tax framework, each such transportation service whether road transport, rail transport, passenger transport by vessel, cargo transport and air transportation is recognized as a separately taxable service, governed by its own charging and valuation mechanism. He stated that the intention of the government was never to subsume transportation service within the scope of Tour Operator service. Accordingly, in respect of the commission received from the airline, the appellant has paid service tax under “Air travel agent” service under composition scheme under Rule 6(7) of the Service Tax Rules, 1994. Under the said composition scheme, service tax is levied at the rate of 0.6% of Basic Fare for domestic air transport/ 1.2% of international air transport irrespective of actual commission or consideration. Since the same is a separate taxable service, service tax has been paid under that category by the appellant. Once the liability is discharged under composition scheme, he claimed that the entire service tax liability onus as Air Travel agent service stands discharged.

3.4 As provided under the CENVAT scheme, w.e.f. 10.09.2004, the Tour operator could avail benefit of abatement Notification No. 40/97, provided the said Tour operator does not avail credit of duty paid on inputs as well as capital goods. However, w.e.f. 1.3.2006, the Tour Operator can avail abatement notification benefit of 60% provided CENVAT credit of inputs, input services and capital goods are not availed. In this regard, the learned Advocate stated that during the period from 10.9.2004 to 28.02.2006, the appellant had availed CENVAT Credit of input services since the same was permitted. W.e.f. 1.3.2006, the appellant has not availed any CENVAT Credit on inputs or input services or capital goods, that are directly used in Tour Operator services. Further with respect to common input services the appellant had availed CENVAT Credit in respect of common input services like Telephone, Courier, Manpower Recruitment, Maintenance & Repair, Auditing, Interior Decoration, Servicing of Motor Vehicle etc. However, to the extent such common input services relate to Tour operator services turnover, the same has been expensed out in P&L Account and not availed as CENVAT credit. Further, they had not availed CENVAT credit which is used exclusively used for Tour operator services. Therefore, he stated that the appellant has fulfilled the condition for eligibility of abatement notification benefit for Tour Operator Services. He further stated that in fact, the department themselves have granted the abatement benefit while issuing SCN to the Single Registration of the appellant viz. Delhi and Mumbai registration and demanded service tax on the abated value of Tour Operator Service for proposing the demand on outbound tours.

4. Learned Authorized Representative (AR) had submitted that nature of services provided by the appellant fall under the definition of ‘tour operator service’ under Section 65(115) of the Finance Act, 1994. Further, since the consideration for the service was received in Indian Rupees, he stated that it cannot qualify as export under Export of Service Rules, 2005. He reiterated the stand of Revenue that in the impugned order, the learned Commissioner had mistakenly failed to impose penalty under Section 76 ibid in the operative portion of the order, and had not demanded recovery of interest till the actual date of payment of adjudged demands, as these does not reflect the findings recorded in the said order.

5. Heard both sides and perused the case records. The additional submission made in the form written paper book in this case was also perused carefully.

6.1 The learned Commissioner had confirmed the adjudged demands of service tax on the appellant vide impugned order dated 19.11.2012, on the basis of his conclusion that the appellant have failed to assess and pay service tax on outbound tours under the taxable head ‘Tour Operator service’ for the period April, 2005 to March, 2010.

6.2 The relevant findings and conclusions arrived in passing such an order are extracted and given below:

“19. The noticee’s main contention in defence is that Outbound Tours are not taxable as service tax is a destination based consumption tax. However, I find that both the service provider of outbound tour and the recipient tourist are located in India only, the execution of which lies outside India. Therefore, their contention is untenable.

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21. In my opinion, the fact of the matter is that a 1997 Circular, cannot negate a 2004 amendment made in the definition of the taxable head with effect from 10/9/2004, which is critical to the definition of the taxable head

“Tour Operator Services” with reference to Outbound Tours. Therefore, their contention that the demand for the period 10.09.2004 to 23.08.2007 is not sustainable cannot be acceded to.

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47. No reasonable cause for non-payment of duty has been put forth by the noticee, though they are registered with the department for long. The provisions of Sec 80 of the Act are not attracted in their case as they chose to ignore the changes brought about by the amendments to the definition of the taxable head tour operators on 10/9/2004. As regards penalty under Sections 76 & 78, once proved, the adjudication authority has no option but to impose penalty. There may be discretion in certain provisions with regard to the quantum, which can be duly exercised by the adjudicating authority. In other words, normally the adjudicating authority has no discretion not to impose any penalty. In view of the settled legal position on this issue, the case laws relied upon by the assessee to contend that penalty should not be imposed cannot, per se, be accepted. If penalty has been provided under the statute for contravention of any particular law and if the adjudicating authority comes to the conclusion that the said provision has in fact been contravened, he has no option but to impose penalty. This legal position stands affirmed in the decision of the Hon’ble Supreme Court in the case of Union of India Vs. Dharmendra Textile Processors – 2008 (231) ELT.3 (SC). In view of my findings, I therefore hold the Noticee liable for penalty under Sections 76, 78 of the Finance Act 1994. But after 10.05.2008, both penal Sections 76 & 78 cannot operate, simultaneously. For the period after 10.05.2008 no penalty is imposable under Section 76 for the 1st Show Cause Notice, however penalty under Sec.78 is imposable due to the duty evasion resorted to by the noticee by suppression facts and not indicating the collections made with regard to out-bound tours in the ST-3 returns as brought out in my findings above. Finally, due to non-filing of proper returns under Section 70, without indicating the value of out-bound tours, penalty under Section 77 is rightly imposable on them.

48. I, therefore pass the following order:

ORDER

49. i) The amount of Rs. 15,97,82,742/- (Rupees Fifteen Crores Ninety Seven Lakhs Eighty Two Thousand Seven Hundred Forty Two only) is confirmed under Section 73(2) of the Finance Act, 1994.

ii) Recovery of interest at the rate applicable during the relevant period of time, on the amount confirmed at (i) above, from the date it became due till the date of payment, is hereby ordered under Section 75 ibid for the period up to 09.05.2008, I do not impose any penalty from 10.05.2008, under Section 76 ibid.

iii) I impose penalty of Rs.200/- per day or @2% of tax payable, per month whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax, under Section 76 ibid.

iv) For failure to file correct ST-3 Returns as required under Section 70 of the Act read with Rule 7 of the Service Tax Rules, 1994, a penalty of Rs. 5000/-is imposed under the provisions of Section 77 ibid.

v) A penalty of Rs.15,97,82,742/- (Rupees Fifteen Crores Ninety Seven Lakhs Eighty Two Thousand Seven Hundred Forty Two only) equal to the amount of service tax short paid by the assessee, under Section 78 ibid is hereby imposed on the noticee. Further, if the assessee pays the demand amount confirmed as per (i) above, along with the interest payable thereon as per (ii) above, within 30 days from the date of communication of the Order, the amount of penalty liable to be paid by the assessee shall be 25% of the demand amount confirmed at (i) above provided that the reduced penalty is paid along with the duty & interest payable.”

7. The short issues for determination before the Tribunal are the following:

(i) whether the appellant TCIL are liable to pay service tax for an amount of Rs.15,97,82,742/- on the “Outbound tour service” for the period 01.04.2005 to 31.03.2010, in terms of the Finance Act, 1994?

(ii) whether the impugned order dated 19.11.2012, demanding interest for the period upto 09.05.2008 as determined by the learned Commissioner under Section 75 of the Finance Act, 1994 is correct or not, in terms of the facts of present case?

(iii) Whether the appellant is eligible for the benefit of abatement under Notification No.1/2006-S.T. dated 01.03.2006 in payment service tax or not?

(iv) Whether the services rendered in respect of lout bound tours’ for which the proceeds were realized partly in foreign exchange and partly Indian currency can be treated as ‘export of services’?

The disputed period in this case relates to 01.04.2005 to 31.03.2010.

8.1 For deciding on the disputed issue at paragraph 7(i) above, we find that the legal provisions as contained in the Chapter V of the Finance Act, 1994 at different period of time specifying the taxability of services are relevant. The basic provisions for levy or charge of service tax; the extent, commencement and application of such levy on the taxable services and the list of activities or services which would come under the scope of ‘taxable service’ by enumerating specific activities or services, inter-a/ia, relevant phrases by way of definition have been provided under Sections 66, 64 and 65(105), 65(113), 65(115)/65(48), 65(50), 65(52)/ 65(41), 65(43), 65(44) of the Finance Act, 1994. The levy of service tax on the services provided by a ‘tour operator’ was introduced in the Finance Act, 1994 for the first time during the Union Budget 1997. Subsequently, the definition of the term ‘tour operator’ was amended in the Union Budget, 1998 through the Finance Act, 1998 and later in the Finance Act, 2004; Finance Act, 2008. The extracts of these provisions are quoted below:

“Finance Act, 1994
Chapter V
SERVICE TAX

Section 64. Extent, commencement and application.

(1) This Chapter extends to the whole of India except the State of Jammu and Kashmir.

(2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.

(3) It shall apply to taxable services provided on or after the commencement of this Chapter.

Section 66. Charge of service tax.— ‘There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent of the value of the taxable services referred to in sub-clauses (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (I), (m), (n), (o), (p), (q), (r), (s), (t), (u), (v), (w), (x), (y), (z), (za), (zb), (zc), (zd), (ze), (zf), (zg), (zh), (zi), (zj), (zk), (zl), (zm), (zn), (zo), (zq), (zr), (zs), (zt), (zu), (zv), (zw), (zx), (zy), (zz), (zza), (zzb), (zzc), (zzd), (zze), (zzf), (zzg), (zzh), (zzi), (zzk), (zzl), (zzm), (zzn), (zzo), (zzp), (zzq), (zzr), (zzs), (zzt), (zzu), (zzv), (zzw), (zzx), (zzy), (zzz), (zzza), (zzzb), (zzzc), (zzzd), (zzze), (zzzf), (zzzg), (zzzh), (zzzi), (zzzj), (zzzk), (zzzl), (zzzm), (zzzn), (zzzo), (zzzp), (zzzq), (zzzr), (zzzs), (zzzt), (zzzu), (zzzv) and (zzzw) of clause (105) of section 65 and collected in such manner as may be prescribed.”

Provided that the provisions of this section shall not apply with effect from such date as the Central Government may, by notification, appoint.”

Finance Act, 1994

Finance Act, 1997 (No.26 of 1997)
(Assent of the President of India was given on 14.05.1997)

Section 65. Definitions.–

(95) – “service tax” means tax leviable under the provisions of this Chapter;

(41) “taxable service” means any service provided,-

(a) to an investor, by a stock-broker In connection with tho sale or purchase of securities listed on a recognised stock exchange;

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(q) to any person, by a tour operator in relation to a tour;

(r) to any person, by a rent-a-cab scheme operator in relation to the renting of a cab;

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(43) “tour” means a journey from one place to another Irrespective of tho distance between such places;

(44) “tour operator” means a person who holds a tourist permit granted under the rules made under the Motor Vehicles Act, 1988;

(2) for section 66, the following section shall be substituted, namely:-

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(3) With effect from the date notified under section 84 of the Finance Act, 1997, there shall be charged e orvice tax at the rate of five per cent. of the value of the taxable services referred to in sub-clauses (g), (h), (i), (k), (1), (m), (n), (o), (p), (q) and (r) of clause (41) of Section 65 which are provided to any person by the person responsible for collecting the service tax.”;

(41) “taxable service” means any service provided,-

a. to an investor, by a stock-broker In connection with tho sale or purchase of securities listed on a recognised stock exchange;

b. to a subscriber, by the telegraph authority in relation to a telephone connection;

c. to a subscriber, by the telegraph authority in relation to a pager;

(q) to any person, by a tour operator in relation to a tour;

“66. (1) On and from the date of commencement of this Chapter, there shall be charged a tax (hereinafter referred to as the service tax), at the rate of five per cent. of the value of the taxable services referred to in sub-clauses (a), (b) and (d) of clause (41) of section 65 which are provided to any person by the person responsible for collecting the service tax.

(2) With effect from the date notified under section 85 of the Finance (No. 2) Act, 1996, there shall be charged a service tax at the rate of five per cent. of the value of the taxable services referred to in sub-clauses (c), (e) and (1) of clause (41) of section 65 which are provided to any person by the person responsible for collecting the service tax.

(3) With effect from the date notified under section 84 of the Finance Act, 1997, there shall be charged si arvica tax at the rate of five per cent. of the value of the taxable services referred to in sub-clauses (g), (h), (0, (J), (k), (m), (n), (0), (p), (q) and (r) of clause (41) of section 65 which are provided to any person by the person responsible for collecting the service tax.”;

Part-B of the Finance Minister’s Speech to the Union Budget 1997- 1998 as presented before the Lok Sabha on 28.02.1997.

“146. The services sector contributes nearly 40% to the GDP. Services’ are products as much as manufactured goods’. Both must bear taxes. Hence, I propose to extend the service tax to cover a number of well known services like:

• • Transportation of goods by road;
  • Consulting engineers;
  • Custom house, Steamer and Clearing and Forwarding agents;
  • Air travel agents, tour operators and car rental agencies;
  • Out-door caterers, pandal contractors and mandap keepers; Man-power recruitment agencies.”

Finance (No.2) Act, 1998 (No.21 of 1998)
(Assent of the President of India was given on 01.08.1998)

(52) lour operator means any person engaged In the business of operatIng•tours In a tourist vehicle covered by a permit wanted under the Motor Vehicles Act 1988 or the rules made thereunder;

(48) “taxable service’ means any service provided,—

(a) to an investor, by a stock-broker in connection with the sale or purchase of ascetics listed on a recognised stock exchange;

(b) to a subscriber, by the telegraph authority in relation to a telephone connection;

(c) to a subscriber, by the telegraph authority in relation to a pager;

(n) to any person, by a tour operator in relation to a tour,

(2) for section 66. the following section shall be Substituted, namely:-

“66,(1) On and from the date of commencement of this Chapter, there shall be levied a tax C (hereinafter referred to as the service tax), at the rate of five per cent, of the value of the taxable senAces referred to In sub-clauses (a), (b) and (d) of clause (48) of section 65 and collected in such manner as may be prescribed.

(2) With effect from the date notified under section 85 of the Finance (No. 2) Act, 1996, there shall be levied a service tax at the rate of five per cent. of the value of the taxable services referred to In sub-clauses (c), (e) and (t) of clause (48) of section 65 and collected in such manner as may be prescribed.

(3) With effect from the date notified under section 88 of the Finance Act, 1997, there shall be

levied a service tax at the rate of five per cent. of the value of the taxable services referred to in sub-clauses (a), (h), (r), (k), (I), (m), (n) and (o) of clause (48) of section 65 and collected In such manner as may be prescribed.

(4) With effect from the date notified under section 118 of the Finance (No. 2) Act, 1998, there shall be levied a service tax at the rate of five per cent. of the value of the taxabio services referred to in sub-clauses (p), (q), (r), (s), (t), (u), (v), (w), (x), (y) and (2^.) of clause (48) :If section 65 and collected In such manner as may be prescribed.

8.2 On careful perusal of the aforesaid definition of the phrase ‘tour operator’ under Section 65(44) of the Finance Act, 1994 and levy of service tax under Section 66 ibid, it transpires that initially in the year 1997, the levy of service tax was on the taxable service provided by a person who holds a tourist permit granted in terms of the rules made under the Motor Vehicles Act, 1988 i.e., ‘tour operator’, to any other person, in relation to a journey from one place to another, irrespective of the distance between such places, referred to as ‘tour’. This concept was further clarified in the Union Budget 1998, by revising the definition of ‘tour operator’ to mean a person engaged in the business of ‘operating tours’ in a tourist vehicle covered by permit granted under the Motor Vehicles Act, 1988 or the rules made thereunder. The instructions issued by the department at the time introducing the service tax levy on ‘tour operator’ clarifies the extent of coverage of the services under the scope of tax net. The relevant instructions dated 29.08.1997 issued by the Ministry of Finance is extracted and given below:

“F. No.B.43/10/97-TRU dated 29.8.97
Sub: Imposition of Service Tax on Tour Operators — reg.

I am directed to invite your attention to Section 88 of the Finance Act, 1994 which, inter alia, provides for levy of service tax on services rendered by Tour Operators. It has been decided to bring the above service under the Service tax net w. e. f. 1st September, 1997. Notification Nos. 37/97-ST to 40/97-ST dated 22.8.1997 have been issued in this regard.

2.1 As per section 88 of the Finance Act, 1997, ‘tour operators’ means a person who holds a tourist permit granted under the rules made under the Motor Vehicles Act, 1988 and tour means a journey from one place to another irrespective of the distance between such places and the taxable service means any service provided to any person by a tour operator in relation to a tour the rate of service tax is 5% and the value of taxable service in relation to the service provided by a tour operator to a client, shall be the gross amount charged by such operator from the client for services in relation to a tour and includes the charges for any accommodation, food or any includes the charges for any accommodation, food or any other facilities provided in relation to such tour.

2.2 As per rule 82 of the General Motor Vehicle Rules, 1989 a tourist permit is granted only a tourist vehicle. As per the Motor Vehicles Act, Section 2 (43) a tourist vehicle means a contract carriage constructed or adapted and equipped and maintained in accordance with such specifications as may be prescribed. The term tour operators covers any person who holds a tourist permit in respect of any vehicle. The service tax on tour operators is on operators who run / operate a tour on a motor vehicle provided that the tour operator holds a tourist permit under the Motor Vehicles Act, 1988 in respect of any motor vehicle. Service tax will be chargeable on all domestic and inbound tourist service provided by a tour operator holding a tourist permit. Service tax will also be chargeable on journeys / tours undertaken by tourist taxis and tourist buses (which also hold tourist permits) within and outside the State where they have been registered as tourist vehicles.

2.3 The tour operator can be a self-employed, single vehicle owner individual or a well organised firm providing a vast range of professional service in the field of tourism whether organized as a sole proprietorship / partnership a private or a public limited company. Even public sector undertaking operating tours, such as Indian Tourism Development Corporation, Delhi Tourism Development Corporation etc. are covered under this levy. However State Roadways Corporations who ply passengers in the neighboring State, will not be covered by the levy as they do not require a tourist permit but operate on the strength of agreements between the concerned State authorities.

2.4 The services rendered by the tour operator may be only for providing transport service within or outside the town, city or states territorial limits. The services rendered by the tour operators may only be limited to providing transport service in relation to a tour or it may also include host of other services as in case of a package tour. The services provided by such a tour operator may also include, apart from providing the basic service of transportation from one place to another, services of providing boarding and lodging arrangements, local sight-seeing and guide services and a wide range of other value added services provided by the tour operators such as providing for porters, booking of arranging accommodation, reservation for entertainment/ amusement parks, theatres and museums, providing / health and baby sitting services etc.

2.5 The service tax on services rendered by tour operators in relation to a tour shall be the gross amount charged by such operator from the client and shall include the charges for other services provided such as accommodation, food and other facilities in relation to such tour. In other words, it will be on the gross amount charged to the customer. However, in cases where the tour operator provides a package tour i.e. which necessarily includes accommodation for stay and may also include other facilities such as food, guide services etc., an abatement of 60% of the total amount charged may be given for the purposes of the services tax provided that the bill issued for this purpose clearly indicates that it is inclusive of such charges. In other words, services as provided that the bill issued for this purpose clearly indicates that it is inclusive of such charges. In other words, service tax would be leviable of 40% of the total amount charged in cases where the tour operator provides a package tour and the price of which mandatory includes charges for accommodation for stay provided during the course of the tour (Notification No. 39/97-ST refers). Further an abatement of 90% from the gross amount charged to the client has been provided where the tour operator provides the services solely of booking or arranging accommodation and the bill issued for this purpose includes cost of such accommodation (Notification No. 40/97-ST refers). However, this abatement will not be allowed in case the bill issued does not include the cost of such accommodation.

2.6 Service tax on services rendered by tour operators is only on services rendered in India in respect of a tour within Indian territory. Services rendered by tour operators in respect of out-bound tourism i.e. for tours abroad, do not attract service tax. In case of a composite tour which combines tour within India and also outside India, service tax will be leviable only on services rendered for tours within India provided separate billing has been done by the tour operator for services provided in respect of tours within India.”

(Emphasis supplied)

“F. No.B.11/3/98-TRU dated 07.10.1998

Sub: Instructions on twelve new services through Finance Act, 1998 – reg.

I am directed to invite your attention to Section 116 of the Finance (No.2) Act, 1998 which, inter alia, provides for levy of service tax on services rendered by:- (i) Architects, (ii) Interior decorators… (xii) Company Secretaries.

2. It has been decided to bring the above services under the Service Tax net with effect from 16th October, 1998. Notification Nos. 53/98-ST to 58/98-ST, all dated the 7th October, 1998 have been issued in this regard.

xxx xxx xxx xxx

7.3 An issue has been raised whether Service Tax is payable in respect of services rendered to foreign clients in India, and in respect of such services rendered abroad. It is clarified that Service Tax is payable on all taxable services rendered in India, whether to an Indian or foreign client. However, services rendered abroad shall not attract Service Tax levy as Service Tax extends only to services provided within India.”

8.3 The aforesaid legal provisions and the scope of levy as explained in the departmental instructions, clearly provide that ‘outbound tours’ i.e., service rendered for tours abroad or outbound tours is not included in the scope of service tax levy till the year 1998.

9.1 In the Union Budget for the year 2004, the phrase ‘tour operator’ was defined elaborately by an ‘means’ part and another ‘inclusive’ part; and this had lead to certain confusion among the departmental officers about the scope of levy of service tax on ‘outbound tour’ leading initiation of show cause proceedings and passing of impugned order in this case. The extract of the legal provisions are as follows:

Finance (No.2) Act, 2004 (No.23 of 2004)
(Assent of the President of India was given on 10.09.2004)

(xxi) for clause (115), the following clauses shall be substituted, namely:—

`(115) “tour operator” means any person engaged 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 includes any person engaged in the business of operating tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act,1988 or the rules made thereunder;

(b) for section 66, the following section shall be substituted, namely:—

“66. There shall be levied a tax (hereinafter referred to as the service tax) at the rate of ten per cent. of the value of the taxable services referred to in sub- clauses (a), (b), (c), (d), (e), (g),(h),(1), (j),(k),(1), (m), (n), (o), (p), (q), (r), (s), (t),(u),(v),(w),(x),(y),(z),(za),(zb),(x),(zd),(ze),(4(zg),(zh),(zi),(zj),(zk),(z1), (zm), (zn), (zo), (zq), (zr), (zs), (zt), (zu), (zv), (zw), (zx), (zy), (zz), (zza), (zzb), (zzc), (zzd), (zze), (zzj), (zzg), (zzh), (zzi), (zzj), (zzk), (zzl), (zzm), (zzn), (zzo), (zzp), (zzq), (zzr),(zz.$),(zzt),(zzu),(zzv),(zzw),(zzr) and (zzy) of clause (105) of section 65 and collected in such manner as may be prescribed.”;

Charge of service tax.

Finance Act, 2008 (No.18 of 2008)
(Assent of the President of India was given on 05.10.2008)

(18) for clause (115), the following clause shall be substituted, namely:—

`(115) “tour operator” means any person engaged 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 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 organised 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’;

Section 65 (105) – “taxable service” means any service provided or to be provided, —

xxx xxx xxx xxx

(n) to any person, by a tour operator in relation to a tour;

Section 65 (95) – “service tax” means tax leviable under the provisions of this Chapter;

9.2 The interpretation of the definition ‘tour operator’ and the levy of service tax on taxable services provided by a tour operator has been endeavoured in great detail by the Larger Bench in the case of M/s Cox & Kings Limited Vs. Commissioner, TAR, Mumbai vide Interim Order No. 104/2023 dated 19.10.2023 in Service Tax Appeal No.386 of 2012, in clarifying the issue referred by the Co-ordinate Bench and in providing the reply on the same. Earlier, in this case the division bench of the Tribunal at the West Zone, Mumbai upon examination of the case and the order passed by the Co-ordinate Bench of the Tribunal at Delhi in the case of M/s Cox & Kings India Limited Vs. Commissioner of Service Tax, New Delhi reported in 2013-TIOL-1907-CESTAT-DEL had observed that “what is needed to be examined for the purpose of decision is the services provided in relation to the such ‘Tours’. Similarly what needs to be examined was the place where such services in relation to a tour were provided and consumed. Instead the said decision treats the ‘Tour’ as the service and examines the location of the tour as the place where service was provided and consumed.”. Therefore, the following questions were placed before the Larger Benach of the Tribunal for decision. “(i) whether the service that appellant are providing is taxable service under Section 65(105)(n) of the Finance Act as held by Tribunal in their own case or otherwise”and “(ii) whether the appellant is said to be providing the said service within the taxable territory?”. These have been elaborately dealt with by the Larger Bench and accordingly the questions referred to it have been answered in the above referred Interim Order dated 19.10.2023. Further, the appellant Travel Corporation of India Limited have also filed miscellaneous application No.85360 of 2013 with a prayer to allow their submission as an intervener in the case heard by the Larger Bench, since it will have a bearing on the appeal filed by them which is pending before the Tribunal. This application was heard by the Larger Bench on 19.04.2023 and applicant was permitted to intervene in the matter. Therefore, the order of the Larger Bench in the M/s Cox & Kings India Limited (supra) will also have an application to the matter being examined in the present case of the appellant. The relevant paragraphs of the said order of the Larger Bench of the Tribunal in the case of M/s Cox & Kings India Limited (supra) are reproduced below:

“18. The first issue that has been referred to the larger bench is whether the service that the appellant is providing is a taxable service under section 65(105)(n) of the Finance Act.

19. The division bench in Cox & Kings examined, as noticed above, whether the activity of providing services in relation to outbound tours during the period from 10.09.2004 to 30.09.2008 would fall within the ambit of a service provided by a “tour operator” and consequently subjected to levy of service tax. The division bench observed that the definition of “tour operator” has two facets. The business of planning, scheduling, organizing or arranging tours by any mode of transport including where the tour is by a tourist vehicle covered by a permit under Motor Vehicles Act is one facet of the definition, while operating of tours in a tourist vehicle covered by a permit granted under Motor Vehicles Act including planning, scheduling, organizing or arranging of such tours is another facet. Thus, where a person pursues a composite activity of operating tours and planning, scheduling, organizing or arranging of such tours by a mode of transport other than a tourist vehicle covered by a permit under the Motor Vehicles Act, then such activity would fall outside the scope of the definition of “tour operator”. What persuaded the division bench to come to such a conclusion was the fact that the first facet was limited to the business of planning, scheduling, organizing or arranging of tours and excluded the operation of tour because if the first facet also included operating of tours, there was no necessity for the second and specific facet to include the operation of the tour in a tourist vehicle covered by a permit granted under the Motor Vehicles Act. The operating of a tour “by any mode of transport” would have clearly covered operating tour in a tourist vehicle covered by a permit granted under the Motor Vehicles Act and so the inclusionary clause would be rendered surplusage.

20. Tour operator service was brought within the ambit of service tax w.e.f. 1.9.1997. The levy of service tax was discontinued during the period 18.7.1998 to 31.3.2000 (during so-called tourism year) and was re-introduced w.e.f. 1.4.2000.

21. The taxing entry in section 65(41)(g) of the Finance Act is as follows:

“65. (41) “taxable service” means any service provided

…..

(q) to any person, by a tour operator in relation to a tour”

22. The term „tour” was defined under section 65(43) as under:

“(43) “tour” means a journey from one place to another irrespective of the distance between such places”

23. The text of the above provisions have not undergone any change whatsoever, whether prior to 10.9.2004 or post 10.9.2004, except for renumbering of the clause.

24. The definition of „tour operator” has undergone various changes during different periods, which are as under:

“(i) 1-9-1997 to 6-10-1998:

(44) “Tour Operator” means a person who holds a tourist permit granted under the rules made under the Motor Vehicles Act, 1988;

(ii) 7-10-1998 to 9-9-2004:

(44) “Tour Operator” means any person engaged in the business of operating tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act, 1988 or the rules made thereunder;

(iii) 10-9-2004 to 15-5-2008:

(115) “Tour Operator” means any person engaged in the business of planning, scheduling, organising or arranging tours (which may include arrangements for accommodation, siteseeing, or other similar services) by any mode of transport, and includes any person engaged in the business of operating tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act, 1988 or the rules made thereunder, (amendments are emphasised).

(iv) 16-5-2008 to 30-6-2012:

(115) “tour operator” means any person engaged 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 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 organised 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 (amendments are emphasised).

25. The position, therefore, that emerges regarding the amendments made in the definition of „tour operator” from time to time is as follows

26. Clause (q) was inter alia inserted in section 67 of the Finance Act and it is follows:

“67. Valuation of taxable services for charging service tax,- For the purposes of this Chapter, the value of taxable services, –

—-

(q) in relation to services provided by a tour operator to a client, shall be the gross amount charged by such operator from the client for services in relation to a tour and includes the charges for any accommodation, food or any other facilities provided in relation to such tour.”

27. Thus, the above valuation section provides that the value of tour operator service will not only include the gross amount charged for the tour but also the charges for accommodation, food or any other facilities provided in relation to such tour. This section elucidates that the services in relation to tour are accommodation, food or any other facilities which may be sight- seeing and medical facilities.

28. It would be appropriate to again reproduce the definition of “tour operator” w.e.f. 10.09.2004 to 15.05.2008 as contained in section 65(115) of the Finance Act and it is as follows:

“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 covered by a permit granted under the Motor Vehicles Act, 1988 (59 of 1988) or the rules made thereunder.”

29. This definition can conveniently be divided into two parts:

“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

any person engaged in the business of operating tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act, 1988 (59 of 1988) or the rules made thereunder.”

30. In the first part of the definition, “tour operator” has been defined to mean any person engaged in the business of planning, scheduling, organizing or arranging tours by any mode of transport. This, of course, includes arrangements for accommodation, sightseeing or other similar activities.

31. The second part of the definition is exact reproduction of the definition of a „tour operator” from 16.10.1998 to 09.09.2004. It provides that a tour operator would include any person engaged in the business of operating tours in a tourist vehicle covered by a permit granted under the provisions of the Motor Vehicles Act or the Rules made thereunder.

32. The definition of a “tour operator” uses both the words “means” and “includes”. Justice G.P. Singh in Principles of Statutory Interpretation (13th Edition) has stated that when a word is defined to “mean” such and such, the definition is prima facie restrictive and exhaustive, but where the word defined is declared to „include” such and such, the definition is prima facie extensive. It has also been observed that the natural meaning of the “means” part of the definition is not narrowed down by the “includes” part. The definition may also be in form of “means” and “includes”, where again the definition would be exhaustive and that the meaning of the “means” part of the definition is not narrowed down by the “includes” part. This is what was observed by the Supreme Court in Hamdard (Wakf) Laboratories vs. Dy. Labour Commissioner and Others6 and the observations are:

“33. When an interpretation clause uses the word “includes”, it is prima facie extensive. When it uses the word “mean and include”, it will afford an exhaustive explanation to the meaning which for the purposes of the Act must invariably be attached to the word or expression. (See G.P. Singh’s Principles of Statutory Interpretation, 10th Edn., pp. 173 and 175.)”

33. It is in the light of the aforesaid, that the definition of a „tour operator” has to be examined.

34. As noted above, the first part of the definition of a “tour operator” defines it to mean any person engaged in the business of planning, scheduling, organizing or arranging tours by any mode of transport. This would be an exhaustive definition of a “tour operator”. However, the definition also provides that a “tour operator” would include any person engaged in the business of operating tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act or the Rules made thereunder.

35. This portion of the definition of a “tour operator” also existed prior to the amendment in the definition of a “tour operator” on 10.09.2004. The intention in the amendment in 2004 was clearly to explain the definition of a “tour operator” and to bring within its fold any person engaged in the business of planning, scheduling, organizing or arranging tour by any mode of transport. “Inclusive” part would best be interpreted in the normal standard sense to comprise of or consist of. The second part of the definition only removes any doubt that any person engaged in the business of operating tour in a tourist vehicle covered by a permit granted under the Motor Vehicles Act or Rules made thereunder would not be excluded from the definition of a “tour operator” contained in the first part. It needs to be noted that a permit granted under the Motor Vehicles Act or the Rules made thereunder does not operate beyond the jurisdiction of the country. The first part of the definition of a “tour operator” is by any mode of transport and, therefore, there is no restriction about the territorial jurisdiction of the country. It only deals with the planning, scheduling, organizing or arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport.

36. It is, therefore, not possible to hold that what is contained in the inclusive clause of the definition is necessarily not contained in the first part of the definition as was held by the division bench in the earlier decision in Cox & King.

xxx xxx xxx xxx

38. The contention of the appellant, however, is that all the functions like planning, scheduling, organizing or arranging tours undertaken by the appellant are aimed at the client enjoying the tour outside India and, therefore, as the services are consumed outside India, service tax would not be leviable. According to the appellant, though the Parliament is constitutionally empowered to levy service tax even on service provision outside India in view of the provisions of article 245(2) of the Constitution, but the Parliament has chosen not to levy tax on services provided outside India. In this connection, learned senior counsel also placed reliance upon the provisions of section 66 of the Finance Act and submitted that service tax would be leviable only if the service is provided in India and in this connection placed reliance upon the Circular No. 36/4/2001 dated 18.10.2001 and the Circular F. No. B. 43/10/97-TRU dated 22.08.1997. Learned senior counsel also placed reliance upon the Export of Services Rules 2005 and Taxation of Services (provided from outside India and received in India)

xxx xxx xxx xxx

41. The Circular has to be read in the light of the definition of “tour operator” prevailing at that point of time. Thus, only arranged tours using a tourist vehicle covered by permit granted under Motor Vehicles Act were brought under the ambit of service tax. However, the definition of “tour operator service” underwent a change w.e.f. 10.09.2004. The amended definition introduced the services such as planning, scheduling, organising or arranging tours, arrangements for accommodation, sightseeing, or other similar services as tour operator service. Therefore, the tour itself was not a taxable event but the activities related to arrangement of a tour would fall within the said definition.

42. As noticed above, services are provided by the appellant based in India to customers also based in India. The said service would fall within the amended the definition of “tour operator” and as they are provided within the taxable territory of India, service tax would be leviable under the provisions of the Finance Act. It is correct that prior to 10.09.2004 service tax was not leviable, but the definition of tour operator was amended and the amended definition brings within its ambit activity of planning, scheduling, organizing or arranging tours by any mode of transport.

43. Thus, before this larger bench is a reference arising from doubt about the interpretation of “tour operator”, as per section 65 (115) of Finance Act (earlier section 65 (52) of Finance Act) intended to delineate the extent to which the “taxable service” envisaged by section 65(105) (n) of Finance Act stretches in the “inclusive” segment of the definition as controlling the rest of the definition when the activity is not limited to “planning, scheduling, organising or arranging tours” but involves utilisation of means of transport.

44. From the analysis and reasons elaborated above, it can safely be deduced that the decision of the Principal Bench in Cox & Kings, based on validation of the Circular of 1997 as not being impacted by the several changes in the definition of “tour operator”, may not be applicable in case of “outbound tours” over the period of time that the activity had been taxable.

45. Several aspects of the relevant definitions and even the evolution of the extent of coverage of the levy intended by section 65(105)(n) of the Finance Act must inform the resolution of any dispute over taxability of consideration received by an Indian entity for rendering service in relation to “outbound tours” commencing in India. The intent of Finance Act is to tax specified activity that, undeniably, takes place in India and to exclude tax on any activity that, undeniably, does not occur in India. The definition of “taxable service” must fit within that framework for it to be applicable.

46. There can, thus, be no two opinions about taxability of tours undertaken within India. However, the definition in section 65(105) of Finance Act is not limited to the physical aspect but also the precursor preparation which is taxable on its own standing within the scope permitted by section 65(105)(n) of Finance Act. Such evaluation of extent of taxability cannot be decided upon without reference to the factual aspects of the activity sought to be brought within the tax net by service tax authorities.

47. The earlier decision in Cox & Kings had not determined its decision on the given set of facts but on restricted interpretation of the definition of “tour operator” as prevailing then. The stated interpretation of the definition is not consistent with the revision in the definition. Hence, the division bench assigned to dispose off this appeal will have to decide the outcome without placing reliance on the interpretation of the Principal Bench relied upon by the appellant. All the issues in the appeal as well as the order impugned therein will have to be decided on merits.

48. The referral bench at Mumbai also sought opinion of larger bench on the provision of service by appellant within the taxable territory. As seen from the facts of the case, the dispute in its entirety pertains to the period prior to April 2011. The then prevailing regime of tax on services was limited to enumerated activities rendered to a person (or designated recipient) by a person and there was no requirement for determining “taxable territory” for levy of tax; as long as both receiver and provider were in India, such services were taxable. With the transition in July 2012 to “negative list”, lacking identifiable activities to be taxed, the framework of levy was to be expressed as provision of service for another within “taxable territory” for default liability in the hands of provider of service. Therefore, in the dispute before the division bench, geographical significance was not “taxable territory”, which could be situated anywhere in the world according to the nature of activity undertaken, but within “whole of India…” without having to look for any other framework.

49. Accordingly, we answer the reference thus:

(i) The taxability of activity undertaken by the appellant will have to be decided on the facts peculiar to the case and in accordance with intent of section 65, section 66 and section 67 of the Finance Act; and

(ii) The dispute in this appeal, i.e., from 01.04.2005 to 31.03.2011, pertaining to the period prior to the “negative list” regime does not have to consider “taxable territory” as affecting the decision thereon.”

9.3 Therefore, in terms of the issues decided by the Larger Bench in the case of M/s Cox & Kings India Limited (supra) vide Interim Order No.104/2023 dated 19.10.2023, in order to decide on the issue of taxability of services rendered by the appellant in respect of ‘outbound tours’, for the period post 10.09.2004, we have carefully examined the legal provisions existing at the relevant point of time vis-à-vis the factual matrix of the present case. On careful perusal of the aforesaid definition of the phrase ‘tour operator’ under Section 65(115) of the Finance Act, 1994 w.e.f. 10.09.2004 and the levy of service tax as explained in the Budget instructions for the year 2004 issued by the Ministry of Finance, the scope of levy of service tax would become clear. The relevant paragraph of the said instructions is extracted and given below:

“D. O.F. No.334/3/2004-TRU
dated 08.07.2004

“(IV) Service Tax

6.4.4 The scope of existing services is being extended as follows:

(a)….

(f) Tour operator services to include such package tour operators who organize tours involving any mode of transport”

Further, during 2008 Union Budget some more changes were also brought in the phrase ‘tour operator’ by providing an explanation. The relevant paragraph of the said instructions is extracted and given below:

“D.O. F. No.334/1/2008-TRU
New Delhi, 29th February, 2008

5. SCOPE OF SPECIFIED TAXABLE SERVICES IS BEING AMENDED AS FOLLOWS:

5.3 TOUR OPERATOR SERVICE:

5.3.1 Services provided in relation to a journey from one place to another in a tourist vehicle having contract carriage permit is leviable to service tax under tour operator service. Tour in a vehicle covered by the following categories of permits granted under the Motor Vehicles Act (MVA), 1988 and rules made thereunder are clearly leviable to service tax under tour operator service:

(i) Contract Carriage permit granted under section 74 of the MVA, 1988 and authorisation certificate issued under Motor Vehicles (All India Permit for Tourist Transport Operators) Rules, 1993; and

(ii) Permit granted under section 88(9) in accordance with the provisions of section 74 of the MVA, 1988 in respect of tourist vehicles, for the purpose of promoting tourism. Since the permits under the above two categories are granted only for tourist vehicle, service tax is leviable if the tour is provided in the above categories of vehicles.

Field formations may verify the nature of permits issued to the vehicles from the transport authorities and collect service tax from vehicles having the above two types of permits.

5.3.2 Section 65(115) defining tour operator is being amended so as to include services provided in relation to a journey from one place to another, generally known as point-to-point tour, in a vehicle having contract carriage permit, even if the vehicle does not meet the criteria specified for tourist vehicles. With this amendment, journey from one place to another conducted in a vehicle having contract carriage permit shall be leviable to service tax under tour operator service. Service tax is not leviable under tour operator service only if the tour is conducted in a vehicle having stage carriage permit. Field formations may collect data from transport authorities regarding details of contract carriage permits issued.

5.3.3 It may be noted that services provided in relation to a journey from one place to another conducted in a tourist vehicle having contract carriage permit for use by educational bodies shall be excluded from the scope of the taxable service. Educational bodies do not include commercial training or coaching centres.”

9.4 In terms of the nature of services provided by a “four Operator’, these service providers can be categorized on the basis of nature of tour, types of business and their area of operation of package tours. These include inbound, outbound, domestic tours and ground operator. Inbound tour operators are those operators who handle inbound foreign tourists in the host country. In case of inbound tours category provided by the appellant, tours are for places within India but rendered for foreign tourists. The said inbound tour package would commence, be wholly performed and terminate in India. In case of domestic tours category, tours are provided within India for Indian residents. There is no dispute with respect to payment of service tax, in respect of domestic tours and inbound tours, as the services provided by the appellant service provider in India, for such tours have been rendered to the persons availing the tour facility in India. For illustrative purpose, in the case of appellant, such package tours are, of “Southern Splendour – 06 Nights/07 days — Bangalore — Mysore — Ooty — Coimbatore”. However, in case of outbound tour category, which is the issue under dispute, the tours are between places located outside India for Indian residents. The tour in such case starts from the place of arrival outside India and gets completed at the place of destination outside India.

9.5 Further, in respect of ‘Outbound Tour’ the service providers offer various package tours to foreign countries/overseas places/ destinations from a host country. They are specialised in promoting and designing multi-national tours. They sell a package tour to an individual or a group of people of his own country to another country or a number of countries for a specific pre-decided period and destinations. They arrange travel documents, transportation to a central point where the tour starts and contracts with inbound tour operators/ground operators to provide accommodation, transportation, local sightseeing and other services as needed throughout the tour. Generally, these operators work in liaison with the inbound tour operators/ground operators at the foreign destinations and offer services involving meeting inbound tour group at the airport, transferring the tour group from the airport to the arranged place of accommodation in town hotel, arranging/organising local sightseeing that may be a single day or multi days tour of few or more places, region or area. These may be in the form of business or leisure oriented tours. For example, if a group of tourists want to visit Singapore, they may buy a tour package from XYZ situated in India. This service provider does all the planning, scheduling, organizing or arranging of the outbound tour including travel document processing for the group and sends the tourists group to Singapore.

9.6 For illustrative purpose, in case of appellant, such package tours are, of (i) “Escorted Coach Tours of Canada”the details of such 8 days outbound tour consist of itinerary such as 8 days journey starting from Day 1 at Calgary airport arrival – Day 2 Calgary – Banff/Canmore city tour – Day 3 Canmore/Banff city exploration – Day 4 Canmore landscapes enroute to Glacier national park, Rogers Pass- Kamloops mountain ranges – Day 5 Kamloops – Whistler scenery and costal mountains – Day 6 Whistler – Vancouver sea to sky highway through jagged fjords and glaciated mountain peaks – Day 7 Vancouver scenic beauty of Pacific Ocean – Day 8 Vancouver transfer to international airport departure.”; (ii) “Ontario & French Canada – 8 days” starting from Toronto and ending at Montreal airport; (iii) “Rockies Trail – 10 days” starting from Toronto and ending at Montreal airport; (iv) “Philippines — Best of Manila & Cebu — 7 days”starting from Manila and ending at Cebu airport; (v) “Egypt — Land of the Pharaohs — Oasis and Desert Adventure – 11 days” starting from Cairo and ending at Cairo airport. Thus, the tour in these cases will be wholly performed outside India.

9.7 The customers who would like to avail such services from the appellant tour operator has to complete a ‘Booking Form’ which include the requisite details of the individual as passenger with Passport & Visa details; Contact information; Accommodation/Hotel pass; tours/ cruises; additional services sought etc. The terms and conditions in providing such services for outbound tour include various clauses covering rates, booking, payment, amendment fee, unutilised services, cancellation & refunds, travel documents, insurance, responsibility, communication, force majeure clause etc., Reservation against such package tours are made by the appellant on payment of a deposit of 10% of the total cost of services required per person; and the same will be adjusted against the full tour price payable, while making the balance payment. It is also mentioned in the said terms & conditions that in the event of any cancellation due to whatever reason, the initial deposit amount paid shall stand forfeited and further cancellation fee shall be levied as per the terms and conditions of the relevant clause. It is also stated that if Visa is not granted by issuing authorities, the service fee paid to appellant will also be forfeited. From the above, it could be seen that the services such as “planning, scheduling, organizing or arranging” have been designed in the form of ‘package’ which the customer selects while booking the outbound tour, while the actual ‘operating’ of tour in terms of journey is availed or consumed by the passenger tourist as service receiver at the starting place and ends at the place of departure of the outbound tour.

9.8 The phrase ‘tour’, ‘tour operator’, ‘taxable service’ provided in the Finance Act, 1994, as amended from time to time, under sub­sections (43), (44) and (41)(q) of Section 65 ibid [from 15.06.1997 to 15.10.1998]; under sub-sections (50), (52) and (48)(n) ibid [from 16.10.1998 to 09.09.2004]; under sub-sections (113) and (115) and (105)(n) of Section 65 ibid [from 10.09.2004 to 30.06.2012] read with Section 64, 66 ibid provides for the scope of levy of service tax. The charge of service tax levy is on the services specified under Section 65(105)(n) ibid, as amended, at the rate specified in Section 66 ibid and it is also required to be seen that the entire levy of service tax shall be within four corners of service tax statue as contained in Chapter V of the Finance Act, 1994, in order to sustain the amount collected as service tax as legally valid tax for the Government exchequer. Even though the disputed period in this case relates to 01.04.2005 to 31.03.2010, for complete understanding of the issue, it would be useful to read the contours of the definition of the phrases and the charging provisions right from the time of introduction of the levy of service tax.

9.9 The definition of ‘taxable service’ more or less remain unchanged and is provided during the relevant period of dispute under Section 65(105)(n) ibid which defines it as follows: taxable service means “any service provided, to any person, by a tour operator in relation to a tour”. Similarly, the definition of the phrase ‘tour’ has also remained unchanged from the beginning of the levy on this taxable service. ‘Tour’ has been defined under Section 65(113) ibid “as a journey from one place to another irrespective of the distance between such places”. We have already seen the elaborate discussion of the phrase “tour operator” under Section 65(115) ibid in the earlier paragraphs as discussed by the Larger Bench in the case of M/s Cox & Kings India Limited (supra). On plain reading of the above legal provisions, it is clear that firstly there shall be an activity of ‘tour’ or journey undertaken from one place to another; and certain services are offered by one person viz., service provider to another person viz., service receiver, wherein the service provider shall fall under the scope of the phrase ‘tour operator’; and such services are consumed or utilized by the service receiver, completing the activity of rendering of such service and the provisions of levy of service tax and its application is under the overall frame work of Chapter V of the Finance Act, 1994, to conclusively state that a taxable service as per Section 65(105)(n) ibid has been provided by a tour operator. In other words, in the case of this taxable service, unless there is a journey, and any service provided by a tour operator has a relation to such journey, the services cannot become as taxable in terms of the Finance Act, 1994. On harmonious reading of the provisions of the Finance Act, 1994 as it existed during the disputed period and particularly Sections 64 and 66 ibid, we are of the prima facie view, that services provided by a tour operator, in relation to a journey which begins in a place outside India and ends in a place outside, being consumed by a person while he remains outside India, cannot be brought into the scope of taxable service as provided under Section 65(105)(n) ibid for the purpose of levy of service tax under Section 66 and Section 64 of Chapter V of the Finance Act, 1994. We may further add as a matter of clarity that the scope of the phrase ‘tour operator’ may cover any person performing certain services as per definition given for the phrase ‘tour operator’, and the phrase ‘taxable service’ may also understood as any service rendered by a ‘tour operator’ so defined; and furthermore the phrase ‘tour’ undertaken by a service receiver may further be defined to include ‘journey undertaken between any one place to another’, whether domestic or outside India, but the taxable nature of service tax levy in terms of Section 64 and 66 ibid, is only for the services rendered by a tour operator to any person for the journey performed within the geographical area to which the Chapter V of the Finance Act, 1994 apply. It is also important to note that it is not the case of the Revenue, that the services provided by the appellant for outbound tour is covered under the scope of Section 66A ibid, while planning, scheduling, organizing, arranging for or operating the tour, the appellant had liaised with various persons situated abroad who are actually rendering the service to the persons during their journey abroad, in order to bring the services under the service tax net. Therefore, we are of the considered view that the services provided in relation to outbound tour/ journey between two places out of the country, is not covered within the tax net of the service tax levy under the Finance Act, 1994.

9.10 The instructions issued by the Ministry of Finance while expanding the scope of the phrase ‘tour operator’ by explaining the changes brough in the Finance Act, 1994 w.e.f. 10.09.2004, also provides guidance on the true nature and scope of the legislative changes brought in by the Government. The said instructions issued to the filed formations states as follows:

17 September, 2004

Issues pertaining to Service Tax – regarding the Finance Bil1,2004

The Finance Bill (No.2), 2004 has been enacted on 10.09.2004. With the enactment of the Finance Bill. The following new services have come under the service tax levy,-

Business exhibiion services
Airport services
Transport of goods by air
Survey and exploratin of minerals
Opinion poll services
Intellectual property services (other than copyrights)
Forward contract services
Pandal or shamiana services
Outdoor catering services
TV and radio programme production services
Construction services (commercial and industrial buildings or civil structures)
Travel agents (other than air/rail travel agents)
The following taxable services get expanded to include,-
Commission and installation service to include erection service
Stock brokers to include sub-brokers
Cable operators to include multi system operators
Business auxiliary service to include activities relating to procurement of inputs, production of goods (not amounting to manufacture) or provision of services on behalf of a client.

Financial services to include some more specified financial services. Such services provided by non-banking financial company, body corporate or any other commercial concern are also being subjected to service tax.

Tour operators to include such package tour operators who organize tours involving different modes of transport.

The risk cover in life insurance becomes subject to levy of service tax.

The rate of service tax on all taxable services, including the new and expanded services becomes 10%.

The education Cess of 2% of the service tax would be leviable on taxable services.

The scope of these changes is explained in the following paragraphs.

Extension of tour operator service to package tour operators using different modes of transport: At present, tour operator service covers package tour operators also. However, under the present definition, such package tours attract service tax only if such tours involve modes of transport other than road (say a combination of air-rail-cab travel). The definition of tour operator has been suitably expanded. While the existing levy on tour operators engaged in operating tours in tourist vehicles remains as such, in case of a package tour (which are planned, scheduled, organized or arranged by tour operators), the scope of the levy is being extended by removing the limitation regarding transportation by tourist vehicles only. Such tourist operators would be subjected to service tax irrespective of the mode of transport used during such tours. The abatements (notification no.39197-ST) in case of package tour operators (providing transportation and accommodation) would remain at 60%.

xxx xxx xxx xxx

The CENVAT Credit Rules, 2004 have been issued allowing credit across goods and services (refer Notification No.23/04-CE(NT), dated 10.09.2004).

The above changes may be immediately brought to the notice of the field formations and the trade. All possible assistance and facilitation may be provided to providers of such services who have been subjected to the above changes, so that the implementation of these new levies or other changes is smooth and the tax payers do not face any problem in this regard.

9.11 On plain reading of the above, it transpires that the existing levy on services provided by a tour operator in a tourist vehicle, has been expanded by removing the restriction on usage of mode of transportation from limited ‘tourist vehicle’ to ‘any mode of transport’. The abatement provided at the rate of 60% in case of package tour providing transportation and accommodation would continue to be available to them. Therefore, there is no scope for bring the services provided with respect to outbound tour, within the service tax net by widening the tax base through the amendments introduced in the Union Budget 2004.

10. In this regard, we find that in the identical facts of the case arising in the case of Indian Holiday Private Limited Vs. Commissioner of Central Excise, CGST, Delhi-I vide Final Order No. 59869/2024 dated 10.12.2024, the Co-ordinate Bench of the Tribunal has decided the issue in favour of the appellants therein and the adjudged demands were dropped. The relevant paragraphs of the said order are extracted below:

“7…… Issue No. I

The service tax on this activity has been demanded alleging that the activity is covered under section 65(115) of the Finance Act, 1994 as amended w.e.f. 10.09.2004 on the ground that the said service has been provided by the appellant located in India and that the service provider is also located in India. We observe that Section 65(115) of the Act defines Tour Operator, Scheduling, organizing or arranging tours which may include arrangement for accommodation, sightseeing or other similar services, by any mode of transport and includes any person engaged in business of operating tours in a tourist vehicle covered by a permit granted in Motor Vehicle Act, 1988 or the Rules made thereunder. The perusal of definition makes it clear that it does automatically subject the services provided for outbound to service tax chargeability. The outbound tours are the tours which are conducted outside. The territories/boundaries of India, hence, the activity of the appellant where the services are provided to the Indian as well as foreign customers to tour outside the territorial boundaries in India amounts to outbound tour.

Term tour has been defined under Section 65 (43) of the Finance Act to mean a journey from one place to another irrespective of the distances between such places. The intent of Finance Act is otherwise to tax a specified activity which undisputedly takes place in India and to exclude tax on the activity which undisputedly does not occur in India. The Hon’ble Supreme Court in All India Federation of Tax Practitioners vs. UOI reported as 2007 (7) STR 625 (SC) clarified that the service tax is indirect tax levied on specified services provided by certain categories of person including by a company, association firm, body of individual etc. and that it is a value added tax which is a destination based consumption tax, in the sense that it is on commercial activities and not a charge on business but on the consumer and logically be leviable only on services provided within the country and that performance based services are provided by service provider including tour operators.

This principle has subsequently also been reiterating by Hon’ble Apex Court in the case Association of Leasing and Financial Service Companies vs. Union of India reported as 2011 (2) SSC 352. The definition of taxable service, therefore, has to fit within this framework for it to be applicable. Since, arrangement of tours outside the territory of India i.e., the destination being outside India for outbound tours irrespective the service recipient is located in India or is a foreign traveller, the outbound tour is not liable to service tax. There is no tax activity on outbound tours in terms of

Rule 3(2) of Export of Service Rules, 2005 according to which the taxable service which is partly performed in India has also to be considered as the activity performed outside India. Notification No. 09/2005 dated 03.01.2005 also extends exemption from service to outbound tours. The issue is no more res-integra as stands decided in M/s Cox & Kings Limited (supra). Issue no. 1 stands decided in favour of appellant.”

11. Revenue has contended that the learned adjudicating authority has not imposed and recovered interest till the actual day of payment of confirmed service tax demands under Section 75 of the Finance Act, 1994. Further, Revenue has stated that he had not aligned imposition of penalty under Section 76 ibid along with the findings and not correcting certain typographical errors in wrong imposition of penalty beyond 10.05.2008. Since, the entire demand of service tax as proposed in the SCN and as confirmed by the adjudicating authority has arisen from the determination of service tax liability on outbound tours which have been discussed at length in the foregoing paragraphs and was held to be not liable for levy of service tax during the disputed period, the grounds for appeal filed by Revenue does not sustain. In view of the same, the other issues under dispute also do not require further examination by us.

12. In the above backdrop of the factual matrix of the present case, and taking into account the fact that the appellant have paid service tax on the taxable services provided in relation to inbound tours, domestic tours, we find that the appellants have fulfilled all the requirements for discharge of service tax liability as required under the Finance Act, 1994. In the above circumstances and on the basis of the discussions at paragraphs at 8.1 to 11 above, we find that there are no strong grounds to hold that the appellants did not pay service tax in respect of any service provided to outbound tours, during the disputed period from 01.04.2005 to 31.03.2010. Therefore, we do not find any merits in the impugned order of the learned Commissioner (TAR) in confirmation of adjudged demands on the appellant.

13. In the result, the impugned order dated 19.11.2012 is set aside and the appeal filed by the appellants is allowed in their favour. Appeal filed by Revenue is dismissed.

(Order pronounced in the open court on 15.06.2026 )

Note:

¹ Substituted by the Finance Act, 2007, w.e.f. 1-6-2007.

Prior to its substitution, section 66 as amended by the Finance Act, 2006, w.e.f. 18-4-2006/1­5-2006, Finance Act, 2005, w.e.f. 16-6-2005, Finance (No. 2) Act, 2004, w.e.f. 10-9-2004, Finance Act, 2003, w.e.f. 14-5-2003, Finance Act, 2002, w.e.f. 16-8-2002, Finance Act, 2001, w.e.f. 16-7-2001, Finance (No. 2) Act, 1998, w.e.f. 16-10-1998