Airline Tour Packages Not Taxable as Tour Operator Service as No Tour Planning Was Done: CESTAT Kolkata

Air India Limited Vs Principal Commissioner of Service Tax (CESTAT Kolkata)

The case concerns a dispute regarding Service Tax demands raised against an airline engaged in the transportation of passengers and goods by aircraft. The airline also offered promotional schemes to customers that included coupons for hotel stays and transportation to tourist locations along with other services for a lump sum amount. These promotional offerings were described as “tour packages.”

During the period from 2008–09 to 2010–11, the airline also incurred certain expenses on behalf of its erstwhile wholly owned subsidiary, Airline Allied Services Limited (AASL), and subsequently recovered these expenses from the subsidiary. The expenses included training charges, dry provisions obtained from the catering department, payments made towards repairs of different items, and adjustments for expenditure incurred on behalf of AASL. The airline had been filing its Service Tax returns on time for the relevant period.

A Central Excise Revenue Audit (CERA) conducted by the Office of the Principal Director of Audit, Central Excise, Kolkata examined the records for the period from 2008–09 to 2010–11. Following the audit, a show cause notice dated 24 September 2013 was issued by invoking the extended period of limitation. The notice alleged that the airline was not entitled to the benefit of abatement under Notification No. 01/2006-S.T. dated 1 March 2006 in respect of “Tour Operator Services.” According to the department, the airline had availed CENVAT credit on common input services that were also used for providing tour operator services, thereby violating the conditions of the notification. The notice also alleged that the airline had failed to pay Service Tax under the category of “Airport Service” in relation to services provided to AASL.

The Service Tax demand was divided into two parts. The first demand of ₹41,41,028 related to “Tour Operator Service” for the financial year 2010–11. The second demand of ₹13,59,238 related to “Airport Service” for the financial years 2008–09 and 2009–10. The adjudicating authority confirmed both demands along with interest and penalties.

The airline challenged the order before the Tribunal. Regarding the demand under “Tour Operator Service,” the airline argued that its tour packages did not fall within the statutory definition of tour operator service under Section 65(105)(n) of the Finance Act, 1994. The airline relied on an earlier decision of the Tribunal in its own case as well as a decision involving another airline. It was contended that the airline merely provided packages that included airfare, accommodation and other features, but it did not plan, schedule, organize or arrange tours for passengers.

The Tribunal examined the statutory definition of “tour operator” under Section 65(115) of the Finance Act, 1994. The definition includes persons engaged in the business of planning, scheduling, organizing or arranging tours, which may include accommodation or sightseeing services, or persons operating tours in a tourist vehicle covered by a permit under the Motor Vehicles Act. The Tribunal also referred to its earlier decision in the airline’s own case. In that earlier decision, the Tribunal had reviewed the package features and observed that the airline was not engaged in consultancy or activities involving planning, scheduling, organizing or arranging tours on behalf of passengers.

The Tribunal further referred to a previous ruling involving another airline where it was held that airline packages offering airfare, hotel accommodation, airport transfers and sightseeing do not amount to tour operator service when the airline does not plan or organize tours for passengers. Based on these findings, the Tribunal concluded that the airline’s activities did not fall within the scope of “Tour Operator Service.” Consequently, the Service Tax demand raised under that category was held to be unsustainable.

However, the Tribunal noted that the airline had already collected Service Tax from its customers and paid the tax after claiming abatement. Since the tax had been collected and paid, the Tribunal held that the amount was not refundable to the airline.

The second issue concerned the demand raised under the category of “Airport Service.” The demand related to services allegedly provided by the airline to its subsidiary during the financial years 2008–09 and 2009–10. The Tribunal examined the definition of “Airport Service” under Section 65(105)(zzm) of the Finance Act, 1994 as it existed prior to 1 July 2010. Under the definition applicable during the relevant period, taxable airport service meant any service provided to any person by an airport authority or by any person authorized by such authority within an airport or civil enclave.

The Tribunal observed that the airline was not a person authorized by the airport authority to provide services. Therefore, the activities undertaken by the airline could not be classified as airport service under the statutory definition applicable during the relevant period. The Tribunal also referred to an earlier decision where it was held that, prior to the amendment made in 2010, authorization from the airport authority was a necessary condition for taxing services under the category of airport services.

The Tribunal noted that the definition of airport service was amended with effect from 1 July 2010 to expand the scope of the service. However, the entire demand in the present case related to the period prior to the amendment. Accordingly, the Tribunal held that the services provided by the airline to its subsidiary did not qualify as airport service for the relevant period.

In light of these findings, the Tribunal concluded that both the demands raised by the department were not sustainable. As the Service Tax demands themselves were not maintainable, the associated interest and penalties were also held to be not imposable.

The Tribunal therefore set aside the impugned order confirming the demands along with interest and penalties and allowed the appeal with consequential relief.

FULL TEXT OF THE CESTAT KOLKATA ORDER

The facts of the case are that the appellant is engaged in the business of transportation of passengers and goods via aircrafts. The appellant offers promotional schemes to its customers which includes coupons for staying in hotels and transportation of passengers to various tourist places along with other services, for a lumpsum amount. The said promotional schemes are referred to as “tour packages”.

2. During the impugned period i.e., 2008-09 to 2010-11, the appellant also incurred expenses on behalf of its erstwhile wholly owned subsidiary namely, Airline Allied Services Limited (AASL) and claimed reimbursement of such services from AASL. The nature of expenses incurred by the appellant and recovered from AASL include:

i. Training Charges

ii. Dry Provision uplifted from Catering Department

iii. Amount paid towards repairing of different items

iv. Adjustment for expenditure incurred on behalf of AASL

3. The appellant were filing their Service Tax Returns in time, in regard to their payments of Service Tax.

4. A Central Excise Revenue Audit (CERA) was conducted by the Office of the Principal Director of Audit, Central Excise, Kolkata for the period from 2008-09 to 2010-11.

5. Thereafter, a Show Cause Notice was issued to the appellant on 24.09.2013 by invoking the extended period of limitation, on the allegations that (i) the appellant is not entitled to avail the benefit of abatement in terms of Notification No. 01/2006-S.T. dated 01.03.2006 in respect of “Tour Operator Services” provided by it on the ground that the appellant had availed CENVAT Credit on common input services, which were also used in providing Tour Operator Services thereby violating the conditions for availing such abatement in terms of the above Notification (ii) the appellant has failed to pay Service Tax under the category of “Airport Service” for the services provided to AASL. The demand was bifurcated as under: –

5.1. The matter was adjudicated and the above demand of Service Tax was confirmed against the appellant, along with interest and penalties, by way of the impugned order.

5.2. Against the said order, the appellant is before us.

6. The Ld. Counsel appearing on behalf of the appellant submits that tour packages provided by the appellant do not fall under the category of “tour operator service” as defined under Section 65(105)(n) of the Finance Act, 1994; and therefore, the demand raised under the category of “Tour Operator Service” is not sustainable in law. To support his contention, the Ld. Counsel for the appellant placed reliance on the decision of the Tribunal, New Delhi in their own case as reported in 2016 (8) TMI 1237 – CESTAT, New Delhi as well as the decision of the Tribunal, Mumbai in the case of Jet Airways (India) Ltd. v. Commissioner of Service Tax, Mumbai-I as reported in 2016 (41) S.T.R. 225 (Tri. – Mum.)]

6.1. As far as the demand under the category of “Airport Service” is concerned, the Ld. Counsel for the appellant has submitted that the said demand is mis­conceived and unsustainable in law as the appellant as not provided Airport Service as defined under Section 65(105)(zzm) of the Act. It is submitted that up to 01.07.2010, the scope of Airport Service was limited as defined under the Act, which includes services rendered to any person, by an airport authority or by any other person authorized by it, in an airport or civil enclave. In this regard, it is stated by the appellant that the airport authority has not authorized the appellant to collect Service Tax and therefore, the appellant’s services do not qualify as “Airport Service”. Accordingly, the Ld. Counsel for the appellant contends that no Service Tax is payable by the appellant under the above said category of service. On this count, he relies on the TRU Circular D.O.F. No. 334/1/2010-TRU dated 26.02.2010 issued by the Ministry of Finance. The Ld. Counsel has further relied on the decision of the Tribunal in the case of Commissioner of Service Tax, Mumbai-I v. Soft Touch Aviation [2016 (4) TMI 986 – CESTAT, Mumbai=2016 (43) S.T.R. 120 (Tri. – Mum.)].

7. On the other hand, the Ld. Authorized Representative of the Revenue has supported the impugned order.

8. Heard the parties.

9. We find that the demand of Rs.41,41,028/- has been confirmed against the appellant by denying the benefit of abatement as provided under Notification No. 01/2006-S.T. dated 01.03.2006 under the category of “Tour Operator Service” whereas the claim of the appellant before us is that they do not fall within the ambit of “tour operator service”. For better appreciation of the facts, the definition of “Tour Operator” as per Section 65(115) of the Finance Act, 1994, is reproduced below: –

(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 (59 of 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;]

9.1. The above issue has been examined by the Tribunal in the appellant’s own case as reported in 2016 (8) TMI 1237 – CESTAT, New Delhi wherein, it has been observed as under: –

“5. Section 65(113) of the Finance Act, 1994 defines the term Tour to mean a journey from one place to another irrespective of the distance between such places. The Tour Operator has been defined under Section 65(115) ibid to mean ‘any person engaged in the business of planning, organizing or arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport, and includes and person engaged in the business of operating tours in a tourist vehicle covered by a permit granted under the Motor Vehicle Act, 1988 (59 of 1988) or the rules made thereunder. On a conjoint reading of clauses 113 and 115 of Section 65 ibid, it reveals that the person providing business of planning, scheduling, organizing or arranging tours should fall under the ambit of taxable category of Tour Operator Service for the purpose of payment of service tax. On perusal of the Circular No.347 dated 15.03.2005 issued by the appellant, which is placed at page 84 in the appeal memorandum, we find that various packages provided by the appellant are itemized therein, which are extracted herein below for ease of reference:

• • Goa Flyways are available ex-Ahmadabad, Bangalore, Bhavnagar, Chennai, Delhi, Hyderabad, Jaipur, Jamnagar, Kolkata, Kozhikode, Lucknow, Mumbai and Nagpur
  • The basic package being offered includes return airfare in economy class (point of origin to Port Blair and back), airport transfers, room meals as per plan and other add-ons. (please refer the Package Rate Inclusions Document for complete details).
  • The package cost has been worked out taken into account the Normal or Promotional Excursion/Round trip fare, wherever applicable.
  • Driver carrying a placard with passenger’s name will be waiting at the airport exit gate.
  • The packages between the cities mentioned in the annexure are valid, subject to the schedules between the concerned city pairs being operational, during the package period.
  • While booking a package, confirmation of seats on the entire itinerary must be ensured.
  • The payment for hotel stay in regard to children will be made directly to hotel. The applicable charge for children is mentioned in the Package Rate Inclusions Document. Airfare is payable extra.
  • Infants below the age of 2 years will be accommodated by the hotel on complimentary basis Airfare is payable extra.

6. On perusal of the package features mentioned in the above Circular, it transpires that the appellant is not providing any consultancy in the nature of planning, scheduling, organizing and arranging tours on behalf of a particular tour for the passengers. Thus, the activities provided by the appellant will fall outside the scope and ambit of Tour Operator Service. We find that this Tribunal in the case of Jet Airways India Ltd. (supra) has held that various tour packages provided by the airlines to the passengers (similar to the package offered by the appellant) shall not be covered under the purview of Tour Operator Service. The relevant paragraphs in the said decision are extracted herein below.

“6.1 It can be seen from the above reproduced definition that the said definition would cover a person who is engaged in the business of planning, scheduling, organizing or arranging tours and who is engaged in the business of operating tours in tourist vehicle or a contract carriage. As already produced herein above, appellant is operating “airlines” which undertakes transportation of passengers by air. In order to enhance their business of selling airline tickets, appellant had offered “Jet Escapes Packages to their passengers for a specified destination. On perusal of “Jet Escapes Package details as downloaded from website, we find that the said advertisement specifically states that “Return air travel in Economy class, inclusive of taxes, Airport transfers, Hotel accommodation with breakfast, sightseeing as applicable” but does not indicate that they would plan, schedule or organize the tours for the passengers. Further the definition also mandates for the services to be rendered by persons engaged in business of operating tours in a tourist vehicle or a contract carriage. It is on record that the passengers when they want to opt for “Jet Escapes Package”, organize own travel dates and appellant is not helping them in planning or organizing or scheduling of tours. We find that though not on the very same issue, this Bench in the case of Divisional Controller (supra) was considering the services rendered by the appellant therein as to whether this service would fall under the category of Tour Operator Services”. The appellant in that case was providing contract carriage and stage carriage to various individuals/customers and it was considered as the said service would fall under the category of Tour Operator Service”. The Bench after considering the definition as was during the relevant period held as under.-

“6.1 We have considered the rival submissions. Undisputedly the period involved in this case is from 1-4-2001 to 31­3-2008. The definitions of Tour Operators at the relevant period are reproduced hereunder for convenience of reference.

(i) the position from 1-4-2000 to 9-9-2004 ‘any person engaged in the business of operating tour in a tourist vehicle covered by a permit granted under the Motor Vehicles Act, 1988.

(ii) the position from 10-9-2004 onwards: ‘persons who are engaged in the business of planning, scheduling, organizing or arranging tours by any mode of transport and includes any person engaged in the business of operating tours in a tourist vehicle.

6.2 From the records we find that the assessees are only renting their vehicles. We also find that the department could not bring out on record that the assessees are engaged in the business of planning, scheduling, organizing or arranging tours. In these circumstances, the assessees cannot be termed as tour operators. Therefore, the demands of Service Tax against them are not sustainable in law. As the demands are not sustainable, the penalties also do not survive. In these circumstances, the assessees” appeals are allowed and the Revenue’s appeals are dismissed.”

6.3 The leamed departmental representative’s reliance on the judgment of the Tribunal in the case of Cox and Kings (supra), we find that the said judgment may not take the Revenue’s case any further inasmuch as the issue involved in that case was an outbound tours i.e. tours emanating from India and being sightseeing tours to various countries beyond India would fall under the category of tour operators service and would be considered as not taxable as they are consume beyond the territory of India. We find the facts in that case was totally different but the Bench has recorded that planning, scheduling and organizing tours are not taxable services is also irrelevant. In the case in hand as we have recorded above the appellant herein has not planned, scheduled or organized tours for their passengers. In our considered view the ratio of this Tribunal’s judgement in the case of T.N. State Trans. Corpn. Kumbakonam Ltd. (supra) will be applicable in the case in hand and we have to hold that the appellant is not covered under the category of tours operator service”.”

7. The judgment of Hon’ble Allahabad High Court in the case of Touraids (I) Travel Services (supra) relied on by the Ld. AR is distinguishable from the facts of the present case inasmuch as the judgment referred to the pre-amended definition of Tour Operator Service effective upto 10.09.2004 where the transportation was confined to the services concerning transportation and not relating to the air travel with ancillary features of providing accommodation and other facilities. Further, the features discussed in the definition of Tour Operator Service, namely, planning, scheduling, organizing and arranging tours have not been specifically dealt with by the Hon’ble High Court in the said decided case.”

9.2. As the issue has already been settled by this Tribunal in the appellant’s own case for an earlier period in the decision cited supra, in these circumstances, we hold that the activity of providing tour packages does not fall under the category of Tour Operator Services. Accordingly, we hold that the appellant is not liable to pay Service Tax under the category of “Tour Operator Service”.

9.3. However, we find that on the above activity, the appellant has paid Service Tax by availing abatement. Admittedly, the appellant has collected Service Tax from its customers and paid thereof claiming abatement. Thus, the same is not refundable to the appellant.

10. Another demand of Rs.13,59,238/- has been confirmed against the appellant under the category of “Airport Service” for the Financial Years 2008-09 and 2009-10. As submitted by the appellant, “Airport Service”, under Section 65(105)(zzm) of the Act, up to 01.07.2010 means any service provided to any person, by an airport authority or any person authorised by such authority, in an airport or civil enclave. Admittedly, in this case, the appellant is not a person authorized by the airport authority. Therefore, the activity undertaken by the appellant does not fall under the category of Airport Service.

10.1. The above definition was amended w.e.f. 01.07.2010, whereas whole of the demand in question pertains to the period prior to that.

10.2. The same issue has also been dealt with by the Tribunal in the case of Commissioner of Service Tax, Mumbai-I v. Soft Touch Aviation [2016 (4) TMI 986 – CESTAT, Mumbai]. wherein it was held as under: –

“6. The facts of the case, which are not under dispute, are that the respondent is providing various services to M/s. Jet Airways (I) Pvt. Ltd. under a contract between both of them. As regard the services, the Airport Authority of India has not role whatsoever in providing the services and receiving the same by M/s. Jet Airways (I) Pvt. Ltd. This shows that the services provided by the respondent were not authorized by Airport Authority of India to be undertaken. The service provider is the respondent and the service recipient is M/s. Jet Airways (I) Pvt. Ltd. The Airport Authority of India has no role in providing the said services. The services can fall under the “Airport Services” if it fulfill the ingredients provided in the definition of “Airport Services”, which reads as under :

Section 65(105)(zzm). – ‘Taxable Service’ means any service provided to any person by Airport Authority or any person authorized by it, in an airport or civil enclave.

As per the plain reading of the above definition of Airport service, the services provided by two categories of persons, will fall under Airport services, i.e.

(a) Service provided by airport authority, or

(b) Service provided to any person authorized by airport authority, in any airport or civil enclave.

In the present case, Revenue’s contention is that the respondent is covered under the category (b) above on the ground that the respondent provided services as per authorization by Airport Authority. As per the facts of the case, it is M/s. Jet Airways (I) Pvt. Ltd., who assigned the job of various services to the respondent. The Airport Authority has no role as regard provision of services by the respondent to M/s. Jet Airways (I) Pvt. Ltd. At the most, Airport Authority’s role is to permit the respondent for undertaking their services to the recipient M/s. Jet Airways (I) Pvt. Ltd.

6.1 In our view, the terms ‘services provided to any person by any person who was authorized by Airport Authority’ means the services which are otherwise to be undertaken by Airport Authority is out sourced by Airport Authority for provision of services in the airport shall be covered under “Airport Services”, that means even a person is authorized to undertake the service in the airport, the service should be undertaken on behalf of Airport Authority. In the present case, the respondent is providing the services directly to M/s. Jet Airways (I) Pvt. Ltd. which is not on behalf of Airport Authority. The contract and terms thereof are decided by both, i.e., by the respondent and M/s. Jet Airways (I) Pvt. Ltd., therefore, it cannot be said that under this arrangement, Airport Authority has authorized the respondent to provide the services.

6.2 We have perused the D.O.F. No. 334/1/2010-TRU, dated 26-2-2010, wherein the explanation of the airport services before amendment thereto and after amendment was given as under :

The definitions of the taxable services, namely the “Airport Services section 65(105)(zzm), the ‘.Port Services’ section 65(105)(zn) and the ‘Other Port Services’ section 65(105)(zz)] are being amended to provide that –

(a) all services provided entirely within the airport/port premises would fall under these services, and

(b) an authorization from the airport/port authority would not be a precondition for taxing these services.

From the above explanation of D.O.F., it became clear that prior to definition of “Airport Services” in the Finance Bill, 2010, the services provided by any person in the airport by authorization of Airport Authority was covered under the definition of “Airport Services”. However, subsequent to amendment the scope of airport services was enlarged and post amendment, service provided, whether it is by authorization or otherwise, covered under the definition of “Airport Services.” This clarification makes it clear that prior to amendment, if a person provides the services in the Airport, it must be authorized by Airport Authority, else the same will not be covered under Airport services. The ld. Commissioner in his findings made it very clear that the respondent of services does not fall under airport services. The findings of the impugned order are reproduced below :

“7. I have gone through the records of the case and submissions made it the grounds of appeal. The issue involved here is whether the services offered by the appellants to M/s. Jet Airways (I) P. Ltd. for providing various ground services, such as housekeeping, loading/unloading of cargo, aircraft cleaning, provision of ground service equipments and arranging for manning of ground transportation fall under the category of Airport services. The period involved in this case is between 10-9-2004 to 30-4-2005.

During this period, the definition of ‘Airport Service’ read as under –

‘Taxable Service’ means any service provided to any person by Airport Authority or any person authorized by it, in an airport or civil enclave.

8. The definition very clearly states that the service has to be rendered by the airports authority or by a person authorized by the airport authority. In this case, even though the services have been exclusively used in the airport, the adjudicating authority does not bring out any evidence to show that the services had been rendered on behalf of the airports authority by the appellants or authorized by the airport authority. It is on this ground alone the demand confirmed by the adjudicating authority is liable to be set aside.

9. The findings of the adjudicating authority that all services provided in airport are taxable services without referring to the fact that in terms of definition they are required to be provided only by the airport authority or a person authorized by it, cannot be upheld, as it is based on incomplete interpretation of the definition of Airport services. The requirement of services being provided by the airports authority or by a person authorized by it has been removed only in the Budget 2010 when the definition of airport services was amended to comprehensively cover under its ambit all services provided within the airport whether or not such activities were authorized by airports authority. At the relevant time however, such services could not be classified as Airport Services even though they were rendered solely within the premises of the airport. This has been clarified vide letter D.O.F. No. 334/1/2010-TRU, dated 1-7-2010. In view of the above, the appeal filed by the appellants succeeds.

10. The impugned order is accordingly set aside and the appeal filed by M/s. Soft Touch Aviation allowed.”

From the above findings, it can be seen that the ld. Commissioner has correctly interpreted the definition of “Airport Services” and held that the services rendered by the respondent are not on behalf of the airport authority or authorized by airport authority.

6.3 We do not find any infirmity in the impugned order, hence the same is upheld.”

10.3. In the aforesaid decision in Soft Touch Aviation (supra), it has been held by the Tribunal that prior authorization condition is the pre-condition for taxation of services rendered by an assessee as Airport Service, which is missing in this case. Therefore, we hold that the charges collected by the appellant in this case do not qualify as Airport Service. In view of this, the appellant is not liable to pay Service Tax under the said category.

11. As both the issues involved have been decided in favour of the appellant, the entire demand of Service Tax is not sustainable and consequently, penalty is also not imposable on the appellant.

12. In view of this, we set aside the impugned order qua confirmation of the demand, along with interest and penalties, and allow the appeal, with consequential relief, if any.

(Order pronounced in the open court on 27.02.2026)