Central Board of Excise & Customs (CBEC) have issued notification No. 03/2017-ST and 04/2017-ST on 12th January, 2017. We have analysed the changes/ amendments made through the said notifications in this alert.
Through this notification, the service provided or agreed to be provided by way of transportation of goods by vessel from a place outside India up to the custom station of clearance in India shall be covered under complete Reverse Charge Mechanism where service receiver is liable to pay 100% service tax.
For this purposes, Service Receiver shall be the person in India who complies with section 29, 30 or 38 read with section 148 of the Customs Act, 1962 with respect to such goods. In other words, in respect of services provided or agreed to be provided by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India, person liable to pay service tax shall be the person who is getting the goods cleared from Customs.
Through this notification, the abatement available to Tour Operators has been changed effective 22nd January, 2017. Before analysing the above-said change in detail, the existing provisions of abatement available to tour operator (as extracted from notification no.26/2012-ST) are given below:
|Sr. No.||Description of taxable service||% of total value on which tax is payable||Condition|
|11||Services by a tour operator in relation to, –
(i) a tour, only for the purpose of arranging or booking accommodation for any person
|(ii) tours other than (i) above||30||
Amendments made vide notification no.04/2017 are given below:
|S. No||Description of taxable service||% of total value on which tax is payable||Conditions|
|“11||Services by a tour operator||60||
Analysis of Amendments
♥ Abatement Percentage
Under existing abatement scheme, abatement is available under two-sub categories:
Under Revised Scheme, Abatement of Flat 40% is available on the value in respect of All Services provided by the tour operator and there is no sub-category for providing services only in connection with booking of hotel accommodation. Effectively, service tax is to be paid on 60% Value of services.
♥ CENVAT Credit
Under existing scheme, CENVAT Credit on capital goods and Inputs are not available. Further Cenvat credit in respect of Input services is also restricted to the extent of those services on which service tax is paid to other tour operator.
Under Revised Scheme, only credit of Capital Goods and Input used in the provision of taxable service would not be allowed. That means, credit of service tax paid on ALL INPUT SERVICES used in the provision of taxable services shall be available to tour operator.
We would like to mention that taking the benefit of abatement notification is Optional and one may pay the service tax on Gross Value charged and can avail full CENVAT Credit under CENVAT Credit Rules, 2004 in respect of Input, Capital goods and Input services used in the provision of tour operator services.
Though the amendment in tour operator services looks like an effort to rationalise the Abatement rate of service tax for Tour Operators, however this shall surely disturb the financial models of tours and travel industry in the short term. Further since henceforth credit of all input services taken by Tour operator including from Hotels, guide fee, consultants, etc. would be available and this would reduce the cascading of taxes.