Pallav Gupta

The Finance bill, 2014 brought a big sigh of relief to the Tourism Sector. The Central Government has tried to plug some anomalies prevailing in the act with this Finance Bill and the Tourism sector has also welcomed this budget warm heartedly.

Tour Operators are subjected to Service Tax as per Rule 9 of Place of Provision of Services Rules, 2012 under the head intermediary services, which provide as “ the place of provision of following services shall be the location of the Service Provider:-

a)      Service provided by banking company, or a financial institutions, or a non- banking financial company, to account holders;

b)      Online information and database access or retrieval services;

c)       Intermediary Services;

d)      Service consisting of hiring of means of transport, upto a period of one month.

Tour Operators being a intermediary gets covered by Rule 9, and thus any service provided by the tour operator to foreign tourist in relation to tour conducted wholly outside India was chargeable to Service Tax, because the location of service provider was in India.

But Finance bill has plugged this anomaly and has provided that Services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted outside India are being exempted.

Implying that now w.e.f from 11th July, 2014 any services provided by any Indian tour operator to foreign tourist for tour wholly conducted outside India will not be chargeable to Service Tax, but if even one day of tour schedule is in India then such service shall be chargeable to Service Tax.

Secondly, there is a very common practice prevailing in the market that the Tour Operator (hereinafter referred as “Service Receiver” for clarity) in order to reduce the cost of tour package tends to avail services from well established Tour Operators (hereinafter referred as “Service Provider” for clarity) in different cities and states. However if the SR is availing the benefit of N/N 26/2012 dt. then he was not entitled to avail the CENVAT Credit of Inputs, Capital Goods and Input Services, and consequently the cost of package gets increased by the amount not availed as CENVAT.

Central Government finally understanding the need of the Industry and to promote tourism Industry, and w.e.f from 1st Oct 2014 has allowed the CENVAT Credit of Input Services of a Tour operator received by another Tour Operator.

To clear the whole thing let us take up an illustration.

Suppose ABC Tours Pvt. Ltd. (hereinafter referred as “SR”) situated in Delhi avails service from PQR Tours Pvt. Ltd. (hereinafter referred as “SP”) situated in Rishikesh for its client “M”. Now SP raises Invoice for Rs. 10,309/-(10000+10000*12.36%*25%) availing 26/2012 for package tour, and SR in turn raises an invoice for Rs. 15,463.50/-(15000+15000*12.36%*25%) also availing 26/2012 for package tour.

Case –I Present Scenario

ABC Tours Pvt. Limited will have to pay whole amount of Rs. 463.50/- to the credit of Central Government as no CENVAT is available.

Case –II Scenario after 1.10.2014

ABC Tours Pvt. Limited will pay Rs. 154.50/-(463.50-309.00) only to the credit of Central Government, after utilizing the benefit of CENVAT credit availed from PQR’s Invoice.

I would like to bring it to the attention that this benefit is applicable from 1st Oct 2014 and is only available for CENVAT Credit on Input Services.

Extract N/N 26/2012 is given for your kind perusal and the provision of this notification with respect to CENVAT availment will be applicable from the current date upto 30th Sep 2014.

11  Services  by a tour operator in relation to,-(i)  a package tour 25

(i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.

(ii) The bill issued for this purpose indicates that it is inclusive of charges for such a tour.

(ii)  a tour, if the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour  10

(i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.

(ii) The invoice, bill or challan issued indicates that it is towards the charges for such accommodation.

(iii) This exemption shall not apply in such cases where the invoice, bill or challanissued by the tour operator, in relation to a tour, only includes the service charges for arranging or booking accommodation for any person and does not include the cost of such accommodation.

(iii) any services other than specified at (i) and (ii) above. 40

(i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.

(ii)The bill issued indicates that the amount charged in the bill is the gross amount charged for such a tour.

Hope this will resolve your issues to an extent. For any further queries please contact at pallavguptapg@gmail.com.

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Category : Service Tax (3401)
Type : Articles (17822)
Tags : Budget (1957) Budget 2014 (172)

0 responses to “Finance Bill 2014 – A Delight For Tour Operator”

  1. ca varun singh says:

    please tell me meaning of abedment of service tax and meaninf of service tax utilize ans service tax taken.its urgent

  2. Karan Jain says:

    I want to seek an advise on following query:

    ABC Ltd. is a tour operator company paying service tax through abatement.

    From 1st April, ABC will also receive rental income here my query is “can abc ltd. avail the benefit of cenvat credit to adjust output service tax on rental income.
    If yes then to the what extent.

    Thanks in advance.

  3. Pallav says:

    @ CA Vikas Sir,
    Sir with due respect i beg to differ bit as, tour operators being an intermediary are not changing the prices but are charging their charges as commission or by whatever name you may call on the bill, and that is the only reason Central government has made CCR available to the Tour operators of the services availed by tour operators.

  4. CA Vikas Vishwakarma says:

    I disagree to some extent.
    Even though as per the examples given in Education Guide for an ‘intermediary’ includes ‘Tour Operators’; there are other parameters defined in the Education Guide for being considered as an ‘intermediary’ that should be looked into.
    All such conditions such as the ‘not being able to modify the price, etc.’ would generally not be satisfied by a ‘Tour Operator’.

  5. CA Neeraj Singh says:

    Thanks for sharing the valuable updates with example.

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