Synopsis The authors in this feature have highlight the scope of the definition “tour operator” for taxability of outbound tours and evaluated the definition in two parts i.e. operating and arranging tours and planning, scheduling, organizing or arranging such tours. The authors analyse how the principles of apportionment are essential to determine the taxability of several operations in the composite transactions which have some operations in one territory and some in others.
Introduction:
The service of tour operators was introduced as a taxing entry in the Finance Act, 1994 (the Act) with effect from 01-09-1997. ‘Tour’ in section 65(113) of the Act is defined as:
“A journey from one place to another irrespective of the distance between such places”.
The definition of tour operator however underwent amendment thrice of which the last two definitions are reproduced below:
10-09-2004 to 15-05-2008: 65(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 (59 of 1988) or the rules made thereunder.”
16-05-2008 to 30-06-2012:
65(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.”
Taxable service in relation to this service as contained in section 65(105(n) reads as follows: “
“taxable service” means any service provided or to be provided to any person, by a tour operator in relation to a tour.”
Typically in travel and tourism industry, a bouquet of services is provided to a variety of customers. There are different taxing entries in relation to these services viz. air travel agent, tour operator service, travel agent, rail travel agent etc. Tours are often provided by way of a package also. These packages can be broadly classified into domestic tours, inbound tours and outbound tours. Whereas the first two categories do not pose much debate as service tax is by and large paid by the tour operators for these kind of tours; it is the third category of outbound tours requires examination of relevant legal provisions and analysis thereof as in this case, the service provider viz. the tour operator organizes tours outside the territory of India for tourists from India. The tour is entirely performed outside India and on account of this, the disputes arise as to their taxability. Therefore the questions that require determination are:
• Considering the scope of the definition of “tour operator”, whether “outbound tours” are outside the purview of the taxable service as described in section 65(105)(h) of the Act?
• Whether the provisions of the Act have an extra territorial jurisdiction?
• Whether outbound tours amount to export of service? If the payment for the service is not received in convertible foreign exchange, whether the service is liable for service tax?
2013-TIOL-1907-CESTAT-DEL
Recently, in a set of five appeals filed with the Principal Bench, Delhi-CESTAT reported at 2013-TIOL-1907-CESTAT-DEL, Cox & Kings India Ltd. vs. Commissioner of Service Tax, New Delhi, the Division Bench comprising of President CESTAT and another technical member had an occasion to analyse the above questions, the discussion of which is summarised below:
In addition to the relevant definitions reproduced above, the Hon. Bench took note of the scope of Chapter V of the Finance Act, 1994 (service tax law or the Act) provided in section 64(1), the charging section 66 and section 66A of the Act and provided due consideration to various circulars issued by the Central Board of Excise and Customs (CBEC or the Board) on outbound tours brought on record by the appellants and/or dealt with in the orders-in-original, enumerated below:
• Madurai Commissionerate issued Trade Notice No.110/97 dated 28-08-1997 based on TRU clarification of 22-08-1997 to the effect that outbound tours would not attract service tax and that in case of composite tours combining tours within India and outside India, service tax will be levied only on services rendered for tours within India provided separate billing in such respect is done. It is to be noted here that the service of tour operator was exempted during 18-07-1998 to 31- 03-2000. So, after its reintroduction, TRU issued Circular No.1/2000 on 27/04/2000 clarifying again that outbound tour would remain outside the ambit of service tax liability.
Note: The original circular of 22-08-1997 was withdrawn vide Circular No.93/04/2007 of 10-05-2007 but Circular No.1/2000 of 27-04-2000 continued to remain.
• Board’s Circular No.36/4/2001-ST clarified that levy of service tax extends to the whole of India except Jammu & Kashmir and that the expression ‘India’ includes territorial waters of India (which would extend upto twelve nautical miles) and that Chapter V has not extended the service tax levy to designated areas in continental shelf and exclusive economic zone of India. Therefore services provided beyond territorial waters of India are not liable for service tax as service tax was not extended to such areas so far.
• Commissioner (Service Tax), CBEC vide his letter dated 12-10-2007 addressed to Commissioner of Service Tax, Delhi (in response to the latter’s inquiry) clarified the subject of levy of service tax on outbound tourism that the Board is of the view that tour operator located in India provides services to recipient located in India for planning, scheduling and organizing in relation to outbound tours. Such services would be taxable under the category of tour operator service as both service provider and service receiver are located in India and the service flows within the country. Accordingly, the place of supply of service is India and hence the service is taxable.
• On a somewhat different footing from the above reply dated 12-10-2007, the Board issued Circular No.117/11/2009 in the context of Haj and Umrah on leviability of service tax on tour operator’s service that Haj and Umrah pilgrimage is for service provided by the Government of Saudi Arabia and tour takes place outside India; that as per Rule 3(1)(ii) of the Export of Services Rules, 2005 (Export Rules), tour operator’s services would be treated as performed outside India if they are partly performed outside India and no service tax is chargeable on such tour undertaken outside India considering this as export provided they fulfil other conditions as provided in the said Export Rules.
The adjudicating authority found that in the ordersin- original, the Board’s clarification vide letter of 12-10-2007 (cited above) was not binding. However, the clarification being consistent with the service tax regime, outbound service was taxable from 10-09-2004. Since the service provider and the receiver are located in India, the service is deemed to be delivered to the recipient-tourist in India. Therefore, the condition of Export Rule is factually not fulfilled and thus the tour operator was not entitled to benefit under the Export Rules and consequently invocation of extended period of limitation, penalty, interest etc. also were confirmed.
In the background of the above dispute, the substantive issues that fell for consideration of the Hon. Bench were;
• The scope of “tour operator” defined in section
65(115) post its amendment from 10-09-2004 and whether the amendment altered the contours of the expression and to what extent.
• Whether “outbound tours” fall outside the pur-view of taxable service defined in 65(105)(h) of the Act.
The Tribunal’s observations are summarised as follows:
• Prior to 10-09-2004 and during 01-09-1997 to 31-03-2000 considering the definitions of tour and tour operator (provided above), the taxable activity was a service provided or to be provided to any person by a person who holds a tourist permit granted under the rules made under the Motor Vehicles Act, 1988 (MV Act) for undertaking a journey from one place to another of any distance. During 01-04-2000 and
09-09-2004, the definition of “tour operator” was expanded to mean that operating of tours viz. activities/services of facilitating a journey by any other person from one place to another in a tourist vehicle covered by a permit under the MV Act or rules made thereunder was a taxable service.
• On further expansion of the definition of tour operator from 10-09-2004, a person engaged in the business of planning, scheduling, organising or arranging tours (which may include arrangement for accommodation, sightseeing or other similar services) by any mode of transport is a taxable service. The amended definition also has an inclusive clause whereby a person engaged in the business of operating tours in a vehicle covered by a permit granted under the MV Act would come within the fold of “tour operator”. Thus, the first part of the definition does not include the business of operating tours by any mode/all modes of transport. If it was included, in view of the Bench, there was no necessity to incorporate the specific inclusionary part or it would amount to a surplusage and attribution of surplusage in legislative drafting must be avoided. Consequently, the only possible interpretation of the definition would be that where a person is engaged in a composite activity of operating tours as well as planning, scheduling, organising or arranging such tours by any mode of transport other than a tourist vehicle, such activity falls outside the scope of the definition of “tour operator”. However, the activity of “planning, scheduling, organizing or arranging tours” including operating tour in a tourist vehicle covered by the permit under the MV Act falls within the ambit of tour operator as a consequence of the inclusionary clause.
• In the case under examination, the concerned assessees are engaged in a composite activity of both “planning, scheduling, organising or arranging tours” other than by a tourist vehicle (permitted under the MV Act) and in operating such tours as well. The outbound tours whereby Indian tourists are provided services in relation to tourism outside the Indian territory, no part of the journey would be in a tourist vehicle as defined in the law. The commencement and conclusion of the journey is generally by air-transport and besides scheduling the tour package, operating the tour, fixing probable dates and venues, the itinerary, booking accommodation in hotels abroad, travel arrangements for various destinations, sightseeing, boarding, providing guide, air-ticketing, arranging visa, travel insurance etc. clearly constitute operations of tour in addition to planning, scheduling, organising or arranging tours. The nature of the composite services in relation to outbound tours is thus outside the ambit of the definition “tour operator”. The Bench specifically observed that the nature of composite services provided by the concerned assessee in relation to outbound tours fall clearly outside the first facet of the definition; as amended from 10-09-2004.
• As regards the issue of extra-territorial reach and operation of the Act, the Tribunal’s view point is summarised below:
In All India Federation of Tax Practitioners vs. UOI 2007 (7) STR (SC), it was clarified interalia that service tax is a value added tax and which is a destination based consumption tax in the sense that it is on the commercial activities and not a charge on business but on the consumer and would logically be leviable only on services provided within the country and that performance based services like tour operators provided services outside India. The Tribunal similarly observed that Full Bench of the Delhi High Court in Home Solutions Retails (India) Ltd. vs. Union of India 2011
(24) STR 129 (Del) reiterated the doctrine that service tax is a levy on the event of service. The Tribunal in detail examined the judgment in Commissioner of Income Tax Bombay vs. Ahmedbhai Umarbhai & Co. (1950) SCR-335 as well as the Supreme Court’s observations in Ishikawajima-Harima Heavy Industries Co. Ltd. vs. Director Of Income Tax, Mumbai 2007 (6) STR 3 (SC) and the judgment in a recent case of G. D. Builders vs. UOI & Others 2013-TIOL-908-HC-DEL. It was observed in each of the judgments viz. Ahmedbhai Umarbhai (supra), Ishikawajima-Harima (supra) that it is essential for determining the taxability of several operations to apply the principle of apportionment to composite transactions which have some operations in one territory and some in others.
To bring home this point, the recent judgment in G. D. Builders vs. UOI & Others (supra) was referred to wherein as a corollary of the said position was followed that a composite contract involving labour and deemed sale of goods could be vivisected to levy service tax on the element of service.
Summarising its conclusion, the Hon. Bench held that qua the text and context of the provisions of the Act, it is clear that service tax is a destination based consumption levy. Taxable event in all events, qua the provisions of the Act and specifically the provisions of section 65 is on the provision of taxable service. Therefore, when a service is provided and consumed outside the territorial locus of the Act, the consideration thereof would not be exigible to the levy of service tax under the substantive and procedural provisions. The final remarks in para 17(m) are reproduced below:
“(m) On the aforesaid analysis we conclude that the consideration received for operating and arranging outbound tours, even if falling within the scope of the amended definition of “tour operator”; (provided by the assessees and consumed by their tourist customers beyond Indian territory), is not liable to levy and collection of service tax, under provisions of the Act. We hold that provisions of the Act do not have an extra territorial operation. The conclusion and analysis on this issue [Issue No. (b)] is without prejudice to our analysis and conclusion on issue No. (a), that since the assessees had provided a composite service, of operating outbound tours apart from engaging in the business of planning, scheduling, organising or arranging such tours; and by a mode of transport other than in a tourist vehicle, the service falls outside the definitional locus of “tour operator” (vide the analysis on Issue (a), at para 17 supra).” [emphasis supplied].
Nevertheless, the Tribunal noted that whether the outbound tour amounts to export of service and is thus immune to levy service tax under the Export Rules is not decided and is left open or not found necessary in the ruling on the core issue.
Conclusion:
The issue is undoubtedly painstakingly dealt with by the Tribunal. Having allowed the assessee’s appeal, it remains to be seen whether the Revenue accepts the same or further litigates the matter. However, the above would be of little help to tour operators in the scenario post July 01, 2012 i.e. negative list based taxation because under the Place of Provision of Services Rules, 2012 (which have been brought in operation in place of Export Rules and Taxation of Services (Provided from Outside India and Received in India) Rules, 2006), tours performed outside India are considered as provided in taxable territory and therefore liable for service tax.
