TRANSPORTING EMPLOYEES TO FACTORY AND TRANSPORT OF GROUPS TO CHOICE DESTINATION CANNOT BE HELD AS CONDUCTING PACKAGE TOUR UNDER 'TOUR OPERATOR' SERVICE

[Mr. M. GOVINDARAJAN]

Prior to 10.09.2004  the terms 'tour operator' means as any person engaged in the business of operating tours in a tourist vehicle covered by a permit under the Motor Vehicles Act, 1988 (59 of 1988) or the rules made there under.

The terms 'tour operator' are defined under Section 65(115) of the Finance Act, 1994, after incorporating the amendment vide Finance Act, 2004 and substituted by Finance Act 2008,  as 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 or a contract carriage by whatever name called, covered by a permit, other than stage carriage permit, granted under the Motor Vehicles Act, 1988 (59 of 1988) or the rules made there under.  The expression 'tour' does not include a journey organized 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.

The Department issued clarification in its Circular No.80/10/2004-ST, dated 17.09.2004 as follows:

20. Extension of tour operator service to package tour operators using different mode 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. 39/97-ST) in case of package tour operators (providing transportation and accommodation) would remain at 60%.

Before coming to a conclusion as to whether a service provided by a transport operator comes under the package tour it should be ensured as to whether the conditions stipulated in the definition for 'tour operator' are fulfilled. Mere transporting employees to factory and transport of groups to choice destination cannot be held as conducting package tour as held in 'Tamil Nadu State Transport Corporation (Kumbakonam) Limited V. Commissioner of Central Excise, Trichy' - [2009 -TMI - 33132 - CESTAT CHENNAI]

In this case the appellant ('TNSTC' for short), a State Government undertaking deployed its buses for transport of employees of BHEL, Trichy from various points in Trichy to the factory of BHEL and back under an agreement they had entered into with BHEL. Similar services were rendered to groups of people for tour to various places. The liability of  TNSTC to pay service tax for the aforesaid activity during the period 1.4.2000 to 30.9.2004 under the category of tour operator was adjudicated by the Additional Commissioner vide his Order-in-Original No.23.12.05. In this order it was held that during the material period tours conducted using 'tourist vehicles' as defined in Clause (43) of Section 2 of the Motor Vehicles Act, 1988 read with Rule 128 of the rules framed there under alone attracted service tax under the category of 'tour operator'    In passing the said order he relied on the judgment of the High Court, Madras in 'Secretary, Federation of Bus Operators Association V. Union of India' - 2006 (2) STR 411 (Mad) in which the Court held that unless the vehicles used for conducting the tours were 'tourist vehicles' in terms of Section 2(43) of the Motor Vehicles Act read with Rule 128 of the rules framed under, liability to service tax under the Finance Act,1994 was not attracted.

The definition of 'tour operator' was amended with effect from 10.9.2004.  In the wake of amendment to the definition of tour operator a show cause notice dated 18.04.2006 was issued to TNSTC proposing to recover service tax from TNSTC as tour operator for transporting employees of BHEL to their factory and back and also for transporting groups of people to desired destinations during the period 1.10.04 to 31.12.2005. Adjudicating the show cause notice the original authority held that an amount of Rs.8,94,360/- was due from TNSTC towards tour operator service rendered during the material period along with the applicable interest. A penalty of Rs.1000/- was imposed under Section 77 of the Act and penalty at the rate of Rs.100/- per day for the delay in pay the tax was imposed under Section 76 of the Act. The Commissioner (Appeals) affirmed the order of the original authority. In his order he found that with effect from10.9.2004, persons engaged in the business of planning, scheduling, organizing or arranging tours by any mode of transport were covered within the purview of the tour operator in addition to those categories of service providers who stood covered by the existing provisions till then. He also found that the appellants had misunderstood the clarifications issued by the Board in its Circular No. 80/10/2004-ST, dated 17.9.2004. The said circular had clarified that the scope of levy as regards 'package tour' was extended by removing the limitation regarding transportation by tourist vehicles only. Such tour operators would also be subject to service tax irrespective of the mode of transport used during such tours.

In the appeal the appellant contended the following:

> The liability of the service providers like the appellants was not altered by the changes introduced with effect from 10.09.2004;

> The charge of suppression could not be sustained against them;

> The penalties imposed as well as the demand of interest were not sustainable;

> The buses of the appellants are issued with stage carriage permit. They were not tourist vehicles and did not possess tourist permit. Their vehicles were used for transport of members of the public from place to place and were not tourist vehicles.

The tribunal after hearing both sides observed that w.e.f. 10.09.2004 the scope of the levy of service tax was expanded to include tours operated by 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. The circular specifically states that with the enactment of Finance Bill, 2004 'tour operator' service, among others, was expanded to include such package tour operators who organized tours involving different modes of transport. Therefore engaging in transport of employees of BHEL from various points in the town to BHEL factory and in transport of groups of people to choice destinations would attract the levy of service tax only if they are packaged tours. The tribunal held that the appellants cannot be held to have conducted packaged tours (which are planned, organized or arranged by TNSTC). TNSTC did not engage in planning, scheduling, organizing or arranging tours.  They only provided transport. In the circumstances the liability of TNSTC to service tax under tour operator service found by the lower authorities is not in accordance with the law. The tribunal set aside the impugned order and allowed the appeal.