FEBRUARY 08, 2017

By Ankit Kanodia, CA, FCA, LLB

SINCE the introduction of tour operator services in September, 1997 as defined under section 65(105)(n), the law relating to taxability of such services has been amendment at various time. The latest one being the amendment introduced vide Notification 04/2017-ST dated 12th January 2017 w.e.f. 22/01/2017 to amend Notification 26/2012 ST dated on 20th June 2016. to rationalize the abatements scheme for tour operator. A comparative picture of the same is given below:

In the Table for Sl.No. 11 and the entries relating thereto shall be substituted namely

Thus, earlier there was an abatement of 90% in case of tours, only for the purpose of arranging or booking accommodation of any person and 70% in any other cases. However as per the amended Notification there is an abatement of 40% in all the cases w.e.f. 22/01/2017. Thus the effective rate of tax has increased to 9% now (i.e. 60% of 15%).

How ever the condition as to availment of cenvat credit has also been rationalised wherein from 22/01/2017, tour operators would be allowed to avail the cenvat credit of input services utilised for providing such services. Thus, service tax paid by the tour operators on expenses would be allowed to be used for payment of output service tax liability. However the credit of input services is governed by Cenvat Credit Rules and Rule 2(l) defines input services. As per Rule 2(l) input services mean any service,-

(i) used by a provider of OUTPUT service for providing an output service; or

(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,

and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal;

but excludes,-

(A).........................................;

[(B) "services provided by way of renting of a motor vehicle", in so far as they relate to a motor vehicle which is not a capital goods; or

(BA).................................

(C)..............................................."

Thus, from the above definition it is clear that what has been excluded from the definition of input service is the services by way of rent-a-cab insofar as they are in relation to a motor vehicle which is not a capital goods.

Also, as per Notification No. 26/2012-ST dated 30/06/2012 as amended for renting of motor cab service an abatement of 60% is provided that CENVAT credit on input service of renting a motor cab has been taken under the provisions of the CENVAT Credit Rules, 2004, in the following manner :

(a) Full CENVAT credit of such input service received from a person who is paying service tax forty percent of the value; or

(b) Up to forty percent CENVAT credit of such input services received from a person who is paying service tax on full value;

Thus, when renting of motor vehicle service is itself is provided under the exclusion clause of the definition of input service, then for a tour operator working as a tour operator and availing services of renting of motor cab, the service tax charged by renting of motor cab vendor (or paid under reverse charge by the tour operator), seems to be not eligible as input service credit to the tour operator. The credit may be eligible only when the tour operator is also registered as a rent a cab service provider and has a liability under the same head.

Necessary clarifications may be issued by the Board.

(The views expressed are strictly personal)