By TIOL News Service

NEW DELHI, DEC 26, 2013: SHOW cause notice was issued on 17.4.08 alleging a turnover of Rs.127 ,52,00,167 /- during the period 10.9.04, 30.9.07; proposing levy of service tax of Rs . 14,64,72,548/-. Extended period of limitation was invoked for initiating proceedings, alleging intentional and wilful suppression of facts as to providing the taxable service, of outbound tourism; failure to remit service tax and in not filing the prescribed ST-3 returns, with an intent to evade tax;

By the order dated 31.3.2010 in Order-in-Original No.21-RDN /2010, the Commissioner ST, Delhi passed the adjudication order levying service tax, interest and penalties as specified.

Tribunal's observations and analyses :

The assessees operate and facilitate outbound tours whereby Indian tourists are provided services in relation to tourism outside the Indian territory , to visit foreign locales. No part of the journey, (commencing from India or on return to India after conclusion of the tour) is in a tourist vehicle. The commencement of outbound journey or the conclusion of the tour at the Indian destination is normally by air transport, to and from a foreign location. It is asserted by the assessees , an assertion that is not disputed by Revenue, that the facilities provided by each of the assessees includes providing a tour leader to accompany the touring party throughout the tour; besides scheduling the tour package, operating the packaged tour, fixing the probable dates and venues, the itinerary; booking accommodation in hotels at foreign locations; planning and arranging travel through various modes in foreign locations; sightseeing, boarding and lodging abroad; providing foreign guides, air ticketing and arranging visa and travel insurance etc. These activities clearly comprise operating the tour, in addition to planning, scheduling, organising or arranging the tour.

Do provisions of the Act have an extra territorial reach and operation? Qua the text and context of provisions of the Act, it is clear that service tax is a destination based consumption levy. The taxable event, in all events, qua the provisions of the Act, in particular provisions of Section 65, is on provisions of a taxable service. Thus, where a service is provided and consumed outside the territorial locus of the Act, the consideration received therefor would not be subject to levy of service tax, under the substantive and processual provisions of the Act.

In respect of the services provided by the assessees for booking of passage for travel by air from India, they were assessed to and service tax levied and collected under the taxable category of "air travel agent". It is only in respect of services provided for outbound tours; at foreign locations and on the consideration received therefor, that the present proceedings relate to.

Vivisection : it is clear that even composite transactions involving a raft of apparently taxable services are susceptible and ought to be, vivisected, to ascertain which of the services or components thereof fall within the ambit of the Act and which services fall outside such ambit. As services provided for outbound tours are provided and consumed outside the Indian territory; are beyond the province and purview of the provisions of the Act, the consideration received which corresponds and is relatable to services provided outside the Indian territory require to be excised by applying the doctrine of apportionment. On such vivisection, the consideration attributable to services provided outside the Indian territory must be excluded, as this is not subject to levy and collection of service tax, under provisions of the Act. This conclusion is also the logical corollary of the non- derogable premise that service tax is not a tax on the pursuit of the profession of providing a taxable service but is a tax on the provision of a taxable service, a destination based consumption tax .

Section 65(105((n) specifies the taxable service to be a service provided or to be provided to any person, by a "tour operator" in relation to a tour. Section 65(113) defines "tour" as a journey from one place to another irrespective of the distance between such places. In this view of the statutory definition of "tour", considered in the context of the legal position demarcating the limits of the application and reach of provisions of the Act, it is clear that a journey from one place to another beyond the territorial limits of India, even if amounting to an activity comprised within the ambit of the definition of "tour operator", would not amount to a taxable service under the provisions of the Act.

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. The provisions of the Act do not have an extra territorial operation.

Invocation of the extended period of limitation is unjustified: In view of decisions of the Supreme Court in Padmini Products vs. C.C.E . - (2002- TIOL -289-SC-CX) ; in C.C.E . vs. Chemphar Drugs and Lintments - (2002- TIOL -266-SC-CX); and in Uniworth Textiles Ltd. vs. C.C.E . Raipur - (2013- TIOL -13-SC-CUS) , mere non-remittance of tax on the consideration received on outbound tours cannot amount to suppression or misstatement of facts or to an intention to evade tax. In order to constitute suppression, some positive action disclosing an intention to evade tax or deliberately default in the remittance of tax, is necessary.

Invocation of the extended period of limitation, invoking the proviso to Section 73(1) of the Act, is unjustified. Accordingly, the impugned orders of assessment would be valid only to the extent of the normal period of limitation, under Section 73 of the Acts.

Adjudicating Authority seeking advice : In the adjudication order, the adjudicating authority referred to a clarification letter dated 12.10.2007 issued by the Commissioner, Customs and Service Tax, purportedly issued by the CBEC . This clarification was in response to a letter dated 27.8.05 addressed by the CST, Delhi seeking guidance on the leviability of service tax on the outbound tourism. The 12.10.2007 letter states that the "Board" is the view that a service provided by an operator located in India to a recipient who is also located in India, for planning, scheduling, organizing in relation to tours outside India (outbound tourism) would be taxable under the category of "tour operator" service since the service provider and the service receiver are both located in India, the service flows within the country and accordingly the place of supply of the service would be India. After extracting this clarification and assuming it to be a clarification issued by the Board (in para 30.3), the adjudicating authority at para 30.4 while opining that Board Circulars may not be binding on quasi-judicial authorities such as himself, concluded that the Board clarification is in accordance with service tax Rules and Regulations, is not contrary to any Notification issued and is also applicable to the current circumstances. The authority concluded that outbound tours fall within the service tax net, with effect from 10.9.04. We find it disturbing that a quasi-judicial authority seeks administrative guidance on the interpretation and scope of a statutory provision which falls for his determination. Judicial or quasi-judicial determination authorizes no such solicitation for guidance on any aspect (of law or fact), to be decided by the authority. Even otherwise, the clarification set out in the letter dated 12.10.2007 is clearly an exposition of provisions of the Place of Service Rules, 2012 which have come in force w.e.f . 01.07.2012. Rule 8 of these Rules states that the place of provision of a service, where the location of the provider of the service as well as the recipient of the service is in the taxable territory, shall be the location of the recipient of the service. The 2012 Rules have no retrospective operation and could not have provided any guidance on whether prior to these Rules services provided in respect of outbound tours; where the service is both provided and consumed outside the Indian territory would be liable to service tax under the provisions of the Act.

Summary of the Tribunal's conclusions:

Definition of Tour Operator :

(a) "Tour operator" qua Section 65 (115) of the Act defines the expression in terms of two facets. The business of planning, scheduling, organizing or arranging tours by any mode of transport (including arrangement for accommodation, sightseeing; or similar services), including where the tour is by a tourist vehicle covered by a permit issued under the provisions of the Motor Vehicles Act, 1988 or the Rules made thereunder, is one facet of the definition. Operating of tours in tourist vehicle covered by a permit granted under the provisions of the 1988 Act or the Rules made thereunder (including the planning, scheduling, organizing or arranging of such tours) is another and a distinct facet of the definition. Within the scope of first facet of the definition, the activity of operating of the tour is excluded ;

(b) As a consequence of the interpretation of "tour operator" vide [a], where a person pursues a composite activity of operating tours and the planning, scheduling, organizing or arranging of such tours, by a mode of transport other than by a tourist vehicle (covered by a permit issued under the provisions of the Motor Vehicles Act, 1988 or the Rules made thereunder), such activity falls outside the scope of the definition of "tour operator";

Outbound tours beyond the scope of Service Tax .

(c) The consideration received for operating and arranging outbound tours (provided by the appellants and consumed by tourists beyond the territory of India) is not liable to levy and collection of service tax under the provisions of the Act, since the taxable event is the provision of a taxable service; and not the pursuit of the profession, of a taxable service providers. The Act authorizes the levy and collection of tax for providing a destination and consumption based taxable service but does not authorize levy and collection of tax, for a service provided and consumed beyond the Indian territory; and

The Tribunal Held :

(i) Planning and scheduling of outbound tours may not be components of services provided to tourists, would amount to an incidental activity undertaken as a prelude to providing tours and thus the service if at all provided is to the service provider itself. Nevertheless, since organizing and/or arranging of outbound tours are components of the service provided to tourists and these are the primary and substantive purposes of the service provided and consumed, the composite activity of planning, scheduling, organizing or arranging tours falls within the scope of the taxable service defined in Section 65(115) of the Act;

(ii) Whether an outbound tour amounts to export of service and is thus immune to levy of service tax, under the Export of Service Rules, 2005 is not decided and is left open, as not necessary in view of our ruling on other issues;

(iii) The assessees would be entitled to abatement benefits in terms of any exemption/abatement benefits provided qua Notifications issued by the Central Government under Section 93(1) of the Act, but subject to fulfilment of the conditions enjoined in such Notifications ;

(iv) Invocation of the extended period of limitation , for assessment and levy of service tax, interest and penalties is unjustified. Levy and collection of service tax, interest and penalties within the normal period limitation would however be valid ;

(v) Imposition of penalties , in the circumstances of the lis is unjustified. No penalties could be imposed; the statutory discretion under Section 80 of the Act is applicable in the facts and circumstances of the cases; and ought to be invoked.