Custom, Excise & Service Tax Tribunal
M/S Cox & Kings India Ltd vs Cst, New Delhi on 10 December, 2013
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
West Block No.2, R. K. Puram, New Delhi, Court No. 1
Date of hearing: 16- 17.07.2013
Date of decision: 2013
For Approval and Signature:
Honble Mr. Justice G. Raghuram, President
Honble Mr. Sahab Singh, Technical Member
1
Whether Press Reporter may be allowed to see the Order for publication as per Rule 26 of the CESTAT (Procedure) Rules, 1982?
2
Whether it should be released under Rule 26 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3
Whether their Lordships wish to see the fair copy of the Order?
4
Whether Order is to be circulated to the Departmental authorities?
Service Tax Appeal No.915 of 2010
(Arising out of order in original No. 21/RDN/2010 dated 31.03.2010 passed by the Commissioner, Service Tax, Delhi).
M/s Cox & Kings India Ltd. Appellant
Vs.
CST, New Delhi Respondent
AND
Service Tax Appeal Nos. 1875 & 1900 of 2010
(Arising out of order in original No. 39/40/RDN/2010 dated 27.09.2010 passed by the Commissioner, Service Tax, Delhi).
M/s Cox & Kings India Ltd. Appellant
Vs.
CST, New Delhi Respondent
AND
Service Tax Appeal No. 1776 of 2012
(Arising out of order in original No. 12/AKM/CST (Adj.)/2011 dated 03.10.2011 passed by the Commissioner (Adjudication), Service Tax, Delhi).
M/s Travel Corporation of India Ltd. Appellant
Vs.
Commissioner (Adj.), ST, Delhi Respondent
AND
Service Tax Appeal No. 2033 of 2012
(Arising out of order in original No. 8/UG/DIV-1/2010 dated 31.01.2011 passed by the Commissioner, Service Tax, Delhi).
M/s Swagatam Tours Pvt. Limited Appellant
Vs.
Commissioner, ST, Delhi Respondent
Appearance: Shri V. Lakshmi Kumaran & Sh. J.K. Mittal, Advocates for the appellant
Shri Amresh Jain & Sh. Govind Dixit, DRs for the Respondent
Coram: Honble Mr. Justice G. Raghuram, President
Honble Mr. Sahab Singh, Technical Member
Final Order Nos. 58511 58515/ 2013
Per: Justice G. Raghuram:
Cox and Kings batch:
Heard Shri V. Lakshmi Kumaran and Shri J.K. Mittal, ld. Counsel for the appellants and Shri Amresh Jain and Shri Govind Dixit, ld. DRs for the respondent/ Revenue.. Whether the activity of providing services in relation to outbound tours, i.e. tours in locations outside the territory of India, including the operation of tours and the planning, scheduling , organising or arranging of such tours, falls within the ambit of tour operator service and is consequently subject to levy and collection of service tax under the provisions of the Finance Act, 1994 (the Act), is the core issue arising in these appeals.
2. Appellants are the assessees and have preferred the appeals against adjudication orders assessing specified liability to service tax and penalties, for having provided Tour Operator service. The relevant particulars in brief, of the appeals are set out in the following tabular form:
Appeal No.
Date of
adjudication order
Show
cause notice date
Period involved
Service tax Rs.
Penalty Rs.
ST/915/10
21/RDN/2010 dated 31.03.2010
17.04.08
10.09.04 to 30.09.07
5,25,29,187/-
1000/- u/s 77 &
52529187/-
ST/1875/10
39/40/RDN/ 2010 dated 27.09.2010
21.04.09
01.10.07 to 30.09.08
1,83,77,491/-
5000/- u/s Rs. 18377491/-
ST/1900/10
39/40/RDN/2010 dated 27.09.2010
29.03.10
01.10.08 to 30.09.08
1,29,26,665/-
5000/- u/s & Rs. 12926665/-
ST/1776/12
OIO No.12/ AKM/CST (Adj )/ 2011 dt.3.10.11
17.04.08
10.09.04 to 30.09.07
1,29,19,498/-
15000000/- u/s 78
ST/2033/12
OIO No.08/UG/ DIV-I/2010 dt.31.01.11
29.03.10
01.04.2008 to 30.09.2009
1,67,310/-
1000/- u/s 77, 167310/- u/s 78
The respective assessees in the above appeals are (a) M/s Cox & Kings India Limited (ST/915; 1875; and 1900/2010); M/s Travel Corporation of India Limited (ST/1776/2012); and M/s Swagatam Tours Pvt. Limited (ST/2033/2012).
3. The assessees are engaged in providing a bouquet of taxable services in relation to travel and tours, to a variety of customers. Cox & Kings India Limited is engaged in providing services such as air ticket bookings, operating tours and allied travel related services and is registered with the Service Tax Department inter alia under the category of Tour Operator service; Air Travel Agent service and Travel Agent service. Other assessees are engaged in similar activities, of providing packaged tours to customers, falling into three broad categories:
(a) Domestic;
(b) Inbound; and
(c) Outbound.
4. In the domestic category, tours are providing within India for Indian residents. The tours would commence, be wholly performed and terminate within Indian territory. Service Tax under the taxable category Tour Operator is remitted by the assessees in respect of domestic tours. This is not in dispute.
5. In inbound tours, tours are arranged within India for foreign tourists. The tour would commence, be wholly performed and terminate in India, but for the foreign tourist. Service tax, unless exempted was remitted for this category of service provided.
6. In outbound tours, assessees organise tours outside the territory of India, for Indian tourists. In this category, the tour is performed entirely outside India, to facilitate Indian tourists visit various locales, in territories outside India.
7. The dispute presented in the appeals before us is confined to outbound tours only.
8. Proceedings were initiated against the assessees, invoking the extended period of limitation under the proviso to Section 73(1) of the Act proposing assessment and levy of service tax, interest and penalties, for having provided the taxable Tour Operator service, by way of outbound tourism. After a due process the impugned adjudication orders ensued.
9. To the extent relevant material for the purposes of these appeals the facts; the statutory provisions and the contentions urged by the respective parties; the precedents and departmental circulars etc. relied upon in support of the competing contentions, in ST/915/2010 is considered by us as illustrative of the facts and circumstances and the relevant and operative legal profile applicable to all appeals. We therefore analyse the facts in ST/915/2010 as illustrative of the facts and issues in all the appeals.
10. Before we proceed with the analyses of the relevant facts and contentions presented for consideration, we set out the statutory context in which the dispute arises.
11. RELEVANT STATUTORY PROVISIONS:
(a) Tour Operator service was introduced as a taxable head in the Act, w.e.f. 01.09.1997, in Section 65(44). This provision defined the term Tour Operator as: a person who holds a tourist permit granted under the rules made under the Motor Vehicle Act, 1988. Section 65(113) of the Act defines Tour as meaning: a journey from one place to another irrespective of the distance between such places. While the definition of Tour remained static, unamended and is continued in Section 65(113), the definition of Tour Operator was shifted to Section 65 (115). The definition of also underwent several amendments.
(b) Section 65(105)(n) enumerates the taxable service as: any service provided (or to be provided) to any person, by a tour operator in relation to a tour. This provision also continues unamended, since its inception in 1997.
(c) During 18.07.1998 to 31.03.2000, this taxable service was exempt from the payment of tax, an exemption that was deleted w.e.f. 01.04.2000.
(e) Amendments of the definition of Tour Operator since 01.09.1997 require to be noticed:
(i) 01.09.1997 to 31.03.2000:
Tour Operator means a person who holds a tourist permit granted under the Rules made under the Motor Vehicles Act, 1988;
(ii) 01.04.2000 to 09.09.2004:
Tour Operator means any person engaged in the business of operating tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act, 1988 or the rules made thereunder;
(iii) 10.09.2004 to 15.05.2008:
Tour Operator means any person engaged in the business of planning, scheduling, organising or arranging tours (which may include arrangements for accommodation, siteseeing, 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 or the rules made thereunder; (amendments are emphasised).
(iv) 16.05.2008 to 30.06.2012:
Tour Operator means any person engaged in the business of planning, scheduling, organizing or arranging tours (which may include arrangements for accommodation, site seeing 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 88) or the rules made thereunder (amendments are emphasised).
(f) OTHER RELEVANT PROVISIONS OF THE ACT:
(i) Section 64(1) enacts, that this Chapter (Chapter V) extends to the whole of India except the State of Jammu and Kashmir; and sub-section (3) thereof provides that the provisions of the Chapter apply to taxable services provided on or after the commencement of this Chapter.
(ii) Section 66, the charging provision, authorises levy of service tax at the specified percentage of the value of the taxable service referred to in the enumerated sub-clauses of Section 65(105); and enjoins that the tax shall be collected in such manner as may be prescribed. Tour Operator, the taxable service enumerated in Section 65(105)(n) is among the taxable services specified in this provision.
(iii) Section 66A enacts that where any service specified in Section 65(105) is provided or to be provided by a person who has established a business or a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purposes of the section, be the taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of this Chapter shall apply. Other clauses of this provision are not relevant.
12. RELEVANT PROVISIONS OF THE STATUTORY RULES:
PLACE OF PROVISION OF SERVICES RULES, 2012:
The rules have into force from 01.07.2012. Rule 8 identifies the place of provision of services where the service provider and service recipient are located in the taxable territory; and reads:
Place of provision of services, where the location of the provider of service as well as that of the recipient of service is in the taxable territory, shall be the location of the recipient of service.
13. RELEVANT TRU AND BOARD CIRCULARS:
(i) 28.08.1997: The Madurai Commissionerate issued a Trade Notice No. 110/97 on the basis of a TRU clarification dated 22.08.1997. Para 2.6 of this notice clarifies that service tax on services rendered by Tour Operators is only on services rendered in India, in respect of a tour within the Indian territory; that services rendered by a Tour Operator in respect of outbound tourism i.e. for tours abroad does not attract service tax; that in case of a composite tour which combined tours within India and outside India, service tax will be leviable only on services rendered for tours within India, provided separate billing has been done by the Tour Operator for services provided in respect of tours within India.
(ii) 27.04.2000:The Pune Commissionerate issued a Trade Notice, to clarify the position regarding levy of service tax on Tour Operator service. Para 6.7 of this notice sets out the same position as in para 2.6 of the Madurai Commissionerates Trade Notice dated 28.08.1997.
(iii) 27.04.2000: TRU issued Circular No. 1/2000 dated 27.04.2000 reiterating the clarifications issued in the earlier Circular dated 22.08.1997, regarding exclusion of outbound tourism from the ambit of service tax liability, in fact in a verbatim reproduction of its earlier Circular dated 22.08.1997.
(iv) 08.10.2001: Board Circular No. 36/4/2001-ST clarifies that levy of service tax extends to the whole of India except the State of J&K; that the expression India includes the territorial waters of India; that Indian territorial waters extend upto twelve nautical miles from the Indian land mass; that Chapter V which governs the levy of service tax has not extended the levy to the designated areas in the continental shelf and the exclusive economic zone of India; and therefore the services provided beyond the territorial waters of India are not liable to service tax as provisions of service tax have not been extended to such areas so far.
(v) The Circular dated 22.08.1997 was apparently withdrawn vide the Circular No. 93/04/2007-ST dated 10.05.2007; but not TRU Circular No. 1/2000 dated 27.04.2000.
(vi) 12.10.2007: The Commissioner (Service Tax), under the letter head of the CBEC addressed the Commissioner of Service Tax, Delhi (in apparent response to the Delhi Commissioners letter date 27.08.2005), on the subject of levy of service tax on outbound tourism. Since this letter is referred to in the adjudication order, we extract the relevant portion of this letter:
2. The matter has been examined. The Board is of the view that the service provided by a tour operator located in India to a recipient, who is also located in India, for planning, scheduling and organizing in relation to a tour outside India (outbound tourism) would be taxable under the category of Tour Operator service. This view is based on the fact that service provider and service receiver, both, 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.
Yours faithfully,
Sd/ (Gautam Bhattacharya)
Commissioner (ST)
(vii) 30.10.2009: Board issued Circular No. 117/11/2009-ST regarding leviability of service tax on Tour Operator service in connection with Haj and Umrah. This Circular states that amount of charge to pilgrims in India undertaking 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 Export of Services Rules, 2005, the service in respect of tour operator is export if such service is performed outside India; that where such taxable service is partly performed outside India, it shall be treated as performed outside India; that therefore service tax is not chargeable on the service provided in respect of tour undertaken for carrying out Haj and Umrah pilgrimage for Saudi Arabia by Indian pilgrims, considering this as export of service, provided they fulfil other condition of service as provided in the 2005 Rules.
14. EXEMPTIONS ORDERS ISSUED IN RESPECT OF PACKAGED TOURS:
(i) 22.08.1997: Notification No. 40/97-ST exempted service tax to the extent of 90% of the gross amount charged for providing Tour Operator service, where the services provided comprised solely of arranging or booking of accommodation for any person in relation to a tour and the bill issued for this purpose indicates that its tour charges for such accommodation, was granted subject to certain exclusionary conditions. These conditions require that invoices, bills or challans issued by the Tour Operator to the client include only the service charges for arranging or booking of accommodation for any person in relation to a tour and not the cost of such accommodation; that no credit of duty paid on inputs is availed under the Cenvat Credit Rules, 2004; and that the Tour Operator should not have availed benefits under Notification No. 12/2003-ST, dated 20.06.2003. This exemption Notification came into force w.e.f. 01.09.1997;
(ii) 05.02.2004: Notification No. 2/2004-ST dated 05.02.2004 extended exemption of service tax, leviable on 60% of the gross amount charged from any person by a tour operator (other than service in relation to a packaged tour) for services provided in relation to a tour and where the bill issued for this purpose indicates that the amount charged in the bill is the gross amount charged for such tour]; subject to conditions specified therein. The Explanation to this Notification clarified that the expression packaged tour means a tour in which provisions for transport and accommodation for stay of the person undertaking the tour has been afforded by the Tour Operator;
(iii) 01.03.2006:
By Notification No. 1/2006-ST, different rates of exemption were granted for different categories of services provided by Tour Operator. Accordingly, three categories were considered for grant of exemption of distinctly specified percentage of the gross amount charged which is excluded, for the levy of service tax, in relation to (a) tour operations involving a packaged tour; (b) tour operations other than in relation to a packaged tour; and (c) tour operations involving making of exclusive arrangements or booking accommodations for any person in relation to a tour. The conditions to be satisfied for availing the exemption in relation to each of these categories of Tour Operator services is indicated in column (4); and the percentage of the gross amount charged for providing the service tax, which is excluded for the purpose of computation of service tax leviable, is set out in column (5) of a table set out in the Notification. Other general conditions for disentitlement of the exemption benefits provided under this Notification are also specified.
15. The facts leading to; and the adjudication order dated 31.3.2010 (assesee Cox & Kings India Ltd.)
(a) 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.14,6472,548/-. 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;
(b) the assessee filed its detailed response dated 15.9.08 along with several documents to support its contentions, including brochures indicating the several services/packages provided for outbound tours; denied liability to tax; and claimed that since these services are provided outside the territory of India, the transactions are outside the purview of service tax.
(c) 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.
(d) The case of the Revenue:
(i) Section 65(115) was amended with effect from 10.9.04 to redefine tour operator to mean inter alia any person engaged in planning, scheduling, organising or arranging tours by any mode of transport;
(ii) Notification No.39/97-ST dated 22.8.97 as amended by Notification No.12/2004-ST dated 10.9.04 and by Notification No.1/2006-ST dated 1.3.06 exempt the taxable service provided by a tour operator to the extent of 60% of the gross amount charged for the service provided in relation to a tour when a package tour provided and the bill issued for this purpose indicates that it is inclusive of charge and on condition that no Cenvat credit of duty paid on inputs or capital goods was availed under the provisions of the Cenvat Credit Rules, 2004 or benefits under Notification No.12/2003-ST dated 20.6.03 were availed; that the assessee in its declaration letter dated 10.12.207 asserted that it had not claimed credit of service tax paid on input service; however, no specific reference regarding availment of Cenvat credit on capital goods or inputs is asserted in its certificate; and therefore the assesse is presumed to have availed Cenvat credit on capital goods/or inputs during the period in issue; and consequently the benefit of abatement under Notification No.1/2006-ST, is inadmissible;
(e ) Case of the assesse:
(i ) service tax being a destination based consumption tax and consumption of service in respect of outbound tours being outside India, no service tax is leviable;
(ii) the business of conducting and operating package tours outside India involve several steps such as determining the probable dates and venues of tours, finalising the itinerary ; booking of accommodation in hotels in foreign countries; planning and booking for travelling through bus, railways, travelling cruise liners etc. in foreign locations, sight-seeing on tours, break-fast/meals; providing service of foreign guides, providing a tour leader to accompany the touring party; Air ticketing, arranging visa and travel insurance to guests as required for foreign travel, complementary bags/snacks hampers, shopping bags, passport pouches etc.
(iii) planning and scheduling activity is done by it as an in-house activity and in standard packages; the entire purpose and conduct of tours is however for locations and is achieved, outside India.
(iv) for a variety of outbound tours, the assesses prepares brochures such as European tours, South East Asia tours etc. in house and not for any particular group of tourists.
(v) the economic value, for the consideration received from tourists is provided by the assessee and realised wholly outside India and for providing facilities to such tourists, at exclusively overseas locations;
(vi) under the provisions of Section 64(1) of the Act; and in terms of Board Circulars dated 8.10.2001 and 22.8.97 etc., services provided outside India are not within the scope of the Act and not liable to tax.
(vii) the amendment to the definition of tour operator by Finance Act, 2004, merely expands and in a limited sense, the scope of activities, to include planning, scheduling, organising or arranging tours including arrangements for accommodation, sight-seeing or other services by any mode of transport. This amendment does not however extend the expanded activities to cover services provided outside the territory of India;
(viii) package tours including activities of planning, scheduling , organising or arranging tours were covered within the definition of tour operator even earlier to 10.9.04, as part of operating any tourist vehicle. By the amendment with effect from 10.9.04, the scope is extended only in respect of modes of transport; and as a result planning, scheduling, organising or arranging tours by any mode of transport is now treated as an ingredient of the definition of tour operator. Engaging in the business of operating tours in tourist vehicles covered by permits however continues, but as another and a distinct ingredient of the definition, of tour operator;
(ix) without prejudice to the substantive contention, of immunity to tax for outbound tours, the assesse is entitled to 60% abatement benefits vide Notification No.12/2004-ST and 1/2006-ST since it had not availed Cenvat credit on input, input service or capital goods;
(x) without prejudice to the above, the assesse is not liable to service tax on the value of export of services.
(xi) invocation of the extended limitation period is unwarranted; and
(xii) there is in any event no justification for levy of penalty.
(f) Discussion and findings in the adjudication order:
(i ) with effect from 10.9.04, the definition of tour operator was amended and the scope expanded. In view of the amendment; planning, scheduling, organising, or arranging tours including arrangements for accommodation , sight-seeing or other activities by any mode of transport amount to tour operator service; the scope of the definition is therefore enlarged;
(ii) Board Circular dated 22.8.97 (clarifying that outbound tours are not taxable) is inapplicable since the definition of tour operator was amended w.e.f. 10.9.04;
(iii ) the contention that service tax being a destination based levy and outbound tours fall outside the tax net, relying on Board Circular No.56/5/2003 dated 25.4.03, is rejected. Held, that though service tax is a consumption/destination based tax, this cannot be construed in a literal sense. Had it been so, there was no need for issuance of the Export of Services Rules, 2005;
(iv ) Board vide its letter dated 12.10.07 clarified that service provided by a tour operator located in India to a recipient, who is also located in India for planning, scheduling or organising in relation to tours outside India - outbound tourism would be taxable under the category of tour operator service; that this view is based on the fact that the service provider and receiver are both located in India; and therefore the services flow within the country, the place of service is in India; and the service is therefore taxable. In para 30.4 of the order, the authority observed that though the letter (dated 12.10.2007) is not binding on him, as a quasi-judicial authority, the clarification by the Board is consistent with the service tax regime and (the Boards letter) is therefore applicable. Consequently, outbound tours are taxable w.e.f. 10.9.04;
(v) the assessee is entitled to abatement benefit under Notification No.39/97-ST, 12/2004-ST and 1/2006-ST dated 22.8.97, 10.9.04 and 1.3.06, respectively.
(vi) the assessee is entitled to cum-duty benefit;
(vii) since the service provider ( the assessee) and the service recipient (the Indian tourist) are located in India, though the service is performed outside India ( in outbound tours), it should be deemed that the service is delivered in India to the recipient; therefore the condition of the Export of Services Rules 2005 is factually not fulfilled and the assessee is thus disentitled to benefits under the Export of Services Rules, 2005;
(viii) invocation of the extended period of limitation and imposition of penalty is valid; there is no basis for the assessee to have had a bona fide belief that there is no liability to service tax and non-disclosure of the consideration received on outbound tours provided, non-filing of returns and non-remittance of tax, amounts to wilful suppression of facts with intent to evade tax.
Consequently, the adjudicating authority assessed liability to the specified quantum of service tax, interest and penalties.
16. In view of the core dispute between the parties, the following are the substantive issues that fall for determination:
Issues:
(a) (i) What is the scope of the expression tour operator defined in Section 65(115) of the Act, post amendment of the definition by the Finance Act, 2004 (w.e.f. 10.09.2004);
(ii) Does the 2004 amendment alter the contours of the expression and if so, to what extent;
(b) Whether outbound tours are outside the purview of the taxable service enumerated in Section 65(105)(h) of the Act;
17. Analysis:
(a) We have noticed (at para 10), evolution of the definition of tour operator since its inception as a taxable service in 1997. We are concerned in the present lis with the definition of tour operator since 10.09.2004. To comprehend the scope of the amended definition, it is necessary to refer to the origins and dynamics of the definition since its inception w.e.f. 01.09.1997. As set out in para 10, during 01.09.1997 to 31.03.2000 tour operator was defined to mean a person who holds a tourist permit granted under rules made under the Motor Vehicles Act, 1998; Section 65(113) defines tour as a journey from one place to another irrespective of the distance between such places. Therefore 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, 1998 for undertaking a journey from one place to another irrespective of the distance.
(b) During 01.04.2000 to 09.09.2004 the definition of tour operator was expanded to mean any person engaged in the business of operating tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act, 1998 or the rules made thereunder. In our considered view, during this period (01.04.2008 to 09.09.2004) operating of tours, namely activities / services provided which facilitate a journey by any other person from one place to another (irrespective of the distance between such places) in a tourist vehicle covered by a permit granted under the Motor Vehicles Act, 1998 or the rules made thereunder, comprised the taxable service. Operating of a tour in this definitional regime therefore included planning, scheduling, organising or arranging of tours and if such planning, scheduling, organising or arranging, coupled with operating the actual tour by way of facilitating a journey from one place to another occurred and in a tourist vehicle, the taxable service was provided and was exigible to tax.
(c) W.e.f. 10.09.2004 tour operator was amended again. We are concerned with the scope of the expression, post 10.09.2004. As amended, 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 the taxable service. This amendment incorporates an inclusionary clause, whereby any person engaged in the business of operating tours in a vehicle covered by a permit granted under the Motor Vehicles Act, 1998 or the rules made thereunder, would come within the fold of tour operator. In our considered view the definition (post the amendment), has two facets;
(i) The generic facet, of engagement 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;
(ii) The specific component, brought in to the definition by the inclusionary clause. Under the inclusionary fold a person engaged in the business of operating tours in a tourist vehicles, covered by a permit granted under the Motor Vehicles Act, 1998 or the rules made thereunder would also be a tour operator.
On a true and fair construction of the amended definition, the amendment expends the scope of the expression to include in the taxable service, engagement in the business of planning, scheduling, organising or arranging tours (which may include arrangements for accommodation, sightseeing or similar services) by any mode of transport (not limited to tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act, 1998 or the rules made thereunder). The generic facet of the definition does not however include the business of operating tours, by any mode (i.e. all modes), of transport. Contours of the expression (in the generic facet) are clearly limited to the business of planning, scheduling, organising or arranging etc. but exclude operation of tours. We infer this to be the only permissible meaning of the amended definition, since if the generic facet of the definition includes operating tours as well, there was no necessity for the second and specific facet spelt out in the definition, namely operating tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act, 1988, or the rules made thereunder. This is so since if the generic facet of the definition had included operating of tours by any mode of transport as well, there was no necessity for the inclusionary facet, whereby operating tours in a tourist vehicle covered by a permit granted under the provisions of the Motors Vehicles Act, 1998 or the rules made thereunder, is specified to be the defined service as well. Operating tours by any mode of transport would have clearly covered operating tours in a tourist vehicle covered by a permit granted under the 1998 Act or the rules made thereunder; and the later inclusionary clause would amount to a surplusage. We are compelled to the above interpretation of the amended definition since it is an established principle of statutory interpretation that attribution of surplusage in legislative drafting, must clearly be avoided.
Patanjali Shastri, C.J.I observed in Aswini Kumar Ghose vs. Arabinda Bose 1: It is not a sound principle of construction to brush aside words in a statute as being inapposite surplusage, if they can have appropriate application in circumstances conceivably within the contemplation of the statute. Jagannadhadas, J pointed out in Rao Shiv Bahadur Singh vs. State of U.P. 2 that: It is incumbent on a court to avoid a construction, if reasonably permissible on the language, which would render a part of the statute devoid of any meaning or application. In J.K. Cotton Spinning & Weaving Mills Co. Ltd. vs. State of U.P. 3 Das Gupta J. observed that: In the interpretation of a statute, the Court always presumes that the Legislature inserted every part thereof for a purpose and the legislative intention is that every part of the statute should have effect. The Privy Council in Quebec Railway, Light, Heat & Power Co. vs. Vandry 4 observed that the Legislature is deemed not to waste its words or to say anything in vain and a construction which attributes redundancy to the Legislature will not be accepted except for compelling reasons- see also Union of India vs. Hansoli Devi5; Ghanshyamdas vs. Regional Asstt. Commr. Sales Tax6; and State of Orissa vs. Joginder Patjoshi 7. In Hill vs. Williams Hill (Park Lane) Ltd. 8 the House of Lords pointed out that: When the Legislature enacts a particular phrase in a statute, the presumption is that it is saying something which has not been said immediately before. The rule that a meaning should, if possible, be given to every word in the statute implies that, unless there is good reason to the contrary, the words add something which would not be there if the words were left out. The above decision of the House of Lords was quoted with approval and referred to in Umed vs. Raj Singh 9. The doctrine of a construction avoiding assumption of surplusage is illustrated in several other cases - vide State of Bombay vs. Ali Gulshan10; S. Gurmet Singh vs. S. Pratap Singh Kairon 11 Ram Narain vs. State of U.P. 12; D. Velusamy vs. D. Patachaiamal13; and Balwant Kaur vs. Chanan Singh14.
On the above interpretation of tour operator it would follow that the business of planning, scheduling, organising or arranging tours by any mode of transport (including arrangements for accommodation, sightseeing, or other similar services) including where the tour is by a tourist vehicle covered by provisions of the 1988 Act or the rules made thereunder, is one facet of the definition; and the operating of tours in a tourist vehicle covered by a permit granted under the provisions of the 1988 Act or the rules made thereunder is another and a distinct facet, of the definition. In the first facet of the definition, the activity of the actual operating of tour is excluded.
As a consequence of the specific verbal formula in the definition it must compellingly follow that where a person is engaged in a composite activity of operating tours including the planning, scheduling, organising or arranging or such tours (including arrangements for accommodation, sightseeing or other similar services), by a mode of transport other than a tourist vehicle, such activity falls outside the scope of tour operator. However, the activity of planning, scheduling, organising or arranging tours including operating the tour in a tourist vehicle covered by a permit granted under the 1988 Act or the rules made thereunder, falls within the ambit of tour operator, as a consequence of the second inclusionary clause.
(d) In the present batch of appeals, the assessees are all engaged in the composite activity of both planning, scheduling, organising or arranging tours (other than by a tourist vehicle covered by a permit granted under the Motor Vehicles Act, 1998 or the rules made thereunder); and in operating such tours as well.
(e) 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.
(f) The nature of the composite services provided by the assessees, in relation to outbound tours, is thus clearly outside the locus of the definition of tour operator, qua the first facet of the definition, even after amendment of the definition, w.e.f. 10.09.2004.
18. Do provisions of the Act have an extra territorial reach and operation:
(a) Section 64 enacts that the provisions of Chapter V extend to the whole of India except the State of Jammu and Kashmir.
(b) The Supreme Court in All India Fedn. of Tax Practitioners vs. Union of India15 clarified that service tax is an indirect tax levied on specified services provided by certain categories of persons including by a company, association, firm, body of individuals etc.; and that it is a value added tax which is a destination based consumption tax, in the sense that it is on commercial activities and is 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 are services provided by service provider including tour operators (vide paragraphs 4, 7 and 8). See also Association of Leasing and Financial Service Companies vs U.O.I.16
(c) The full Bench of the Delhi High Court in Home Solutions Retails (India) Ltd. vs. Union of India17 reiterated the principle that service tax is a levy on the event of service.
(d) In Commissioner of Income-Tax, Bombay vs. Ahmedbhai Umarbhai & Co., Bombay18, the respondent/ assessee, a registered firm resident in Bombay was in the business of manufacturing and dealing in oil. It owned three mills at Bombay and one at Raichur for manufacturing oil from groundnuts. The oil produced at Raichur was partly sold at Raipur and partly in Bombay. The issue before the Constitution Bench was in respect of the liability under the Excess Profits Tax Act, 1940, for the oil manufactured at Raichur but sold in Bombay. According to the assessee, in respect of such oil, a portion of the profit earned was attributable to the business of manufacturing the oil at Raichur and that portion of the profits was not liable to assessment to tax under the 1940 Act. Section 5 of this Act inter alia reads as under:
5. This Act shall apply to every business of which any part of the profits made during the chargeable accounting period is chargeable to income tax by virtue of the provisions of sub-clause (i) or sub-clause (ii) of clause (b) of sub-section (1) of section 4 of the Indian Income Tax Act, 1922, or of clause (c) of that sub-section:
Provided that this Act shall not apply to any business the whole of the profits of which accrue or arise without British India where such business is carried on by or on behalf of a person who is resident but not ordinary resident in British India unless the business is controlled in India :
Provided further that where the profits of a part only of a business carried on by a person who is not resident in British India or not ordinarily so resident accrue or arise in British India or are deemed under the Indian Income-tax Act, 1922, so to accrue or arise, then except where the business being the business of a person who is resident but not ordinarily resident in British India is controlled in India, this Act shall apply only to such part of the business, and such part shall for all the purposes of this Act be deemed to be a separate business:
Provided further that this Act shall not apply to any business the whole of the profits of which accrue or arise in an Indian State; and where the profits of a part of a business accrue or arise in an Indian State, such part shall, for the purposes of this provision, be deemed to be a separate business the whole of the profits of which accrue of arise in an Indian State, and the other part of the business shall for all the purposes of this Act, be deemed to be a separate business.
Section 21(3) of this Act provided that in the case of a business of which all the operations are not carried out in British India, the profits and gains of the business deemed under this section to accrue or arise in British India shall be only such profits and gains as are reasonably attributable to that part of the operations carried out in British India.
The Court concluded that the profits received at Bombay from the sale of the oil manufactured at Raichur must be apportioned between the two operations of the manufacture and sale, and only such portion of the profits as is reasonably attributable to the sale at Bombay should be deemed to accrue or arise in British India. Consequently, the Court ruled, it must follow that the rest of the profit attributable to the manufacture at Raichur, must be recorded as accruing or arising in the Hyderabad State; and the proviso to Section 5(3) of the 1940 Act would become applicable to the case and the manufacturing part of the assessees business would be exempt from the operation of the Act.
(e) In an appeal arising under the Income Tax Act, 1961, the Supreme Court in Ishikawajma-Harima Heavy Indus. Ltd. vs. Dir. of Income Tax, Mumbai19 clarified that where different. severable parts of a composite contract are performed in different places, the principle of apportionment can be applied, to determine which fiscal jurisdiction could tax that part of the transaction falling within the fiscal jurisdiction; and that the principle of apportionment helps to determine, where the territorial jurisdiction of a particular State lies, to determine its capacity to tax an event; and 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. Summarising its conclusion, the Apex Court pointed out (para 98); (a) that only such part of the income, as is attributable to operations carried out in India can be taxed in India; (b) the principle of apportionment, where the territorial jurisdiction of a particular state determines its capacity to tax an event has to be followed; (c ) the fact that an agreement was signed in India is of no material consequence; and (d) since all activities in connection with the offshore supply were outside India, therefore cannot be held to accrue or arise in India. In respect of offshore services, the Court also ruled that there should be sufficient territorial nexus between the rendition of services and territorial limits of India, to make the income taxable; and that applying the principle of apportionment to composite transactions which have some operation in one territory and some in other, is essential to determine taxability of the several operations.
(f) In a recent judgment, in G.D. Builders vs. UOI and others 20 , the Delhi High Court ruled that as a corollary of the position that a composite contract, as for instance involving labour/services and deemed sale of goods could be vivisected to identify and tax the sale element thereof, a composite contract could be vivisected and the service element indentified for levy of service tax but only on the service element therein (para 31).
(g) Board Circular No. 36/4/2001, dated 8.10.2001 also clarifies the issue that since (at present) levy of service tax extends to the whole of India except the State of Jammu and Kashmir; and India includes the territorial waters of India which extend up to twelve nautical miles from the Indian land mass; and provisions of the Act are not extended to designated areas in the Continental Shelf and the Exclusive Economic Zone of India, services provided beyond the territorial waters of India are not liable to Service Tax.
(h) The above Board circular fell for consideration by this Tribunal in Foster Wheeler Energy Ltd. vs. CCE&C, Vadodara-II21. This Tribunal, referring to the above Board Circular ruled that services provided beyond the Indian territorial waters will not attract Service Tax.
(i) 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. The Board Circular dated 08.10.2001, though issued as a clarification in the context of the pre-amended definition of tour operator (prior to its amendment w.e.f. 10.09.2004) is equally applicable post the amendment. This is so since our analysis on the first issue (as to the scope of the expression tour operator, post the amendment) leads to the conclusion that a composite activity, of operating a tour by a mode of transport other than in a tourist vehicle covered by a permit granted under the provisions of the Motor Vehicles Act, 1988 or the rules made thereunder, even if accompanied by services provided in the nature of planning, scheduling, organising or arranging tours (including provision of arrangements for accommodation sight-seeing or other similar services), would not be comprehended within the definition of tour operator.
(j) 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. On the authority of the precedents i.e. Ahmedbhai Umarbhai & Co. and Ishikawajma-Harima Heavy Indus. Ltd., 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.
(k) The fundamental fallacy in the substantive premise of the adjudicating authority, in our considered view, is applying the provisions of the Act (which authorises the levy and collection of service tax as a destination and consumption based tax and in respect of a service defined and enumerated in the Act to be a taxable service), to a service provided and consumed beyond Indian territory, within which alone the legislation operates and authorises the levy and collection of tax. As pointed out in Ahmedbhai Umarbhai and Company, the very territorial limits to the operational efficacy of the Act, sanctions and obligates apportionment of the consideration received on tour operator service; and the consideration attributable to aspects of this taxable service which are provided and consumed outside the Indian territory must be excised from the gross consideration received, even where the service is provided and consumed partly within India and partly without.
(l) 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.
(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).
19. Other issues:
(a) The planning, scheduling, organising or arranging outbound tours is merely incidental to the operating and conducting of outbound tours :
(i) According to Revenue, the planning, scheduling, organising or arranging of the outbound tours is carried out by the assessees in India and hence the taxable service is provided in India, within the ambit of tour operator, defined in Section 65(115) of the Act.
(ii) The assessees provided pre-planned package tours to outbound tourists; as standard packages developed by each of them; and offered to a variety of customers. An outbound tour is entirely and meticulously pre-planned and scheduled; and the composite package offered as a product. On this basis, the assessees contend, the planning and scheduling is not a service provided to the recipient tourists but is a service provided to themselves as a prelude to providing packaged outbound tours. Since it is a service to self it would not constitute a taxable service is the contention. It is further contended that even if planning and scheduling could be considered as a component of the taxable service provided by the assesses to tourists, the same is incidental and subservient to the actual operation or conducting of outbound tour, which is the essential and principal service. According to ld. Counsel, conducting and operation of the tour outside India constitutes the principal characteristic of the service. Reliance is placed on the provisions of Section 65A of the Act and on Budget Circular No.334/4/06-TRU dated 28.2.2006.The assessees contend that tourists are ultimately interested in consuming the benefits of tourism in foreign locations and the consideration is for that purpose. No part of the consideration is intended for the planning and scheduling of outbound tours by the assessees.
(iii ) In our considered view, the provisions of Section 65A have no direct application. This provision provides a guide to the classification of taxable services, where in any circumstances, a taxable service is, prima facie classifiable under two or more sub-clauses of Section 65 (105). The provision clarifies that in any such situation, the sub-clause of Section 65(105) which provides the most specific description (of the service provided) must be preferred to another which provides a more general description. Sub-clause (b) states that a composite service, consisting of a combination of different services, which cannot be classified in the manner provided in clause (a), shall be classified as if they consisted of a service which gives them their essential character, in so far as this criterion is applicable.
(iv ) As the activity of planning and scheduling on the one hand and of organising and arranging (tour) on the other, are not distinct and separate taxable services enumerated in different sub-clauses of Section 65(105), the instrument of instructions/clarifications in Section 65A would be of no direct relevance. In any event, organising or arranging of tours is indisputably a service provided to tourists and not a service provided by the assessees to themselves.
(v ) Since the assessees are clearly organising or scheduling tours for tourists from whom consideration is received and since organising or arranging of the tours is an integral component of the definition of tour operator [in the first facet of the definition in Section 65(115)], the contention that it is a service provided by the assessees to themselves does not merit acceptance. The Budget Circular dated 28.2.2006, on which reliance is placed by the assessees does not provide any assistance either. Paragraph 3.2 of this Circular merely annotates the purport of Section 65A(2)(b) of the Act.
(vi ) We therefore hold that this contention is without merit of force. The assessees had clearly organised and arranged the tours for the benefits of tourists and have received consideration for this service provided; and this is the substantive purpose and basis of the service. We reject this contention.
(b ) Outbound tours amount to export of service and hence no service tax is payable:
(i ) Assessees contend that service provided by way of outbound tours amounts to export of service under the Export of Service Rules, 2005 and there is thus no liability to service tax incurred on such service. Reliance is placed on Rules 3 and 4 of the 2005 Rules and the decisions of this Tribunal in Paul Merchants vs. C.C.E., Chandigarh 22 ;Muthoot Fincorp Ltd. vs. C.C.E., 23; Professional Couriers vs. CCE 24 ; Prakash Airfreight Pvt. Ltd. vs. CST 25; T N T India Ltd. vs. CST 26; U B Express (South) Pvt. Ltd. vs. CCE 27 and CST vs. B A Research India Pvt. Ltd 28.
(ii ) It is also contended that though the entire consideration for outbound tours was not received in convertible foreign exchange , outbound tourist service must be treated as export of service. According to the assessees, the requirement of receipt of consideration in convertible foreign exchange, a requirement enjoined under Rule 3(2)(b) of the 2005 Rules, is to facilitate and encourage inflow of foreign currency into India and to avoid outflow of Indian currency i.e. to augment foreign exchange earnings. This objective is achieved. If the assessees are made liable to remit service tax in the case of outbound tourists, as tourists in such an event would opt for overseas located tour operators wherever the intention is of tourism abroad and this would result in a net outflow of currency from India, defeating the substantive purposes of the 2005 Rules. Hence, the provisions of 2005 Rules must receive a purposive construction and be liberally interpreted. Assessees also contend that remittances in convertible foreign currency is required only with effect from 1.3.2007, as pointed out in Nipuna Services Limited vs. .C.C.E. 29 and in Muthoot Finance Corporation (supra).
(iii ) Since we have concluded, pursuant to our analyses on substantive Issue Nos.(a) and (b), that activities of the assessees fall outside the ambit of tour operator service and beyond the reach of the provisions of the Act, respectively, we find no reason to proceed on a detailed analyses of this issue nor to record our conclusion on this issue.
(c ) Abatement benefits:
(i ) The assessees contend that they are entitled to abatement benefits under Notification Nos.39/1997-ST; 12/2004-ST and 1/2006-ST dated 22.8.97, 10.9.2004 and 1.3.2006, respectively.
(ii ) Since we have concluded that outbound tours provided by the assessees are not liable to service tax, vide the analyses and conclusions on Issues (a) and (b), we refrain from a detailed analyses of this contention. Suffice it state that if the assesses are otherwise liable to service tax, for providing outbound tours, they would be entitled to the benefits of any exemption /abatement notifications issued under Section 93(1) of the Act; and subject to fulfilment of the conditions enjoined therein.
(d ) Invocation of the extended period of limitation is unjustified:
(i ) In view of the facts and particulars set out in the tabular statement in paragraph 2 of this judgment, the assessees contend that a substantial part of the period involved in the provision of the service, brought within the fold of the impugned assessment orders , is on invocation of the extended period of limitation under the proviso to Section 73(1) of the Act. The assessees contend that invocation of the extended period of limitation is fundamentally misconceived since the ingredients specified in the proviso to Section 73(1), are absent. There is also no allegation of fraud, collusion or misstatement on the part of the assessees nor was there any suppression of facts. There is also no contravention of provisions of the Act and in any case with an intention to evade payment of service tax. In the case of Cox and Kings India Ltd (one of the appellants herein), the adjudicating authority observed that there is no intention to evade payment of service tax; the extended period of limitation was however invoked by alleging and concluding that mere suppression of the consideration received on outbound tours is sufficient justification for invocation of the extended period of limitation, even if there be no intention to evade payment of tax.
(ii ) In view of decisions of the Supreme Court in Padmini Products vs. C.C.E.30 ; in C.C.E. vs. Chemphar Drugs and Lintments 31; and in Uniworth Textiles Ltd. vs. C.C.E. Raipur 32 , 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. We also notice that the assessees have presented circumstances establishing a substantial normative basis for a bona fide belief that there is no liability to tax, on outbound tours. We therefore conclude that 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.
(iii ) The above conclusions on the issue of invocation of the extended period of limitation is recorded without prejudice to our substantive conclusion that there is no liability to service tax on outbound tours provided by the assessees.
(e ) Imposition of penalties is illegal:
(i ) The assessees contend that since the liability to tax on outbound tours is a deeply problematic interpretative issue, the assessees were under a bona fide belief that these services were not taxable during the relevant period and no case is thus made out for levy of penalties. Reference is made to the provisions of Section 80 of the Act which enjoins that no penalties under Sections 76, 77 and the first proviso to Section 78 (1) of the Act shall be imposable on the assessee, if it proves that there was a reasonable cause for the said failure.
(ii ) We agree with this contention. We have earlier herein concluded and for the reasons recorded, that invocation of the extended period of limitation is unwarranted. In the circumstances and for reasons alike, provisions of Section 80 are clearly attracted. Consequently, imposition of penalties is unjustified. We hold accordingly.
(iii ) The above conclusion is again without prejudice to our substantive conclusion that there is no liability to service tax on outbound tours service provided by the assessees.
20. In the adjudication order pertaining to one of the assessees (M/s Cox and Kings India Ltd.) 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. Ld. Counsel for the assessees has contended that it is not within the province of rule making power to extend the territorial locus of the provisions of the Act by creating a fiction, of a service being considered as provided in India on the mere circumstance that the provider as well as recipient of the service are located in India, though the service is provided and consumed outside India. The legal fiction cannot be created by rule making as it is an exclusive legislative function, is the contention. We do not consider it necessary to deal with the several nuances of this contention, in view of our conclusions on the other issues.
21. Summary of our conclusions:
(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;
(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
(d) Without prejudice to the conclusions summarized in (a) to (c) supra, we hold:
(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.
22. The appeals are allowed as above, but in the circumstances without costs.
(Justice G. Raghuram)
President
(Sahab Singh)
Technical Member
Pant
1 AIR 1952 SC 369:
2 AIR 1953 SC 394
3 AIR 1961 SC 1170
4 AIR 1920 PC 181 186
5 AIR 2002 SC 3240
6 AIR 1964 SC 766
7 AIR 2004 SC 1039
8 (1949) 2 ALL ER 452
9 AIR 1975 SC 43
10 AIR 1955 SC 810
11 AIR 1960 SC 122
12 AIR 1957 SC 18
13 AIR 2011 SC 479
14 (2000) 6 SCC 310
15 2007 (7) STR 625 (S.C.)
16 (2011) 2 SCC 352
17 2011 (24) STR 129 (Del.)
18 (1950) SCR 335
19 2007 (6) STR 3 (SC)
20 2013-TIOL-908 HC.DEL.
21 2007 (7) STR 443 (Tri. Ahmd.)
22 2012 TIOL 1877 CESTAT - DEL
23 2010 (17) STR 303 (Tri-Bang.)
24 2008 (10) STR 25 (Tri-Chennai)
25 2008 (10) STR 308 (Tr-Chennai)
26 2007 (7) STR 142 (Tri-Bang.)
27 2008 (12) STR 152 (Tri-Chennai)
28 2010 (18) STR 439 (TR-Ahmd.)
29 2009 (14) STR 706 (Tri-Bang.)
30 1989 (43) ELT 195 (SC)
31 1989 (40) ELT 276 (SC)
32 2013 (288) ELT 161 (SC)
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