Tour operator service tax applies only to tourist vehicles; contract carriages fell outside the levy and the penalty was deleted.

Service tax under the tour operator category applies only where the operator uses a tourist vehicle conforming to the prescribed statutory specifications; buses registered as contract carriages and not shown to be tourist vehicles do not fall within that levy, so the tour operator demand was set aside. Where the major component of the tax demand was deleted and the remaining rent-a-cab demand was not contested, the basis for penalty under Section 78 of the Finance Act, 1994 was materially weakened, so the penalty was also set aside. The rent-a-cab demand itself was maintained.

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Issues: (i) Whether the appellant's buses, registered as contract carriages and not as tourist vehicles, were liable to service tax as tour operator services; (ii) Whether the penalty imposed under Section 78 of the Finance Act, 1994 survived after partial relief in tax demand.

Issue (i): Whether the appellant's buses, registered as contract carriages and not as tourist vehicles, were liable to service tax as tour operator services.

Analysis: Liability as a tour operator depended on operation of a tourist vehicle within the meaning of the Motor Vehicles law and conformity with the prescribed specifications for such vehicles. The registration evidence showed the buses were contract carriages and not tourist vehicles. The decision applied the settled view that a vehicle not answering the description of a tourist vehicle does not attract tour operator service tax.

Conclusion: The demand of service tax under the tour operator category was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether the penalty imposed under Section 78 of the Finance Act, 1994 survived after partial relief in tax demand.

Analysis: Once the major component of the tax demand was deleted and the remaining rent-a-cab demand was not contested, the basis for sustaining the penalty was materially weakened. In those circumstances, the penalty was considered unwarranted.

Conclusion: The penalty under Section 78 was set aside in favour of the assessee, while the rent-a-cab demand remained upheld.

Final Conclusion: The order was modified by deleting the service tax demand on tour operator service and the penalty, while maintaining the demand relating to rent-a-cab operator service.

Ratio Decidendi: Service tax as a tour operator can be levied only when the operator uses a tourist vehicle conforming to the prescribed statutory specifications; operation of a contract carriage not shown to be a tourist vehicle is outside that levy.

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