Tour operator service tax applies for the initial levy period, but penalty may be waived on reasonable cause.

A service tax demand on tour operators was sustained because the statutory definition in force from 1-9-1997 applied to persons holding a tourist permit, and the respondents admittedly held such a permit; a later exemption notification could not displace the levy for the earlier period. Penalties were nevertheless set aside because the demand arose during the initial period of the new levy, and reasonable cause under the penalty provision was established for the failure to register and file returns. The result was that tax liability remained enforceable, but penal consequences were deleted.

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Issues: (i) whether the respondents were liable to service tax as tour operators for the period in dispute; (ii) whether penalties were exigible in view of the initial levy and the existence of reasonable cause.

Issue (i): Whether the respondents were liable to service tax as tour operators for the period in dispute.

Analysis: The definition of "tour operator" applicable from 1-9-1997 covered a person holding a tourist permit under the Motor Vehicles law, and "tour" meant a journey from one place to another irrespective of distance. As the respondents admittedly held a tourist permit, the levy applied to the services rendered during the disputed period. The exemption notification relied upon by the respondents was issued later and could not govern the prior period.

Conclusion: The respondents were liable to service tax as tour operators for the period in dispute, in favour of Revenue.

Issue (ii): Whether penalties were exigible in view of the initial levy and the existence of reasonable cause.

Analysis: The service tax on tour operators was introduced for the first time from 1-9-1997, and the demand pertained to that initial period. Section 80 barred penalty where the assessee established reasonable cause for the failure, and the first-time levy constituted sufficient cause for non-compliance with registration and return obligations.

Conclusion: Penalty was not imposable, in favour of the respondents.

Final Conclusion: The tax demand was sustained, but the penalties were set aside, resulting in a partial success for the Revenue and corresponding relief to the respondents.

Ratio Decidendi: A later exemption notification does not defeat a prior service tax demand, and penalty can be waived where the default occurs in the initial period of a newly introduced levy and reasonable cause is shown.

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