Tour operator tax applies only to tourist vehicles with valid permits; interpretational dispute led to waiver of penalty.

Tour operator service was not attracted for buses supplied under the bus reservation agreement before 10.09.2004 because the vehicles were not tourist vehicles and the provider did not hold tourist permits; the pre-10.09.2004 demand was therefore unsustainable. For the post-10.09.2004 period, tax could not be demanded again on ITDC-linked supplies where service tax had already been discharged on the same activity, but the reservation of buses to other commercial concerns and schools remained taxable for the normal period. As the dispute was interpretational, penalty was waived.

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Issues: (i) whether buses supplied under the bus reservation agreement were liable to service tax as tour operator service for the period prior to 10.09.2004 when the vehicles were not tourist vehicles and the appellant did not hold tourist permits; (ii) whether service tax was payable on bus reservation agreement services rendered after 10.09.2004 to non-ITDC clients and whether penalty was sustainable.

Issue (i): whether buses supplied under the bus reservation agreement were liable to service tax as tour operator service for the period prior to 10.09.2004 when the vehicles were not tourist vehicles and the appellant did not hold tourist permits.

Analysis: The levy of tour operator service was linked to operating tours in a tourist vehicle covered by a permit. The expression "tour" was construed with the statutory requirement that the vehicle must answer the description of a tourist vehicle under the Motor Vehicles Act and the applicable rules. On the admitted facts, the appellant's buses were not tourist vehicles and the appellant was not holding tourist permits. The authority distinguished the cited precedent on the footing that the liability there turned on tourist permits and tourist vehicles.

Conclusion: The demand for the period prior to 10.09.2004 was unsustainable and was set aside in favour of the assessee.

Issue (ii): whether service tax was payable on bus reservation agreement services rendered after 10.09.2004 to non-ITDC clients and whether penalty was sustainable.

Analysis: For the post-10.09.2004 period, the appellant's activity of supplying buses to ITDC could not again be taxed when ITDC had already discharged service tax on the same activity. However, for buses supplied to other commercial concerns and schools, the activity remained taxable for the normal period because the dispute was interpretational. Since the controversy was one of interpretation, the imposition of penalty was not warranted.

Conclusion: Service tax was payable only on the non-ITDC bus reservation activity for the normal period, while the demand for the ITDC-linked activity was not sustainable and the penalty was waived.

Final Conclusion: The appeal succeeded in substantial part by setting aside the pre-10.09.2004 demand and the penalty, while leaving limited tax liability only for the non-ITDC bus reservation activity for the normal period.

Ratio Decidendi: Tour operator service is attracted only when tours are operated in a tourist vehicle covered by a permissible permit, and an interpretational dispute over classification may justify denial of penalty while restricting demand to the legally taxable activity for the normal period.

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