Tour operator service tax applies to hired tourist vehicle tours, but reasonable cause can defeat penalties under the statutory defence.

An assessee organising tours by hiring tourist vehicles falls within the statutory meaning of tour operator, because liability is not confined to the permit holder if the person is actually operating tours in such vehicles; the service tax demand and interest were therefore sustained. Penalties were not imposed, however, because the tax history of tour operator service, including exemption and later withdrawal, supported reasonable cause for the assessee's belief that the activity remained exempt, satisfying the statutory defence against penalty.

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Issues: (i) Whether an assessee organising tours by hiring tourist vehicles is liable to service tax as a tour operator; (ii) Whether penalties were leviable in view of the exemption history and the assessee's claim of reasonable cause.

Issue (i): Whether an assessee organising tours by hiring tourist vehicles is liable to service tax as a tour operator

Analysis: The definition of tour operator covered a person engaged in the business of operating tours in a tourist vehicle covered by a permit under the Motor Vehicles Act. The admitted facts showed that the assessee was organising tours by hiring tourist vehicles. The liability was not confined only to the owner of the tourist vehicle holding the permit, because a person actually operating tours in such vehicles also fell within the statutory definition. The demand was therefore sustained along with interest.

Conclusion: The assessee was held liable to service tax as a tour operator, and the demand was upheld.

Issue (ii): Whether penalties were leviable in view of the exemption history and the assessee's claim of reasonable cause

Analysis: Service tax on tour operator service became taxable from 1.9.1997, was exempted by Notification No. 52/98-ST, and the exemption was withdrawn from 1.4.2000 when the definition was amended. In these circumstances, the assessee's belief that the activity remained exempt constituted reasonable cause within the meaning of Section 80 of the Finance Act, 1994. The precondition for penalty was therefore not satisfied.

Conclusion: The penalties were set aside.

Final Conclusion: The service tax demand and interest were sustained, but the penalties were deleted, leaving the assessee partly successful.

Ratio Decidendi: A person who organises tours by using hired tourist vehicles falls within the statutory concept of tour operator, but penalties are not imposable where reasonable cause for the default is established under Section 80 of the Finance Act, 1994.

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