Tour operator taxability fails where contract carriage buses are not proved to be tourist vehicles or statutory tour operations.

Tour operator service under the Finance Act, 1994 required proof that the assessee operated tours in the statutory sense in a tourist vehicle, and after the 2008 amendment in a qualifying contract carriage other than a stage carriage. Mere operation of buses on contract carriage permits, without evidence that the vehicles met the Rule 128 tourist vehicle specifications or that the activity involved tour operation rather than passenger transport on fixed fares, was insufficient. On that basis, the service tax, interest and penalty demand was unsustainable, and the alternative exemption plea under Notification No. 20/2009-ST did not require separate adjudication.

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Issues: (i) Whether the appellant's activity of operating buses on contract carriage permits amounted to "tour operator service" under Section 65(115) of the Finance Act, 1994 for the period prior to and after the 2008 amendment; (ii) whether the demand for service tax, interest and penalty could be sustained on the footing that the vehicles were tourist vehicles or contract carriages covered by the statutory definition; (iii) whether the alternative plea of exemption under Notification No. 20/2009-ST dated 07-07-2009 survived.

Issue (i): Whether the appellant's activity of operating buses on contract carriage permits amounted to "tour operator service" under Section 65(115) of the Finance Act, 1994 for the period prior to and after the 2008 amendment.

Analysis: The definition of "tour operator" prior to the 2008 amendment covered persons engaged in planning, scheduling, organising or arranging tours, and also those operating tours in a tourist vehicle. The expanded definition after the amendment extended to operation of tours in a tourist vehicle or contract carriage other than a stage carriage. A vehicle could qualify as a tourist vehicle only if it conformed to the specifications prescribed under Rule 128 of the Central Motor Vehicles Rules, 1989 and there was no reliable evidence that the appellant's buses met that standard. The materials showed permits as contract carriages, but not a statutory or evidentiary basis to treat them as tourist vehicles. The record further showed passenger transport on fixed fares from place to place, which was more akin to carriage of passengers than the operation of tours.

Conclusion: The appellant was not shown to be a tour operator within the meaning of Section 65(115) of the Finance Act, 1994 for the disputed period.

Issue (ii): Whether the demand for service tax, interest and penalty could be sustained on the footing that the vehicles were tourist vehicles or contract carriages covered by the statutory definition.

Analysis: The statutory scheme linked taxability to operating tours in a tourist vehicle, and after amendment to a contract carriage other than a stage carriage. The evidence relied upon by the department did not establish that the vehicles were tourist vehicles under Section 2(43) of the Motor Vehicles Act, 1988 read with Rule 128 of the Central Motor Vehicles Rules, 1989. The check reports and permit conditions did not by themselves prove that the appellant was operating tours in the statutory sense. The nature of the operations indicated transport services to different passengers travelling to different destinations for separate fares, which did not satisfy the essential element of tour operation. The demand, including the penal and interest components, therefore lacked legal foundation.

Conclusion: The demand for service tax, interest and penalty was unsustainable.

Issue (iii): Whether the alternative plea of exemption under Notification No. 20/2009-ST dated 07-07-2009 survived.

Analysis: In view of the finding that the appellant was not liable under the category of tour operator service itself, the alternative exemption plea did not require independent adjudication.

Conclusion: The exemption plea was not separately decided.

Final Conclusion: The impugned order was set aside and the appeal succeeded, with consequential reliefs following in law.

Ratio Decidendi: Taxability as a tour operator requires proof that the assessee operated tours in the statutory sense in a tourist vehicle, or in the post-amendment regime a qualifying contract carriage other than a stage carriage; ordinary passenger transport on contract carriage permits, without proof of the statutory vehicle character and tour operation, does not attract service tax under the definition.

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