Tour operator service tax upheld for tourist vehicle operators, with legislative competence and Article 14 challenges rejected.

Service tax on tour operators was held to apply to contract carriage and taxi operators holding tourist permits, because the statutory definition covered transport provided in relation to a tour and the expression "in relation to" was read broadly. The levy was also held to be within Parliament's legislative competence, as it taxed the service element rather than a deemed sale; the passenger acquired no right to use the vehicle as owner or hirer, and Article 366(29A)(d) did not apply. The Article 14 challenge failed because fiscal classification had a rational basis and the measure of tax did not alter its nature. The writ petitions were dismissed.

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Issues: (i) Whether contract carriage and taxi operators holding tourist permits fall within the definition of tour operator and are liable to service tax under the Finance Act, 1994. (ii) Whether the levy of service tax on tour operators is beyond the legislative competence of Parliament and is instead referable to entries in List II, including deemed sale under Article 366(29A)(d) of the Constitution of India. (iii) Whether the levy is arbitrary or discriminatory for the purposes of Article 14 of the Constitution of India, including on the ground that stage carriage operators are excluded and that no proper machinery exists to ascertain the service element.

Issue (i): Whether contract carriage and taxi operators holding tourist permits fall within the definition of tour operator and are liable to service tax under the Finance Act, 1994.

Analysis: The statutory scheme treated taxable service as service provided by a tour operator in relation to a tour, with tour operator defined by reference to operation of tours in a tourist vehicle covered by a permit under the Motor Vehicles Act, 1988. Tourist vehicle was linked to the Motor Vehicles Act definition, and the value of taxable service was tied to the gross amount charged in relation to the tour. On the facts, the petitioners operated contract carriages and taxis under tourist permits and provided transport in connection with tours. The service was not confined to bare hiring of vehicles but extended to the wider tour arrangement, and the phrase "in relation to" was given an expansive meaning.

Conclusion: The petitioners fell within the taxable category of tour operators and were liable to service tax. The issue is decided against the petitioners.

Issue (ii): Whether the levy of service tax on tour operators is beyond the legislative competence of Parliament and is instead referable to entries in List II, including deemed sale under Article 366(29A)(d) of the Constitution of India.

Analysis: The levy was characterised as a tax on the service rendered by the service provider, not as a tax on passengers, goods, or income. The Court held that the charging provision did not fall within Entry 54 or Entry 56 of List II and that the transaction did not involve a transfer of the right to use goods so as to amount to a deemed sale under Article 366(29A)(d). The tourist vehicle remained under the control and domain of the operator, and the passenger obtained only a limited permission to travel, not a proprietary right to use the vehicle. The levy was therefore held to fall within Parliament's residuary competence under Entry 97 of List I read with Article 248 of the Constitution of India.

Conclusion: The levy was within the legislative competence of Parliament and was not hit by Article 366(29A)(d) or the relevant State List entries. The issue is decided against the petitioners.

Issue (iii): Whether the levy is arbitrary or discriminatory for the purposes of Article 14 of the Constitution of India, including on the ground that stage carriage operators are excluded and that no proper machinery exists to ascertain the service element.

Analysis: The Court held that the measure of taxation does not determine the nature of the tax, and that charging service tax with reference to the gross amount did not invalidate the levy. A fiscal law enjoys wide legislative latitude in classification, and mere exclusion of another class of operators does not by itself establish hostile discrimination. The service provided by tour operators was treated as a distinct taxable event, and the statutory classification was held to have a rational basis.

Conclusion: The challenge based on Article 14 and the alleged absence of a machinery provision failed. The issue is decided against the petitioners.

Final Conclusion: The service tax levy on tour operators operating tourist vehicles under permit was upheld as a valid service tax within Parliament's competence, and the writ petitions were dismissed.

Ratio Decidendi: Service tax is a tax on the service rendered by a tour operator in relation to a tour; where the operator retains control of the vehicle and the passenger acquires no right to use the goods as owner or hirer, the levy is not a deemed sale and falls within Parliament's residuary legislative power.

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