Tour operator services were taxable in the pre-negative list period, but conflicting legal views barred extended limitation and penalty.

Outbound international tour services provided by an Indian tour operator to Indian tourists were held taxable as 'Tour Operator Service' for the pre-negative list period because the activity fell within the statutory levy under the Finance Act, 1994, and the Larger Bench view prevailed over contrary smaller Bench reasoning. On limitation and penalty, conflicting interpretations of law and the reference to a Larger Bench meant suppression was not established for invoking the extended period, and the same bona fide interpretational dispute made penalty unsustainable. The demand was therefore confined to the normal limitation period and penalty was deleted.

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Issues: (i) Whether outbound international tour services provided by an Indian tour operator to Indian tourists were taxable as 'Tour Operator Service' for the relevant pre-negative list period. (ii) Whether the extended period of limitation and penalty were sustainable.

Issue (i): Whether outbound international tour services provided by an Indian tour operator to Indian tourists were taxable as 'Tour Operator Service' for the relevant pre-negative list period.

Analysis: The service fell within the statutory definition of 'Tour Operator Service' under Section 65(105)(n) of the Finance Act, 1994. The dispute was resolved by applying the Larger Bench view that, for the period before the negative list regime, taxability depended on the activity falling within the statutory levy and not on the concept of taxable territory in the manner contended by the appellant. The earlier contrary view of a smaller Bench could not prevail over the Larger Bench ruling. The outbound tour activity rendered during the relevant period was therefore exigible to service tax.

Conclusion: The issue was decided against the assessee and in favour of the Revenue.

Issue (ii): Whether the extended period of limitation and penalty were sustainable.

Analysis: The controversy turned on interpretation of law and there had been conflicting views on the very issue, including reference to a Larger Bench. In such circumstances, suppression of facts was not established for invoking the extended period. The same interpretational backdrop also furnished reasonable cause for non-payment, making penalty unsustainable.

Conclusion: The extended period of limitation was not sustainable and penalty was set aside, in favour of the assessee.

Final Conclusion: The demand was sustained only to the extent permissible within the normal limitation period, while penalty was deleted.

Ratio Decidendi: For the pre-negative list period, outbound tour services rendered by an Indian tour operator to Indian tourists were taxable where the activity fell within the statutory levy, but a dispute resting on conflicting interpretations of law did not justify invocation of the extended period or imposition of penalty.

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