TaxTMI 
TaxTMI 
2013 (12) TMI 1024
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...." service and is consequently subject to levy and collection of Service Tax under the provisions of the Finance Act, 1994 (the Act), is the core issue arising in these appeals. 2. Appellants are the assessees and have preferred the appeals against adjudication orders assessing specified liability to Service Tax and penalties, for having provided "Tour Operator" service. The relevant particulars in brief, of the appeals are set out in the following tabular form : Appeal No. Date of adjudication order Show cause notice date Period involved Service Tax Rs. Penalty Rs. ST/915/10 21/RDN/2010, dated 31-3-2010 17-4-2008 10-9-2004 to 30-9-2007 5,25,29,187/- 1000/- u/s 77 & 52529187/- ST/1875/10 39/40/RDN/ 2010, dated 27-9-2010 21-4-2009 1-10-2007 to 30-9-2008 1,83,77,491/- 5000/- u/s 77 Rs. 18377491/- ST/1900/10 39/40/RDN/ 2010, dated 27-9-2010 29-3-2010 1-10-2008 to 30-9-2008 1,29,26,665/- 5000/- u/s 77 & Rs. 12926665/- ST/1776/12 OIO No. 12/ AKM/CST (Adj)/2011, dated 3-10-2011 17-4-2008 10-9-2004 to 30-9-2007 1,29,19,498/- 15000000/- u/s 78 ST/2033/12 ....
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....he purposes of these appeals the facts; the statutory provisions and the contentions urged by the respective parties; the precedents and departmental circulars, etc., relied upon in support of the competing contentions, in ST/915/2010 is considered by us as illustrative of the facts and circumstances and the relevant and operative legal profile applicable to all appeals. We therefore analyse the facts in ST/915/2010 as illustrative of the facts and issues in all the appeals. 10. Before we proceed with the analyses of the relevant facts and contentions presented for consideration, we set out the statutory context in which the dispute arises. 11. Relevant statutory provisions : (a) "Tour Operator" service was introduced as a taxable head in the Act, w.e.f. 1-9-1997, in Section 65(44). This provision defined the term "Tour Operator" as : a person who holds a tourist permit granted under the rules made under the Motor Vehicles Act, 1988. Section 65(113) of the Act defines "Tour" as meaning : a journey from one place to another irrespective of the distance between such places. While the definition of "Tour" remained static, unamended and is con....
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.... in a tourist vehicle or a contract carriage by whatever name called, covered by a permit, other than a stage carriage permit, granted under the Motor Vehicles Act, 1988 (59 of 1988) or the rules made thereunder (amendments are emphasised). (f) Other relevant provisions of the Act : (i) Section 64(1) enacts, that this Chapter (Chapter V) extends to the whole of India except the State of Jammu and Kashmir; and sub-section (3) thereof provides that the provisions of the Chapter apply to taxable services provided on or after the commencement of this Chapter. (ii) Section 66, the charging provision, authorises levy of service tax at the specified percentage of the value of the taxable service referred to in the enumerated sub-clauses of Section 65(105); and enjoins that the tax shall be collected in such manner as may be prescribed. "Tour Operator", the taxable service enumerated in Section 65(105)(n) is among the taxable services specified in this provision. (iii) Section 66A enacts that where any service specified in Section....
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....-4-2000 reiterating the clarifications issued in the earlier Circular dated 22-8-1997, regarding exclusion of outbound tourism from the ambit of Service Tax liability, in fact in a verbatim reproduction of its earlier Circular dated 22-8-1997. (iv) 8-10-2001 : Board Circular No. 36/4/2001-S.T. clarifies that levy of Service Tax extends to the whole of India except the State of J&K; that the expression "India" includes the territorial waters of India; that Indian territorial waters extend up to twelve nautical miles from the Indian land mass; that Chapter V which governs the levy of Service Tax has not extended the levy to the designated areas in the continental shelf and the exclusive economic zone of India; and therefore the services provided beyond the territorial waters of India are not liable to Service Tax as provisions of Service Tax have not been extended to such areas so far. (v) The Circular dated 22-8-1997 was apparently withdrawn vide the Circular No. 93/04/2007-S.T., dated 10-5-2007; but not TRU Circular No. 1/2000, dated 27-4-2000. (vi) 12-10-2007 : The Commissioner (Service Tax), under the letter-head of the C.B....
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....ranted subject to certain exclusionary conditions. These conditions require that invoices, bills or challans issued by the "Tour Operator" to the client include only the service charges for arranging or booking of accommodation for any person in relation to a tour and not the cost of such accommodation; that no credit of duty paid on inputs is availed under the Cenvat Credit Rules, 2004; and that the "Tour Operator" should not have availed benefits under Notification No. 12/2003-S.T., dated 20-6-2003. This exemption Notification came into force w.e.f. 1-9-1997; (ii) 5-2-2004 : Notification No. 2/2004-S.T., dated 5-2-2004 extended exemption of Service Tax, leviable on 60% of the gross amount charged from any person by a tour operator (other than service in relation to a packaged tour) for services provided in relation to a tour and where the bill issued for this purpose indicates that the amount charged in the bill is the gross amount charged for such tour; subject to conditions specified therein. The Explanation to this Notification clarified that the expression "packaged tour" means a tour in which provisions for transport and accommodation for stay of the per....
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....ervice Tax, interest and penalties as specified; (d) The case of the Revenue : (i) Section 65(115) was amended with effect from 10-9-2004 to redefine "tour operator" to mean inter alia any person engaged in planning, scheduling, organising or arranging tours by any mode of transport; (ii) Notification No. 39/97-S.T., dated 22-8-1997 as amended by Notification No. 12/2004-S.T., dated 10-9-2004 and by Notification No. 1/2006-S.T., dated 1-3-2006 exempt the taxable service provided by a tour operator to the extent of 60% of the gross amount charged for the service provided in relation to a tour when a package tour provided and the bill issued for this purpose indicates that it is inclusive of charge and on condition that no Cenvat credit of duty paid on inputs or capital goods was availed under the provisions of the Cenvat Credit Rules, 2004 or benefits under Notification No. 12/2003-S.T., dated 20-6-2003 were availed; that the assessee in its declaration letter dated 10-12-2007 asserted that it had not claimed credit of Service Tax paid on input service; however, no specific reference regarding ava....
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.... sightseeing or other services by any mode of transport. This amendment does not however extend the expanded activities to cover services provided outside the territory of India; (viii) package tours including activities of planning, scheduling, organising or arranging tours were covered within the definition of "tour operator" even earlier to 10-9-2004, as part of operating any tourist vehicle. By the amendment with effect from 10-9-2004, the scope is extended only in respect of modes of transport; and as a result planning, scheduling, organising or arranging tours by any mode of transport is now treated as an ingredient of the definition of "tour operator". Engaging in the business of operating tours in tourist vehicles covered by permits however continues, but as another and a distinct ingredient of the definition, of "tour operator"; (ix) without prejudice to the substantive contention, of immunity to tax for outbound tours, the assessee is entitled to 60% abatement benefits vide Notification No. 12/2004-S.T. and 1/2006-S.T. since it had not availed Cenvat credit on input, input service or capital goods; (x) without....
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....and 1/2006-S.T., dated 22-8-1997, 10-9-2004 and 1-3-2006, respectively; (vi) the assessee is entitled to cum-duty benefit; (vii) since the service provider (the assessee) and the service recipient (the Indian tourist) are located in India, though the service is performed outside India (in outbound tours), it should be deemed that the service is delivered in India to the recipient; therefore the condition of the Export of Services Rules, 2005 is factually not fulfilled and the assessee is thus disentitled to benefits under the Export of Services Rules, 2005; (viii) invocation of the extended period of limitation and imposition of penalty is valid; there is no basis for the assessee to have had a bona fide belief that there is no liability to Service Tax and non-disclosure of the consideration received on outbound tours provided, non-filing of returns and non-remittance of tax, amounts to wilful suppression of facts with intent to evade tax. Consequently, the adjudicating authority assessed liability to the specified quantum of Service Tax, interest and penalties. 16. In view of the core dispute between the parties, the followin....
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....ing a journey from one place to another occurred and in a tourist vehicle, the taxable service was provided and was exigible to tax. (c) W.e.f. 10-9-2004 "tour operator" was amended again. We are concerned with the scope of the expression, post-10-9-2004. As amended, a person engaged in the business of planning, scheduling, organising or arranging tours (which may include arrangement for accommodation, sightseeing, or other similar services) by any mode of transport is the taxable service. This amendment incorporates an inclusionary clause, whereby any person engaged in the business of operating tours in a vehicle covered by a permit granted under the Motor Vehicles Act, 1988 or the rules made thereunder, would come within the fold of "tour operator". In our considered view the definition (post the amendment), has two facets; (i) the generic facet, of engagement in the business of planning, scheduling, organising or arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport; and (ii) the specific component, brought into....
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....da Bose - AIR 1952 SC 369 : It is not a sound principle of construction to brush aside words in a statute as being inapposite surplusage, if they can have appropriate application in circumstances conceivably within the contemplation of the statute. Jagannadhadas, J. pointed out in Rao Shiv Bahadur Singh v. State of U.P. - AIR 1953 SC 394 that : It is incumbent on a Court to avoid a construction, if reasonably permissible on the language, which would render a part of the statute devoid of any meaning or application. In J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. State of U.P. - AIR 1961 SC 1170 Das Gupta J. observed that: In the interpretation of a statute, the Court always presumes that the Legislature inserted every part thereof for a purpose and the legislative intention is that every part of the statute should have effect. The Privy Council in Quebec Railway, Light, Heat & Power Co. v. Vandry - AIR 1920 PC 181, 186 observed that the Legislature is deemed not to waste its words or to say anything in vain and a construction which attributes redundancy to the Legislature will not be accepted except for compelling reasons - see also Union of India v. Hansoli Devi - AIR 2002 SC ....
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....anging tours including operating the tour in a tourist vehicle covered by a permit granted under the 1988 Act or the rules made thereunder, falls within the ambit of "tour operator", as a consequence of the second inclusionary clause. (d) In the present batch of appeals, the assessees are all engaged in the composite activity of both planning, scheduling, organising or arranging tours (other than by a tourist vehicle covered by a permit granted under the Motor Vehicles Act, 1988 or the rules made thereunder); and in operating such tours as well. (e) The assessees operate and facilitate outbound tours whereby Indian tourists are provided services in relation to tourism outside the Indian territory, to visit foreign locales. No part of the journey, (commencing from India or on return to India after conclusion of the tour) is in a tourist vehicle. The commencement of outbound journey or the conclusion of the tour at the Indian destination is normally by air transport, to and from a foreign location. It is asserted by the assessees, an assertion that is not disputed by Revenue, that the facilities provided by each of the assessees include....
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....ring and dealing in oil. It owned three mills at Bombay and one at Raichur for manufacturing oil from groundnuts. The oil produced at Raichur was partly sold at Raichur and partly in Bombay. The issue before the Constitution Bench was in respect of the liability under the Excess Profits Tax Act, 1940, for the oil manufactured at Raichur but sold in Bombay. According to the assessee, in respect of such oil, a portion of the profit earned was attributable to the business of manufacturing the oil at Raichur and that portion of the profits was not liable to assessment to tax under the 1940 Act. Section 5 of this Act inter alia reads as under : "5. This Act shall apply to every business of which any part of the profits made during the chargeable accounting period is chargeable to income tax by virtue of the provisions of sub-clause (i) or sub-clause (ii) of clause (b) of sub-section (1) of Section 4 of the Indian Income-tax Act, 1922, or of clause (c) of that sub-section :   Provided that this Act shall not apply to any business the whole of the profits of w....
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....so to Section 5(3) of the 1940 Act would become applicable to the case and the manufacturing part of the assessee's business would be exempt from the operation of the Act. (e) In an appeal arising under the Income-tax Act, 1961, the Supreme Court in Ishikawajma-Harima Heavy Indus. Ltd. v. Dir. of Income Tax, Mumbai - 2007 (6) S.T.R. 3 (S.C.) clarified that where different, severable parts of a composite contract are performed in different places, the principle of apportionment can be applied, to determine which fiscal jurisdiction could tax that part of the transaction falling within the fiscal jurisdiction; and that the principle of apportionment helps to determine, where the territorial jurisdiction of a particular State lies, to determine its capacity to tax an event; and that it is essential for determining the taxability of several operations to apply the principle of apportionment to composite transactions, which have some operations in one territory and some in others. Summarising its conclusion, the Apex Court pointed out (para 98); (a) that only such part of the income, as is attributable to operations carried out in India can be taxed in India; ....
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.... Act, in particular provisions of Section 65, is on provisions of a taxable service. Thus, where a service is provided and consumed outside the territorial locus of the Act, the consideration received therefor would not be subject to levy of service tax, under the substantive and processual provisions of the Act. The Board Circular dated 8-10-2001, though issued as a clarification in the context of the pre-amended definition of "tour operator" (prior to its amendment w.e.f. 10-9-2004) is equally applicable post the amendment. This is so since our analysis on the first issue (as to the scope of the expression "tour operator", post the amendment) leads to the conclusion that a composite activity, of operating a tour by a mode of transport other than in a tourist vehicle covered by a permit granted under the provisions of the Motor Vehicles Act, 1988 or the rules made thereunder, even if accompanied by services provided in the nature of planning, scheduling, organising or arranging tours (including provision of arrangements for accommodation, sightseeing or other similar services), would not be comprehended within the definition of "tour operator". (j) ....
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....utside the Indian territory must be exercised from the gross consideration received, even where the service is provided and consumed partly within India and partly without. (l) Section 65(105)(n) specifies the taxable service to be a service provided or to be provided to any person, by a "tour operator" in relation to a tour. Section 65(113) defines "tour" as a journey from one place to another irrespective of the distance between such places. In this view of the statutory definition of "tour", considered in the context of the legal position demarcating the limits of the application and reach of provisions of the Act, it is clear that a journey from one place to another beyond the territorial limits of India, even if amounting to an activity comprised within the ambit of the definition of "tour operator", would not amount to a taxable service under the provisions of the Act. (m) On the aforesaid analysis we conclude that the consideration received for operating and arranging outbound tours, even if falling within the scope of the amended definition of "tour operator"; (provided by the assessees and consumed by their tourist customers ....
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....erested in consuming the benefits of tourism in foreign locations and the consideration is for that purpose. No part of the consideration is intended for the planning and scheduling of outbound tours by the assessees. (iii) In our considered view, the provisions of Section 65A have no direct application. This provision provides a guide to the classification of taxable services, where in any circumstances, a taxable service is, prima facie classifiable under two or more sub-clauses of Section 65(105). The provision clarifies that in any such situation, the sub-clause of Section 65(105) which provides the most specific description (of the service provided) must be preferred to another which provides a more general description. Sub-clause (b) states that a composite service, consisting of a combination of different services, which cannot be classified in the manner provided in clause (a), shall be classified as if they consisted of a service which gives them their essential character, in so far as this criterion is applicable. (iv) As the activity of planning and scheduling on the one hand and of organising and arranging (tour) on the other, a....
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....ot received in convertible foreign exchange, outbound tourist service must be treated as export of service. According to the assessees, the requirement of receipt of consideration in convertible foreign exchange, a requirement enjoined under Rule 3(2)(b) of the 2005 Rules, is to facilitate and encourage inflow of foreign currency into India and to avoid outflow of Indian currency i.e. to augment foreign exchange earnings. This objective is achieved. If the assessees are made liable to remit Service Tax in the case of outbound tourists, as tourists in such an event would opt for overseas located tour operators wherever the intention is of tourism abroad and this would result in a net outflow of currency from India, defeating the substantive purposes of the 2005 Rules. Hence, the provisions of 2005 Rules must receive a purposive construction and be liberally interpreted. Assessees also contend that remittances in convertible foreign currency is required only with effect from 1-3-2007, as pointed out in Nipuna Services Limited v. C.C.E. - 2009 (14) S.T.R. 706 (Tri.-Bang.) and in Muthoot Finance Corporation (supra). (iii) Since we have concluded, pursuant to ....
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....ustification for invocation of the extended period of limitation, even if there be no intention to evade payment of tax. (ii) In view of decisions of the Supreme Court in Padmini Products v. C.C.E. - 1989 (43) E.L.T. 195 (S.C.); in C.C.E. v. Chemphar Drugs and Lintments - 1989 (40) E.L.T. 276 (S.C.); and in Uniworth Textiles Ltd. v. C.C.E., Raipur - 2013 (288) E.L.T. 161 (S.C.), mere non-remittance of tax on the consideration received on outbound tours cannot amount to suppression or misstatement of facts or to an intention to evade tax. In order to constitute suppression, some positive action disclosing an intention to evade tax or deliberately default in the remittance of tax, is necessary. We also notice that the assessees have presented circumstances establishing a substantial normative basis for a bona fide belief that there is no liability to tax, on outbound tours. We therefore conclude that invocation of the extended period of limitation, invoking the proviso to Section 73(1) of the Act, is unjustified. Accordingly, the impugned orders of assessment would be valid only to the extent of the normal period of limitation, under Section 73 of the Act. ....
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.... would be India. After extracting this clarification and assuming it to be a clarification issued by the Board (in Para 30.3), the adjudicating authority at Para 30.4 while opining that Board Circulars may not be binding on quasi-judicial authorities such as himself, concluded that the Board clarification is in accordance with Service Tax Rules and Regulations, is not contrary to any Notification issued and is also applicable to the current circumstances. The authority concluded that outbound tours fall within the Service Tax net, with effect from 10-9-2004. We find it disturbing that a quasi-judicial authority seeks administrative guidance on the interpretation and scope of a statutory provision which falls for his determination. Judicial or quasi-judicial determination authorizes no such solicitation for guidance on any aspect (of law or fact), to be decided by the authority. Even otherwise, the clarification set out in the letter dated 12-10-2007 is clearly an exposition of provisions of the Place of Service Rules, 2012 which have come in force w.e.f. 1-7-2012. Rule 8 of these Rules states that the place of provision of a service, where the location of the provider of the servic....
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.... of the definition of "tour operator"; (c) The consideration received for operating and arranging outbound tours (provided by the appellants and consumed by tourists beyond the territory of India) is not liable to levy and collection of Service Tax under the provisions of the Act, since the taxable event is the provision of a taxable service; and not the pursuit of the profession, of a taxable service providers. The Act authorizes the levy and collection of tax for providing a destination and consumption based taxable service but does not authorize levy and collection of tax, for a service provided and consumed beyond the Indian territory; and (d) Without prejudice to the conclusions summarized in (a) to (c) supra, we hold : (i) Planning and scheduling of outbound tours may not be components of services provided to tourists, would amount to an incidental activity undertaken as a prelude to providing tours and thus the service if at all provided is to the service provider itself. Nevertheless, since organizing and/or arranging of outbound tours are components of the service provided to tourists an....