Whether contract carriage operation can be considered as providing tour operator services?

Case :-MAHARASHTRA STATE ROAD TRANSPORT CORPN. LTD. VERSUS C.C.E., NASHIK

Citation:- 2014 (36) S.T.R. 161 (Tri. - Mumbai)

Brief Facts:-Nine appeals have been filed . Three appeals have been filed by Maharashtra State Road Transport Corporation Ltd. (MSRTC) while the remaining six appeals have been filed by the Revenue. In all the nine appeals, common issue is involved and, therefore, are being dealt with same order. The appeals are pertaining to different divisions of MSRTC, viz. Jalgaon, Dhule, Nashik, Ahmednagar and Chandrapur. The period involved in different appeals is different but within the limits mentioned earlier.
The assessee is engaged in the business of transportation of persons and operate their activity in two categories :-
(i) Stage Carriage :- Transport of passengers on a specified route wherein the individual passenger pays fare either for the whole journey or for the stages of journey. This is a foremost activity of the Corporation.
(ii) Contract Carriage :- Buses are provided on Hire/Lease under a Round Trip Contract or a Drop Contract wherein the entire vehicle is provided based on seat capacity, route, pick-up place and final destination specified in the contract. They have given the nature of occasions, wherein the buses are let out on hire -
(a)       Marriages
(b)       Educational Purpose
(c)        General or local election/poll - for transportation of personnel deputed by Election Commission/local authority for conducting the Poll.
(d)       Transportation of police force in event of riots, visits by MPs, MLAs, politicians, etc.
(e)       Transportation of injured railway passengers in case of accidents.
In the appeals filed by the assessee, the Commissioner in her adjudication order has taken a view that all the operations undertaken by the assessee under contract carriage would fall under the category of tour operator as defined under Section 165(105)(a) of the Finance Act, 1994. The Commissioner has taken a view that once the assessee is operating tours under contract carriage, they are liable to be covered as tour operator and, therefore, liable to pay Service Tax.

Appellant’s Contention:- The assessee’s contention was that since the vehicles do not meet the specification of tourist vehicles, even when these are being operated as contract carriage, they are not liable to pay Service Tax.
The assessee has also detailed the specifications for tourist vehicle as also the specification relating to their ordinary buses to prove the point that their vehicles do not meet the specifications of tourist vehicle.
The learned counsel for the assessee cites this Tribunal’s decision in their own case in Appeal Nos. ST/61 to 63/2008, 317/2009, 130 to 135/2008 [2014 (33)S.T.R.168 (Tribunal)] in support of their contention. The learned counsel stated that in view of this decision, there is no reason to charge the Service Tax. He further submitted that till 2008, the requirement of tourist vehicle continued in the law and it is only in 2008 that in addition to the tourist vehicle, contract carriage has been added. Thus, before 2008, on this ground alone, they are not liable to pay Service Tax.

Respondent’s Contention:- The learned AR, on the other hand, stated that in view of the definition in the statute and in view of the Hon’ble Madras High Court’s decision in the case of Secy. Federn. of Bus-operators Assn. of T.N. v. UOI reported in 2001 (134)E.L.T.618 (Mad.) = 2006 (2) S.T.R.411 (Mad.), which has been upheld by the Hon’ble Supreme Court as reported in 2003 (157) E.L.T. A144 (S.C.), the assessee is liable to pay Service Tax.
The learned AR further quoted the Hon’ble Madras High Court’s judgment in the case of Sri Pandyan Travels v. CCE, Chennai-II reported in 2006 (3)S.T.R.151 (Mad.) = 2004 (163) E.L.T.409 (Mad.) and the Tribunal’s decision in the case of Parveen Travels (P) Ltd. v. CST, Chennai reported in 2008 (11)S.T.R.357. He also quoted this Tribunal’s decision in the case of CCE, Nasik v. Mrs. Cynthia Rebello in Appeal Nos. ST/159-161/2007, wherein the Tribunal has given the judgment favourable to the Revenue. The learned AR stated that in view of the latest judgment, the appeals of the department be allowed and that of the assessee be dismissed.

Reasoning Of Judgement:- Submissions of both parties were considered. Certain definitions were taken into account which are as follows:-
“Tour means a journey from one place to another irrespective of the distance between such places”.
The definition of “tour operator” from 1-4-2000 to 9-9-2004 was as under :-
“Tour operator means any person engaged in the business of operating tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act, 1988 (59 of 1988) or the Rules made thereunder.”
In 2004, the said definition underwent a change and the position from 10-9-2004 onwards became as under :-
“ ‘Tour operator’ means a person engaged in the business of planning, scheduling, organizing or arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport, and includes any person engaged in the business of operating tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act, 1988 (59 of 1988) or the rules made thereunder.”
A perusal of the above definition would indicate that tour means a journey from one place to another irrespective of distance between such places. The definition of “tour operator” as was existing before 10-9-2004 included any person engaged in the business of operating tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act or the Rules made thereunder. From 10-9-2004, the said definition underwent a change and the new definition has two parts. The second part of the definition is what was being covered prior to 10-9-2004. The first part of the definition which has been added from 10-9-2004 defines as ‘tour operator’ means any person engaged in the business of planning, scheduling, organizing or arranging tours (which may include arrangements for accommodation, sightseeing or other similar services by any mode of transport). The assessee is not engaged in the business of planning, scheduling, organizing or arranging tours and, therefore, the first part of the definition would not cover them. As far as the second part of the definition is concerned, it is only to place that the person is engaged in the business of operating tours in a tourist vehicle covered by a permit granted by the Motor Vehicles Act or the Rules made thereunder. The same definition was existing prior to 10-9-2004.
Further‘tourist vehicle’ is defined under the Motor Vehicles Act, 1988. Section 2(43) of the Motor Vehicles Act defines a tourist vehicle as follows :-
“ ‘Tourist vehicle’ means a contract carriage constructed or adapted and equipped and maintained
in accordance with such specifications as may be prescribed in this behalf.”
Further, the specification for the tourist vehicle is prescribed under Rule 128 of the Central Motor Vehicles Rules. Thus to charge Service Tax, the vehicle used for operating tours must meet the said specifications.
Since the definition of ‘tourist vehicle’ contains a further term i.e. ‘contract carriage’, it will be important to understand the definition of ‘contract carriage’. ‘Contract carriage’ has been defined under Section 2(7) of the Motor Vehicles Act as under :-
“ “Contract carriage” means a motor vehicle which carries a passenger or passengers for hire or reward and is engaged under a contract, whether expressed or implied, for the use of such vehicle as a whole for the carriage of passengers mentioned therein and entered into by a person with a holder of a permit in relation to such vehicle or any person authorised by him in this behalf on a fixed or an agreed rate or sum -
(a)       on a time basis, whether or not with reference to any route or distance; or
(b)       from one point to another, and in either case, without stopping to pick up or set down passengers not included in the contract anywhere during the journey, and includes -
(i)        a maxicab; and
(ii)        a motor cab notwithstanding that separate fares are charged for its passengers”.
In addition to ‘contract carriage’, there is another type known as ‘stage carriage’. ‘Stage carriage’ is defined under Section 2(40) of the Motor Vehicles Act which reads as under :-
“Stage carriage means a motor vehicle constructed or adapted to carry more than six passengers including the driver for hire or reward at separate fares paid by or for individual passengers, either for the whole journey or for the stages of the journey.”
From the above definitions, it is noted that ‘stage carriage’ and ‘contract carriage’ are the terms used for the type of operation. Tourist vehicle is a term in which certain specifications have been prescribed under Rule 128 of the Central Motor Vehicles Rules. There are certain broad specifications provided in general for motor vehicles. However, for tourist vehicle, the specifications provided relate to more comfort etc. It is important to note that a vehicle meeting the tourist vehicle specifications can also be used for stage carriage operation. Similarly, vehicles meeting the tourist vehicle specifications can also be used for contract carriage operation. Keeping in view the nature, tours would normally be conducted in a contract carriage and not in the stage carriage operation.
Further, they have carefully gone through the Hon’ble Madras High Court’s judgment in the case of Secy. Federn. of Bus-operators Assn. of T.N. (supra) which has analysed the whole issue in great detail. The Hon’ble High Court has come to the conclusion that for levy of Service Tax, the vehicle must meet the specifications of tourist vehicle. The Hon’ble High Court in para 14 of the said judgment has observed as under :-
“At this juncture, it will be seen that as per Section 2(43) of the Motor Vehicles Act, the Motor Vehicles Rules specifically provide the conditions for a vehicle being recognised as a ‘tourist vehicle’ under Section 2(43). We can conveniently refer to Rule 128 of the Motor Vehicles Rules, which provides the conditions for a tourist vehicle other than motor cabs, maxi-cab, camper’s van, house trailer which a tourist vehicle shall conform to. Number of specifications are given in that rule in respect of dimension, structure, door arrangement, ventilation, luggage space, seating arrangement, painting and furnishing, lighting, fitting and accessories, etc. In short, Rule 128 specifies the standard of comforts which are required to be there in a vehicle for being recognised as the ‘tourist vehicle’ under the Central Motor Vehicles Rules. We have, therefore, no hesitation first to hold that the first and foremost condition for a person to be held as a ‘tour operator’ within the meaning of Section 65(52) of the Finance Act is that he must be engaged in the business of operating tours in a ‘tourist vehicle’ in terms of Section 2(43) of the Motor Vehicles Act and in no other type of vehicle and, therefore, necessarily such vehicle must conform to the conditions prescribed under Rule 128 of the Central Motor Vehicles Rules.”
The Hon’ble High Court has further analysed that the tourist vehicle must be contract carriage. Thus, if a tourist vehicle is used for stage carriage operation, that will not be taxable under the category of tour operator. The tourist vehicle should be used only as a contract carriage for levy of Service Tax. They have also gone through the judgments in the case of Gandhi Travels (supra) and Prasanna Travels Pvt. Ltd. (supra). It is also noted that the Tribunal’s judgment in the case of Gandhi Travels has been set aside and the matter is remanded back to the Hon’ble Gujarat High Court by the Hon’ble Supreme Court as reported in 2010 (17)S.T.R.513 (S.C.).They have also gone through the judgment of the Hon’ble Madras High Court in the case of Sri Pandyan Travels (supra). Further, in all the judgments, the basic thing that has been consistently upheld is that the vehicle should meet the specifications of tourist vehicles as specified under Rule 128 of the Central Motor Vehicles Rules. There has been some ambiguity and in some places, the Revenue has tried to interpret the law in a way that all contract carriages are liable to pay Service Tax under the category of ‘tour operator’. Perhaps on the assumption that all contract carriages meet tourist vehicle specifications. They do not find this as correct. Moreover, this Tribunal in the case of Choudhary Yatra Co. Pvt. Ltd. v. CCE, Nashik reported in 2013 (29)S.T.R.240, has clearly brought out the distinction. Thus, in their view, in the present set of appeals where there is no dispute that the demands are in respect of contract carriage operation alone, one has to see whether the vehicles used were meeting the specifications of tourist vehicle. In some of the impugned orders, it is observed that the assessee has given the table indicating the specifications of the ordinary buses of MSRTC and the corresponding specifications for tourist vehicle. Certain certificates have also been produced from independent engineer/persons relating to the specifications of MSRTC buses. In fact the Commissioner (Appeals) in some cases based upon such statement, has allowed the assessee’s appeals on the grounds that there is nothing to prove that the vehicles are tourist vehicles.

Decision:- The appeal is allowed.

Comment:- The crux of the case is that Service Tax cannot be charged under tour operator services on vehicles that are not tourist vehicles which are operated as contract carriage vehicle. Therefore, Service Tax will be chargeable under tour operator services only when vehicle used meets the specifications prescribed under Rule 128 of Central Motor Vehicles Rules, 1989 that are for a tourist vehicle.

Submitted By:- Somya Jain

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