Whether international tour packages that commenced and concluded in India and for which payments were received in Indian rupees be treated as exports?

PJ/Case Law/2014-15/2127

Case:- M/s VATHIKA INTERNATIONAL TRAVELS Vs COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, MANGALORE

Citation:-2014-TIOL-608-CESTAT-BANG

Brief facts:-Petitioner is the appellant. The adjudicating authority by the order impugned determined that Rs.4,24,45,867/- (received by the assessee as per table-1); Rs.82,38,023/- (as set out in Table-2); and Rs.1,99,407/- (as set out in Table-3) ought to be treated as the gross value received for taxable services performed, under Section 67 of the Finance Act, 1994 (the Act) read with Notification No. 1/2006-ST dated 1.3.2006 as amended by Notification No. 38/2007- ST dated 23.8.2007. The authority also confirmed the service tax demand of Rs.14,23,613; appropriated Rs.22,962/- already remitted by the assessee; and confirmed interest and penalties as specified in the adjudication order. The petitioner/assessee is a registrant under the category “tour operator service”. During audit of the assessee's records it was observed that the assessee was providing international tour packages but had failed to remit service tax. The services were provided commencing from India and the remuneration therefor is received in Indian rupees from customers. Eventually, after due process, issuance of a Show Cause Notice; receiving response from the assessee and consideration of the same, the impugned adjudication order was passed. The assessee provided the taxable service “tour operator service” by way of international tour packages during 2007-2008 to 2009-2010 apart from providing domestic tour packages. Audit of the assessee's records revealed that the assessee was claiming abatement of 75% of the value received from the taxable service under Notification No. 1/2006-ST dated 1.3.2006 as amended by Notification No. 38/2007-ST dated 23.8.2007; that the assessee failed to add the value received in respect of air tickets to the gross value; was claiming benefit of abatement of 75% though it was not providing packaged tours; that assessee received certain amounts towards tour cancellation charges which were unauthorisedly excluded from the gross taxable value; and therefore was liable to be proceeded against for assessment and recovery of the legitimate service tax leviable.

Appellant’s contentions:-It was contended by ld. Counsel for the assessee that provisions of the Act have no operation in respect of services provided beyond the territorial limits of India and that the services with respect to international packages were provided outside India. Further, reliance was also placed on the decision of this Tribunal in S.I.D.B.I. Vs. CCE, Chandigarh - 2011 (23) STR 392 (Tri.-Delhi) = (2011-TIOL-581-CESTAT-DEL), wherein it was held that the service taxcould not be levied treating the amount towards cancellation charges received by the assesseeas a gross taxable value for taxable services provided. As regards non inclusion of the value of tickets in the taxable value of service, it was contended that under provisions of Section 67 of the Act, gross value received on taxable servicesprovided ought to be reckoned as the taxable value of the service and so the value of tickets should not be included as they merely represents sale.

Respondent’s contentions:-The respondent reiterated the findings of the lower authorities and prayed to put the appellant on terms.

Reasoning of judgment:- Prima facie and in view of the principle enunciated in the decision of this Tribunal in S.I.D.B.I. Vs. CCE, Chandigarh - 2011 (23) STR 392 (Tri.-Delhi) = (2011-TIOL-581-CESTAT-DEL),service taxcould not be levied treating the amount towards cancellation charges received by the assesseeas a gross taxable value for taxable services provided. With regard to domestic tour packages provided by the assessee, audit revealed that theassessee had excluded the value of the air tickets (received by the assessee as part ofcomposite amounts received for services provided), from the value disclosed and offered totax. Under provisions of Section 67 of the Act, a gross value received on taxable servicesprovided ought to be reckoned as the taxable value of the service. The adjudication order istherefore prima facie unassailable on this aspect.In respect of international tour packages, the assessee failed to disclose amounts receivedon these services provided, on the ground that these services are provided to foreign travelagents and is in the nature for support service and alternatively on the ground that since thesubstantial portion of the service was in foreign locations and was thus not assessable toservice tax. The adjudicating authority in our view and prima facie rightly concluded that sincethe assessee has received payments for providing international tour packages in Dubai,Hongkong, Malaysia, Singapore, Thailand, Srilanka, Kailash Mansarovar, Mautitius etc. andreceived payments for the said service provided in India and the service commenced from within the Indian territory ended with return to Indian territory and was a composite tour package; no service was provided to a foreign tourist agent or any amount received from such foreign service recipient in convertible foreign exchange, was disentitled to the benefits under the Export Service Rules, 2005.

It was contended by ld. Counsel for the assessee that provisions of the Act have no operation in respect of services provided beyond the territorial limits of India. We are prima facie unable to accept this contention. Since all the international tour packages provided by the assessee commenced and concluded in India and the payments for such services provided were received in Indian rupees there is a clear territorial nexus legitimizing levy of tax under provisions of the Act.

On behalf of the assessee, it was contended, unsuccessfully before the adjudicating authority that initiation of proceedings invoking extended period of limitation under the proviso to Section 73(1) of the Act, was unlawful. The adjudicating authority held that the conduct of the assessee in mis-declaring the gross taxable value in its returns by withholding declaration of the value of air travel tickets received and international package tours, resulting in non/short payment of service tax is mis-declaration and constitutes wilful suppression of facts which would not have come to the notice of Revenue but for detailed audit of the assessee's records and therefore invocation of the extended period is justified. This is a matter which involves a detailed consideration of the facts, more appropriate at the final hearing. On behalf of the assessee it was contended that in so far as international tour packages are concerned, the petitioner bonafide believed that these were not assessable to service tax in view of Trade Notice dated 28.8.1997 issued by Madhurai Commissionerate, based on Circular No.43/10/97- TRU dated 22.8.1997 issued by the Board which indicated that service tax on services rendered by tour operators is only in respect of services rendered in India in respect of a tour within the Indian territory. For the present stage of the proceedings, we are not inclined to proceed on a detailed consideration of the legitimacy of invoking the extended period of limitation. We are inclined to consider the liability of the assessee in respect of service tax on international tour packages for a period one year prior to the date of the Show Cause Notice (18.4.2011). Ld. Counsel for the appellant has furnished a table along with a compilation disclosing that the amount of tax recoverable on international tour packages within the normal limitation period is Rs.2,06,116/-. According to the table furnished by the petitioner the tax liability component on domestic tour packages (after including the amounts received towards air tickets) is Rs.2,28,643/-, on international tour packages (within the normal limitation period) Rs.2,06,116/- and penalty of interest thereon. We therefore consider it appropriate that considerations of justice and balance of convenience warrant grant of waiver of pre-deposit and stay of all further proceedings on condition that the assessee should deposit Rs. 10 lakhs (Rupees Ten lakhs), to cover the prima facie liability of tax, interest and penalties on the aforesaid two components of the taxable service.

Decision: The stay application is disposed of.

Comment:-The essence of the case is that prima facie, the international tour packages that are commenced and concluded in India and the consideration for which is also received in Indian Rupees are leviable to service tax and are not entitled to the benefit of export of services. It was also held that prima facie, the value of tickets is not to be included in the taxable value of service of tour operator.

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PJ/Case Law/2014-15/2127

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