Airline’s Tour Packages Don’t Qualify As “Tour Operator Services”, No Service Tax Payable: CESTAT

The Kolkata Bench Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a service tax demand against Air India Limited, holding that the airline’s tour packages do not qualify as “Tour Operator Services” and that reimbursements received from its subsidiary cannot be taxed under “Airport Services” for the relevant period. The Bench of Ashok Jindal ( Judicial Member) and K. Anpazhakan (Technical Member) has observed that merely offering return airfare along with accommodation and transfers does not amount to planning or organizing tours in the statutory sense. The Eastern Zonal Bench of CESTAT allowed the appeal filed by Air India Limited and set aside a total service tax demand of ₹55,00,266, along with interest and penalties, for the period 2008-09 to 2010-11. The appeal arose from an Order-in-Original passed by the Principal Commissioner of Service Tax-I, Kolkata, confirming two separate demands — ₹41,41,028 under “Tour Operator Service” for FY 2010-11 and ₹13,59,238 under “Airport Service” for FY 2008-09 and 2009-10. The Bench comprising Judicial Member Shri Ashok Jindal and Technical Member Shri K. Anpazhakan pronounced the final order on February 27, 2026. Air India, engaged in transportation of passengers and goods by air, offered promotional “tour packages” that included return airfare, hotel accommodation, airport transfers, meals, and sightseeing arrangements for a lump-sum consideration. During a CERA audit for the period 2008-09 to 2010-11, the department alleged that Air India wrongly availed abatement under Notification No. 01/2006-ST while providing “Tour Operator Services,” despite availing CENVAT credit on common input services. The airline failed to discharge service tax under the category of “Airport Service” on certain amounts recovered from its wholly owned subsidiary, Airline Allied Services Ltd. (AASL), towards training charges, dry provisions, repair expenses, and other adjustments. A show cause notice dated September 24, 2013, invoked the extended period of limitation. The Tribunal examined the statutory definition of “tour operator” under Section 65(115) of the Finance Act, 1994, which covers persons engaged in planning, scheduling, organizing, or arranging tours. Air India contended that it merely offered bundled travel packages and did not engage in planning or organizing tours on behalf of customers. The airline relied on an earlier decision of CESTAT in its own case and on the ruling in Jet Airways (India) Ltd. The Tribunal held that Air India’s activities fell outside the scope of “Tour Operator Service.” Accordingly, the demand of ₹41.41 lakh was set aside. However, the Bench clarified that since Air India had already collected service tax from customers and paid the same after claiming abatement, such amounts would not be refundable. The second issue concerned taxability under “Airport Service” as defined under Section 65(105)(zzm) prior to its amendment on July 1, 2010. The Tribunal noted that during the relevant period, airport services were taxable only if provided by the Airport Authority; or a person authorized by the Airport Authority. In the present case, Air India had incurred certain expenses on behalf of AASL and recovered the same. The department sought to classify these as taxable airport services. Relying on the decision in Commissioner of Service Tax, Mumbai-I v. Soft Touch Aviation, the Bench held that mere provision of services within airport premises does not qualify as “Airport Service” unless the service provider is authorized by the Airport Authority and acts on its behalf. The Tribunal emphasized that the definition was expanded only from July 1, 2010, to cover all services provided within airport premises irrespective of authorization. Since the entire demand pertained to the period prior to the amendment, the pre-amended restrictive definition applied. As Air India was not authorized by the Airport Authority to provide such services, the demand of ₹13.59 lakh under “Airport Service” was held unsustainable. Although the show cause notice invoked the extended period of limitation, the Tribunal did not find it necessary to delve into the issue in detail, as both demands were held unsustainable on merits. Consequently, the entire service tax demand, along with interest and penalties, was quashed. Allowing the appeal with consequential relief, the Tribunal set aside the order in toto. Case Details Case Title: Air India Limited Versus Principal Commissioner of Service Tax-I Citation: JURISHOUR-181-CESTAT-2026(Kol) Case No.: Service Tax Appeal No. 76372 of 2016 Date: 27.02.2026 Counsel For Appellant: Parth Parikh, Advocate Counsel For Respondent: S. Dutta, Authorized Representative Click Here To Read Order Read More: No Service Tax on Advances Received Before 1 July 2010: CESTAT

Airline’s Tour Packages Don’t Qualify As “Tour Operator Services”, No Service Tax Payable: CESTAT

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