Bus Operations Not ‘Tour Operator’ Services: CESTAT Quashes Major Service Tax Demands on RSRTC

The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi, has granted major relief to the Rajasthan State Road Transport Corporation (RSRTC) by setting aside substantial service tax demands raised against it, holding that its point-to-point bus operations, even when conducted in association with the Rajasthan Tourism Development Corporation (RTDC), do not amount to “tour operator services” under the Finance Act, 1994. The bench of Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) has observed that set aside the entire demand relating to tour operator services, bus stand fees and licence fees even for the normal period. The denial of CENVAT credit on insurance services and the demands on rent, canteen, advertising and rent-a-cab services were upheld only for the normal period. The matter was remanded to the Commissioner solely for the limited purpose of recomputation in terms of the Tribunal’s findings. The appeal arose from an order passed by the Principal Commissioner of CGST and Central Excise, Jaipur, confirming service tax demands, interest and penalties based on four show cause notices issued between 2005 and 2011. The department had alleged that RSRTC had failed to discharge service tax on various services including tour operator services, rent-a-cab services, bus stand fees, support services of business and commerce, advertising services, income from rent and canteen contracts, and had also wrongly availed CENVAT credit on insurance services. The total demands ran into several crores of rupees, with the largest component relating to tour operator services. The principal dispute before the Tribunal was whether RSRTC could be treated as a tour operator on the ground that it operated tourist buses between Jaipur–Delhi, Jaipur–Agra and within Rajasthan under an agreement with RTDC. The department contended that since RSRTC held tourist permits and had entered into an arrangement aimed at promoting tourism, it fell within the definition of “tour operator” under Section 65(115) of the Finance Act, 1994. RSRTC, on the other hand, argued that it merely provided point-to-point transportation at fixed fares and did not engage in planning, scheduling or organizing tours, nor did it arrange accommodation or sightseeing. After examining the statutory provisions and the nature of the arrangement, the Tribunal agreed with RSRTC’s stand. It noted that RTDC’s role was limited to providing discounted accommodation at certain locations and that RSRTC retained the entire fare collected from passengers, paying only a nominal amount to RTDC. The Bench held that merely transporting passengers from one place to another at predetermined fares, without a common contract or tour package, is akin to normal passenger transport and not tour operation. Relying on earlier decisions including those in the cases of APSRTC, SVR Tours & Travels and Himachal Road Transport Corporation, the Tribunal ruled that the activity did not qualify as tour operator service and set aside the entire demand under this head, even for the normal period of limitation. On the issue of CENVAT credit availed on service tax paid towards third-party insurance of buses, the Tribunal ruled against RSRTC. It observed that stage carriage passenger transport services are exempt from service tax and therefore no CENVAT credit can be taken on input services used for providing exempt or non-taxable services. The denial of CENVAT credit amounting to over ₹89 lakh was thus upheld for the normal period. The Tribunal also set aside the demand of service tax on licence fees received from Sai Marketing and Trading for transport of goods, as well as the demand on bus stand fees collected from buses of other states, noting that these issues were covered in favour of RSRTC by earlier decisions. Both sides fairly agreed that these demands could not be sustained. With respect to income earned from rent and canteen contracts and advertising space or time services, RSRTC did not press these issues on merits. Consequently, the Tribunal upheld the service tax demands relating to these activities, limited to the normal period of limitation. Similarly, the demand on rent-a-cab services, vendor licences and advertisement services was also upheld as RSRTC did not contest these on merits. A significant part of the relief came on the question of limitation. RSRTC argued that since show cause notices had already been issued in 2005 on the same issues, the department could not subsequently invoke the extended period of limitation by alleging suppression of facts. The Tribunal relied on the Supreme Court’s judgment in Nizam Sugar Factory, holding that once the department is aware of the facts, the same cannot be treated as suppression in later periods. The Bench observed that RSRTC being a government entity could have entertained a bona fide belief regarding taxability and eligibility of credit, and the department could not repeatedly claim ignorance. The Tribunal quashed all service tax demands, interest and penalties for the extended period of limitation. It held that the department was not justified in invoking the extended period once the issues were already in its knowledge through earlier proceedings and returns. Case Details Case Title: RSRTC Versus The Principal Commissioner Of Central Excise And Cgst-Jaipur Case No.: Service Tax Appeal No. 50039 Of 2025 Date: 06/01/2026 Counsel For Appellant: Sameer Sood Counsel For Respondent: Aejaz Ahmad Click Here To Read Order Read More: No GTA Service Tax on Transport of Exported Extraction Meal; CESTAT Upholds Exemption Despite Procedural Lapses

Bus Operations Not ‘Tour Operator’ Services: CESTAT Quashes Major Service Tax Demands on RSRTC

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