The Bangalore Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a service tax demand against a travel operator concerning outbound package tours, air ticket costs included in domestic tour packages, and booking cancellation charges.
The bench of P.A. Augustian (Judicial Member) and R. Bhagya Devi (Technical) Member) also held that the demand for 2007–09 was barred by limitation.
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The appellant/assessee has challenged the order of the Commissioner of Central Excise and Service Tax, Mangalore. An audit of the operator’s records had led to a show cause notice dated April 18, 2011. The adjudicating authority subsequently confirmed service tax with interest and imposed penalties.
The bench held that the tour services were consumed by tourists beyond Indian territory and were not liable to the service tax levy in the circumstances of the case. It found that the issue was covered by the Tribunal’s Larger Bench decision in Cox & Kings Limited.
The dispute also concerned whether the cost of air tickets should be included while determining the taxable value of domestic package tours. The assessee argued that the ticket cost was a reimbursable expense collected from passengers.
The Bench relied on the Supreme Court’s decision in Intercontinental Consultants and Technocrats Pvt. Ltd. and held that reimbursement of ticket charges from customers could not be subjected to service tax. The operator had also argued that, if its role in arranging air travel attracted tax, liability should be assessed on its commission as an agent rather than on the full ticket price.
The Tribunal separately rejected the demand on booking cancellation charges. Relying on its decision in Comet Car Sales & Service Pvt. Ltd., it found that the charges received upon cancellation were compensation, not consideration for providing a service. No service tax was therefore chargeable on those receipts.
The Bench further examined the department’s use of the extended limitation period. It noted that the operator had filed its ST-3 returns for 2007–08 on April 9, 2008, and for 2008–09 on April 21, 2009, while the show cause notice was issued on April 18, 2011.
In the absence of grounds to allege fraud, suppression or wilful failure to pay tax, the Tribunal held that the demand for the entire 2007–09 period was barred by limitation.
The Bench held the demand under the challenged order to be unsustainable and directed consequential relief, if any, in accordance with law.
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