Services Involving Accommodation Without Transport Cannot Be Taxed as Tour Operator Service: CESTAT [Read Order]

The Bangalore Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that services involving accommodation without transportation cannot be classified as tour operator service under the Finance Act, 1994.

Jungle Lodges and Resorts Limited, the appellant, is engaged in providing eco-adventure and wildlife tourism packages across various locations in Karnataka. The company offered facilities such as food, accommodation, and activities like safaris, bird watching, and trekking.

The department issued a show cause notice alleging that the appellant was liable to pay service tax under the category of "Tour Operator Service" for the period from April 2005 to March 2010. The adjudicating authority confirmed the demand and imposed penalties, which were later upheld by the Commissioner (Appeals). The appellant challenged the decision before the Tribunal.

The appellant’s counsel argued that as per Section 65(115) of the Finance Act, 1994, the essential element of a tour operator service is the arrangement of tours using tourist vehicles or contract carriages. The appellant did not provide transportation services and only offered accommodation and ancillary facilities.

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Customers made their own travel arrangements and the company did not plan, schedule, or organize tours. It was further argued that the services were more appropriately classifiable as “short term accommodation services,” which became taxable only from 1 May 2011.

The counsel pointed out that the department itself had issued communications in 2011 directing the appellant to register under the category of short-term accommodation, which implied that earlier activities were not taxable as tour operator services.

The revenue counsel argued that the appellant’s activities involved providing tourism packages that included accommodation and safari experiences, which constituted a composite tour package. The counsel argued that such services fell within the definition of tour operator service and were liable to tax.

The two-member bench comprising P.A. Augustian (Judicial Member) and R. Bhagya Devi (Technical Member) observed that the statutory definition of a tour operator requires involvement in planning or organizing tours with transportation in a tourist vehicle or contract carriage.

The tribunal explained that since the appellant did not provide transportation or arrange tours, their services could not be classified under tour operator service. The tribunal pointed out that the activities were more appropriately classifiable as short-term accommodation services, taxable only from 1 May 2011.

The tribunal set aside the demand raised under the category of tour operator service and allowed the appeal on this issue.

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