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Budget - exemption to tour operators - Why is this special interest towards point-point bus operators?

JULY 22, 2009

By A Netizen

IT is expected that government would encourage tourism and make efforts to boost domestic tourism, as it will help indirectly in the furtherance of various other related sectors of economy. To meet this objective only perhaps both Centre and States have separate tourism ministries. However, this objective has gone for a toss, with the injustice done to tourism industry by continuing levy of service tax on tour operators at the same time exempting point to point bus operators from service tax by an exemption notification given in the Budget, 2009- Notification No. 20/2009-ST dt.7.07.2009. Perhaps, in its eagerness to help point to point bus operators, the notification is vaguely drafted as some of the terms like –“Tourism”, “conducted tours”, “charter or hire service” has not been defined in the notification. This may lead to controversies and it is no surprise if this notification contributes its own share of future litigation

The operative portion of the notification no 20/2009-ST dt.7/07/2009 reads as follows:

………Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service referred to in sub-clause (n) of clause (105) of section 65 of the Finance Act, provided or to be provided to any person, by a tour operator having a contract carriage permit for inter-state or intrastate transportation of passengers, excluding tourism, conducted tours, charter or hire service, from whole of the service tax leviable thereon under section 66 of the said Finance Act.

The CBEC letter D.O. F. No.334/13/2009-TRU dt 6th July, 2009 clarifies on the issue as under:

6.1 Private bus operators, who operate buses on specific inter-state or intra-state routes, are required to pay service tax as they ply their buses having ‘contract carriage permits' and thus fall within the definition of tour operators. On the other hand the State Undertakings run buses, which run on the same route carrying passengers, are not subjected to service tax as these buses bear ‘stage carriage permit'. In order to bring parity between the two, the services provided by the tour operators undertaking point-to-point transportation of passengers in a vehicle bearing contract carriage permit is being fully exempted from service tax, provided

such transportation is not in relation to tourism or conducted tours, or charter or hire. (Notification No. 20/209-ST dated 07.07.09 refers).

The notification nor the CBEC letter has not defined the words “tourism”, “conducted tours”, “charter or hire service” which are excluded from the purview of exemption notification. This is likely to create confusion in the minds of both assesses as well as department for the reasons mentioned below:

A quick run through Statutory provisions (Finance Act, 1994):

(113) tour means a journey from one place to another irrespective of the distance between such places;

(115) tour operator means any person engaged in the business of planning, scheduling, organising or arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport, and includes any person engaged in the business of operating tours in a tourist vehicle or a contract carriage by whatever name called, covered by a permit, other than a stage carriage permit, granted under the Motor Vehicles Act, 1988 or the rules made thereunder.

Explanation. — For the purposes of this clause, the expression tour does not include a journey organised or arranged for use by an educational body, other than a commercial training or coaching centre, imparting skill or knowledge or lessons on any subject or field;

Taxable service means: (n) to any person, by a tour operator in relation to a tour

What is tourism and how it differs from tour?

From the above statutory definitions it is very clear that what is covered under tax net is the activity of operating tours in tourist vehicle or in a contract carriage. The Act do not mention anything about transportation of passengers (which the notification No 20/2009–ST seeks to exempt). As per the Act journey from one place to another place is defined as constituting “tour” and accordingly even ‘point to point' transportation of passengers would automatically mean as ‘tour'. If this is the interpretation emerging from the statutory definitions why not the activity of ‘point to point' transportation of passengers would also fall with in the ambit of word ‘tourism'. Whether this point to point transportation differs from tourism or not, is again subject to individual interpretation in the absence of any definition for the word “tourism” in the Finance Act, 1994.

For eg. how to treat a trip in a contract carriage from Chennai to Madurai - is it an activity of “tourism” or “point to point transportation of passengers”.

What are conducted tours?

The notification also excludes from its purview “conducted tours”: What are conducted tours. Does it mean service provided by tour operator wherein he undertakes to take passengers (of course in a contract carriage) to and fro from one place to another? Or does it include providing of boarding and lodging also?. In such case what happens if the tour operator splits the entire activity into two contracts one for taking to the place and another for bringing them back( because that will make activity as point to point transport of passengers and exemption is available).

Point to point transport of passengers in a contract carriage is nothing but “charter or hire”:

The notification has also mentions “charter or hire” service under exclusion category. This means a journey performed by taking a contract carriage on hire or charter is out of the purview of exemption notification. However, a detailed examination of the Statutory provisions relating to Contract carriage and Stage carriage given in the Motor Vehicles Act, 1988 (A central government statute ) would convey that a journey in a contract carriage shall always be treated as journey performed on hire or charter.

As per the definition of contract carriage, it seems the Act envisages that a contract carriage is always engaged as a whole by a person with holder of permit either on time basis or for transportation of passengers from point to point (i.e. nothing but engaging a vehicle under a charter or hire by a group of passengers). This arrangement differs from meaning of stage carriage, as it envisages hiring by individual passengers (not as a whole). Thus there is difference in meaning as well as operation of stage carriage and contract carriage as per the The Motor Vehicles Act, 1988; if this be so, a doubt would rise as to whether point to point transport of passengers in a contract carriage in any way differs from journey undertaken under “charter or hire”. If such is the position of law, it is not known how the exemption notification seeks to distinguish between “point to point transport of passengers” in a contract carriage (which as per the MV Act has to be engaged as a whole) from ‘hired or chartered' journey and wish to exempt the former and tax the latter transaction. It appears that the notification is given without appreciating properly the intent and meaning of “contract carriage' and “stage carriage” operations given in the Central Motor Vehicles Act and Rules made thereunder by respective state governments. Further, the Motor vehicle rules made by respective state governments are not similar which may make the implementation of the exemption notification more difficult and controversial.

For example: A bus (running under stage carriage permit) can obtain a contract carriage permit temporarily for transport of a marriage party to a place and bring them back. Should this transaction be treated as “charter or hire” of bus (which is not covered in the exemption notification) or is to be treated as point to point transportation of passengers (to cover in the exemption).

In the absence of clear cut definitions to words which fall under exclusion categories, of this exemption notification, will leave the field formations to interpret the word according to their whims and fancies in their eagerness to bring everything under tax net, which may create unnecessary controversies.

Will this exemption apply even to cab services – The cab operators also operate their services under Contract Carriage permit given by respective RTAs. Even though the department has classified cab services under rent-a-cab service, these service providers may insist for classification under tour operators to avail this exemption as they satisfy the two requirements of the notification – a transport of passengers with in the state and having a contract carriage permit. It may be borne in mind that the notification does not mention “point to point transport of passengers” but only mentions intra state or interstate transportation of passengers in a contract carriage.

Is there any public interest involved in giving the exemption notification?

The CBEC letter conveys that the notification is issued to bring parity between Governments run stage carriage permit buses and privately run contract carriage permit vehicle. The government assumption is that the fares of private run vehicles are on the higher side because of levy of service tax. But the fact is that most of the State run transport corporations are ailing because the State run bus Corporation cannot pass full cost to the passengers. This fact has been conveniently ignored by government while showering affection towards private run contract carriages. The reality is that these private run contract carriage operators by adopting unscrupulous practices give unhealthy competition and make Public transport corporations run for their money. During the festive seasons and in times of peak demand the private bus operators charge exorbitant rates (double the normal rates),and it is unfortunate that government without realizing these basic fact has seen public interest in the whole affair. Even earlier by giving 11C notification (Notification No. 15/2007-ST dt. 4/04/2007) government has shown special interest towards point to point bus operators. Moreover, the government is trying bring parity between a government run ” stage carriage permit buses” and private run “ contract carriage permit buses , whereas the Motor Vehicles Act seeks to differentiate them because of the public interest involved in stage carriage permits.

Why the government wants to tax tourism industry:

When tourism industry is seen to be a catalyst in helping the growth of other sector, it is not known as to why the government wants to tax tourism industry at the same time exempting transportation of passengers in a contract carriage. Absolutely there is no logic in giving this exemption let alone any public interest. The government can think of even exempting the tour operators as well from the purview of service tax.

The moral:

It is said that the government see public interest “only when it is shown”. In this case the powerful lobby of private bus operators seems to have “shown” public interest to the government and “got” the exemption, whereas the tourist operators have failed and the Ministers heading tourism department have failed.


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