The Hindu Business Line : Tour operations

We are tour operators and we use boats, buses and other vehicles for providing the service. Is it necessary for a tour operator to provide service in a tourist vehicle only as stipulated in Motor Vehicle Act?

Rajeev Singh

Yes, as per Section 65 (115), tour operator means any person engaged in the business of operating tour in a tourist vehicle covered by a permit granted under the Motor Vehicle Act, 1988. If it is not a tourist vehicle, it may not be covered. In Praseetha Suresh vs CCE, Thiruvananthapuram (2006 7 STJ 264 CESTAT, Bangalore), it was held that tourist vehicles have to satisfy specifications as per rule 128 of Motor Vehicles Rules read with Section 2(43) of the Motor Vehicle Act. It was held that where the RC book of the vehicle owned by an appellant did not satisfy specifications, the appellant was not required to be registered in the category of tour operators.

Recently, in Shrinath Tourist Agency vs CCE, Jaipur (2006 7 STJ 185 CESTAT, New Delhi), the operator sold tickets for ropeways which also included a road journey of 4 km between two boarding points of ropeways. It was held that the trip was to visit temples and the tour was performed not in a tourist vehicle but in a ropeway; the road link between two boarding points was only an incidental link and could not displace pilgrimage as a tour. There being no tour in a tourist vehicle as contemplated in statute so as to attract service tax, levy of service tax was held as not sustainable.
Input service

Our clients are paying service tax w.e.f. June 1, 2007, on commercial property taken on rent for their small office- cum-production facilities. Can Cenvat credit be claimed on the same as input service?

Suresh Kumar

According to Cenvat Credit Rules 2004, Cenvat credit can be claimed in respect of input services, which are defined in rule 2(l). Input service means any service which is received and consumed by a service provider in relation to providing an output service, or which is used by a manufacturer, directly or indirectly, in relation to manufacture of final products and clearance of final products from the place of removal. Thus, input services can be used by an output service provider or a manufacturer in relation to providing service or manufacturing a final product

In terms of rule 3, credit of service tax on any input service can be utilised. In the instant case, you are using the premises as office as well as for manufacture or production of goods. As such, rental charges become an input service for the purpose of manufacturing of goods. Therefore, service tax paid on rentals can be utilised as Cenvat credit and utilised for the payment of final products so manufactured. This will, however, be available only on rent paid for period after June 1, 2007.
Property Rental

In valuation of property rentals, service tax is supposed to be levied on rentals as reduced by property taxes. What does this mean and what type of taxes are covered in property tax for such deduction?

Jacob John

Renting of immovable property is a taxable service w.e.f. June 1, 2007, provided it is intended for commercial or business use under Section 65(105)(zzzz). While the valuation of such service shall be governed by the Service Tax (Determination of Value) Rules, 2006, Notification No. 24/2007-ST dated May 22, 2007, provides for exemption in respect of property taxes

This Notification exempts taxable service provided by any person in relation to renting of immovable property from service tax equivalent to service tax payable on the amount of property tax actually paid by the service provider to the local authority.

However, any amount, such as interest and penalty paid to the local authority by the service provider on account of delayed payment of property tax or any other reasons cannot be treated as property tax for the purpose of this exemption and, hence, deduction of such amount from the gross amount charged shall not be allowed. If property tax is paid for a period which is different from the rental period, property tax proportionate to the rental period shall be calculated and the amount so calculated shall be excluded from the rental amount received for the purpose of levy of service tax.

The condition for exemption or deduction from gross value is that such tax should be a tax on property and levied by and paid to local authority. It could be property tax, land and building tax, house tax, etc., by whatever name called. It will not cover any Union taxes such as sales tax, stamp duty, capital gains tax and wealth tax etc which are not payable to local authorities.

SANJIV AGARWAL
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