Tour Operator Services Rendered Entirely In Jammu & Kashmir Not Taxable During 2005-10: CESTAT Mumbai

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that no service tax was payable on tour operator services rendered entirely in Jammu & Kashmir during the period from October 2005 to September 2010.

It held that the service tax law in force at the time did not extend to the State.

A bench of Judicial Member S.K. Mohanty and Technical Member M.M. Parthiban allowed the appeal filed by Heena Tours & Travels. The Bench also dismissed the Revenue's appeal.

The Tribunal held, “Since, the application of Chapter V of the Finance Act, 1994 was not extended to the State of Jammu & Kashmir in terms of Section 64(1) ibid, it logically follows that the legal provision regarding levy and collection of service tax does not apply to the activities of service undertaken/rendered in the State of Jammu & Kashmir.”

The dispute arose after the department alleged that Heena Tours & Travels had not paid service tax on receipts from tours conducted in Jammu & Kashmir. The allegation covered the period from October 2005 to September 2010. The show cause notice proposed a demand of about ₹1.28 crore.

The adjudicating authority later confirmed a demand of ₹22.98 lakh. The confirmed demand related to the normal period from October 2009 to September 2010. It dropped the remaining demand on limitation grounds. The authority also declined to impose penalties. Both sides challenged that order before the Tribunal.

Heena Tours & Travels argued that its Jammu & Kashmir packages commenced within the State. The tours were wholly performed there and also concluded there. It contended that Chapter V of the Finance Act, 1994 did not extend to Jammu & Kashmir.

As a result, no service tax could be levied on those activities. The assessee further argued that service tax was a destination-based consumption tax. It maintained that the place where the service was performed was relevant for determining taxability.

The Revenue maintained that the activities fell within the taxable category of tour operator services. It further argued that the entire demand should have been confirmed by invoking the extended period of limitation.

While examining the statutory framework, the Tribunal referred to departmental instructions issued when service tax was introduced on tour operators.

It noted that Chapter V of the Finance Act, 1994 extended to the whole of India except Jammu & Kashmir. The Tribunal also noted that departmental clarifications recognised that service tax applied only to services rendered within the territory to which the law extended.

Referring to the Larger Bench decision in Cox & Kings, the Tribunal observed that the relevant enquiry was where the services connected with the tour were rendered and consumed.

It found that the tours in question were undertaken entirely in Jammu & Kashmir. The services therefore fell outside the ambit of service tax during the period in dispute.

The tribunal consequently set aside the service tax demand sustained by the adjudicating authority. It also rejected the Revenue's appeal seeking confirmation of the wider demand and penalties.