CESTAT Ruling Offers Clarity on Service Tax for Short-Term Accommodation in Eco-Tourism

CESTAT Ruling Offers Clarity on Service Tax for Short-Term Accommodation in Eco-Tourism

Implications of the CESTAT Ruling on Service Tax for Eco-Tourism and Adventure Accommodation Services

In a recent ruling, the Bangalore Bench of the Customs, Excise, and Service Tax Appellate Tribunal clarified that services involving accommodation without transportation should not be classified under the "Tour Operator Service" category as per the provisions of the Finance Act, 1994. This decision came in the case of Jungle Lodges and Resorts Limited; a company engaged in providing eco-adventure and wildlife tourism packages across various locations in Karnataka.

The ruling is significant as it sets a precedent for service providers offering accommodation and related tourism activities without the inclusion of transportation. The decision provides clarity on the scope of "Tour Operator Service" under Indian service tax law, thereby potentially impacting businesses in the tourism and hospitality sectors.

The Dispute and Show-Cause Notice

The case stemmed from a show-cause notice issued by the revenue department, alleging that Jungle Lodges and Resorts Limited was liable to pay service tax under the category of "Tour Operator Service" for the period spanning from April 2005 to March 2010. The department argued that the services offered by the company such as food, accommodation, safaris, bird watching, and trekking constituted a composite tour package and, therefore, fell under the category of "Tour Operator Service."

However, the company contended that it only provided accommodation and related activities, and did not offer transportation or organize travel plans for its customers. The company emphasized that it did not use tourist vehicles or contract carriages as part of its services, and the customers made their own travel arrangements to reach the resorts.

The Appellant’s Position: No Tour Operator Services

Jungle Lodges and Resorts Limited argued that according to Section 65(115) of the Finance Act, 1994, the definition of a "Tour Operator Service" includes the arrangement of tours involving transportation, specifically through tourist vehicles or contract carriages. The appellant pointed out that its offerings were confined to providing eco-tourism services, which were distinct from the transportation aspect of a full-fledged tour package. Moreover, customers were responsible for organizing their travel arrangements to the resorts.

The appellant’s counsel also argued that the services should be classified as "short-term accommodation services," which were only taxable under the service tax law from May 1, 2011. This position was further supported by the fact that the revenue department itself had later communicated in 2011 that the appellant should register under the category of short-term accommodation services, implying that the company’s earlier activities did not fall under the "Tour Operator Service" category.

The Revenue’s Position: A Composite Tour Package

On the other hand, the revenue's counsel argued that the company’s offerings, including accommodation and safaris, were part of a complete tourism package, thus qualifying as "Tour Operator Service." According to the revenue, these services, when bundled together, could not be separated, and should be taxed under the composite service category of a tour operator.

The revenue argued that despite the absence of transportation, the package as a whole constituted a touristic experience, including safaris, trekking, and other activities that were intrinsic to a tour. Therefore, the activities met the broad definition of "Tour Operator Service" under the service tax law.

CESTAT’s Ruling: Clarifying the Scope of "Tour Operator Service"

The two-member bench, comprising Judicial Member P.A. Augustian and Technical Member R. Bhagya Devi, ruled in favour of the appellant. The tribunal observed that under the statutory definition of a "Tour Operator Service," the essential element is the organization or arrangement of tours involving transportation using tourist vehicles or contract carriages.

The bench highlighted that Jungle Lodges and Resorts Limited did not provide transportation services nor did it organize or schedule tours involving transportation. Instead, the company only offered accommodation and ancillary services like safaris and trekking, which are not typically considered under the purview of "Tour Operator Service."

Furthermore, the tribunal referred to the fact that the department itself, in 2011, had recognized the appellant’s services as "short-term accommodation services," which were taxable only from 1 May 2011. This recognition, according to the bench, pointed to the fact that the services provided by the company prior to that date could not be classified as tour operator services.

Implications for the Tourism and Hospitality Industry

This ruling by the CESTAT offers valuable clarification for businesses operating in the tourism and hospitality sectors. Service providers who offer accommodation, adventure activities, or other related services without including transportation can now better understand how their services are classified under the Finance Act, 1994.

The judgment also reinforces the importance of correctly classifying services under the applicable tax categories to avoid unnecessary litigation and penalties. While businesses offering complete tour packages, including transportation, may still fall under "Tour Operator Service," the case illustrates that the absence of transportation should be considered when determining service tax liability.

CESTAT's decision to set aside the service tax demand on Jungle Lodges and Resorts Limited reinforces the principle that service tax liability hinges on the specific nature of the services provided. The distinction between accommodation services and full tour packages, particularly when transportation is not involved, is now clearer, providing a critical reference point for similar cases in the future.