Ticket Booking Margins by Tour Operators Not Taxable as Service Tax: Analysis of CESTAT Chennai Decision

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai has once again clarified that simple trading or resale of air and train tickets by a registered tour operator, without any additional tour-related services, does not fall within the ambit of “Tour Operator” service for the purpose of levy of service tax. The ruling in Hi Tour Mamallapuram Private Limited Vs Commissioner of GST & Central Excise reiterates earlier findings in the assessee’s own case and provides much-needed certainty for travel and tour businesses on the treatment of ticket booking margins.

This article explains the background of the dispute, the rival contentions, the legal reasoning adopted by the Tribunal, and the practical implications for businesses engaged in tour operations and ticketing activities.

Background of the Dispute

Registration and Business Activity

Hi Tour Mamallapuram Pvt Ltd was registered with the Service Tax Department as a provider of “Tour Operator” service. In the relevant period from April 2013 to March 2014, the assessee was engaged in:

  • Providing tour-related services as a registered tour operator; and
  • Booking air tickets and train tickets for its customers, shown in the books as “Sale of Air Tickets” or ticket sales.

The Department conducted verification of the assessee’s records and formed the view that the activity of booking air tickets and train tickets constituted a taxable service. It was also noticed that the assessee had discharged service tax on a value which was lower than the invoice value indicated for such ticket bookings.

Show Cause Notice and Original Adjudication

On this basis, a show cause notice dated 07.04.2015 was issued proposing:

  • Demand of differential / short-paid service tax on the value of ticket bookings,
  • Levy of applicable interest, and
  • Imposition of penalty under Section 76 of the Finance Act, 1994.

The Adjudicating Authority, after following the adjudication procedure, confirmed:

  1. The demand of service tax on the ticket booking value,
  2. Corresponding interest, and
  3. Penalty under Section 76.

First Appeal Before Commissioner (Appeals)

Aggrieved, the assessee filed an appeal before the Commissioner of Central Excise (Appeals-II) against Order in Original No.11/2016-ST dated 26-02-2016.

However, by Order in Appeal No.169/2017 (CXA-II) dated 24.03.2017, the Appellate Authority upheld the order of the adjudicating authority, effectively sustaining the:

  • Service tax demand on the air/train tickets, and
  • Associated penalty and interest.

This led to the present appeal before the CESTAT, Chennai.

Core Issue Before the Tribunal

The central question framed by the Tribunal was straightforward:

Whether the assessee, registered as a “Tour Operator”, was required to include the value of air ticket and train ticket charges in the taxable value of “Tour Operator” service for the purpose of service tax?

In other words, is the margin or mark-up earned on the resale or trading of air and train tickets, without additional tour facilities, a part of taxable “Tour Operator” service?

Arguments of the Assessee

Separate Tax Category for Air Travel Agent

The assessee, represented by Shri Harihara Kumar, contended that:

  1. The service tax law itself recognizes “Air Travel Agent” as a separate and distinct taxable category, with an independent charging provision;
  2. Consequently, mere activity of booking or arranging air tickets, by itself, is intended to be taxed (if at all) under the “Air Travel Agent” category and not under “Tour Operator” service;
  3. The Department’s attempt to classify simple ticket booking under “Tour Operator” service is therefore legally unsustainable.

Nature of Ticket Booking Activity – Trading and Not a Service

The assessee clarified the commercial structure of its transactions in relation to ticketing:

  • Where a tour package involved air travel, the assessee did not directly act as an airline agent.
  • Instead, it purchased air tickets from registered air travel agents at a discounted price, for example, an air ticket with an original price of Rs. 10,000 might be procured at Rs. 9,200.
  • The assessee then sold the ticket to the end customer at the original airline price (e.g., Rs. 10,000).