Service Tax Demand on Tour Operator Under BAS Set Aside: Analysis of CESTAT Kolkata Ruling in Blue Hills Travels (India) Limited. Vs Commr. of Customs
Introduction
The decision of the Customs, Excise and Service Tax Appellate Tribunal, Kolkata in Blue Hills Travels (India) Limited. Vs Commr. of Customs provides significant clarity on the classification of services rendered by tour operators and the prerequisites for a valid service tax demand under Business Auxiliary Service (BAS).
The case revolves around whether activities connected with ticketing and booking for tourist buses, stage carriage buses, and goods/luggage booking could be taxed as BAS for the period 2008–09 to 2012–13, when the assessee was already registered and paying service tax as a Tour Operator. The Tribunal scrutinised the validity of the show cause notice, the scope of appellate review, and the invocation of the extended period of limitation.
This article summarises and analyses the Tribunal’s reasoning, highlighting key principles on:
- Proper invocation of
Section 65(19)for BAS; - Limits on the powers of Commissioner (Appeals) vis-à-vis the show cause notice;
- Treatment of profit-sharing arrangements vis-à-vis “commission” and “client” relationship; and
- Requirements for invoking the extended period on grounds of suppression.
Factual Background
Registration and Nature of Services
Blue Hills Travels (India) Limited (the assessee) was:
- Registered under Service Tax as a provider of Tour Operator Services under a valid registration number;
- Regularly filing ST-3 returns; and
- Discharging service tax under the category of Tour Operator Services throughout the relevant period.
The dispute pertained to the financial years:
- 2008–09
- 2009–10
- 2010–11
- 2011–12
- 2012–13
Issue of Show Cause Notice
A show cause notice (SCN) dated 18.10.2013 was issued alleging that, besides Tour Operator Services, the assessee had:
- Rendered services liable under Business Auxiliary Services in relation to:
- Tourist buses;
- Stage carriage buses; and
- Goods and luggage booking.
On this basis, the Department proposed to classify certain activities of the assessee as BAS and demand service tax accordingly.
Adjudication Proceedings
The original adjudicating authority:
- Examined the documents and records produced by the assessee;
- Considered the service tax registration and returns already filed; and
- Concluded that the assessee was only rendering Tour Operator Services and not providing any service falling under BAS.
Accordingly, the SCN proceedings were dropped in the Order-in-Original.
Departmental Appeal and Order of Commissioner (Appeals)
The Department challenged the dropping of proceedings by filing an appeal before the Commissioner (Appeals). After hearing both sides, the Commissioner (Appeals):
- Set aside the Order-in-Original;
- Confirmed a service tax demand of ₹18,14,889 under BAS;
- Levied interest on the confirmed tax; and
- Imposed penalties on the assessee.
The assessee, aggrieved by this reversal, approached the Tribunal.
Assessee’s Submissions Before the Tribunal
1. Nature of Arrangement – Profit Sharing, Not Commission
The assessee contended that its business model was based on a profit-sharing arrangement rather than a commission-based agency model. Specifically:
- For tourist bus tickets, the assessee would sell tickets and retain a portion of the ticket fare;
- A similar sharing mechanism applied to:
- Stage carriage bus services; and
- Goods and luggage booking services;
- The retained amount represented a share of revenue, not a commission for acting on behalf of any bus operator.
On this basis, it was argued that:
- Passengers using the buses could not be regarded as “clients” of the assessee in the sense required for BAS; and
- There was no principal–agent relationship between the assessee and the bus/stage carriage operators.
2. Absence of Agreement Establishing BAS Relationship
The assessee emphasised that:
- There was no agreement between the assessee and the bus/tour/stage carriage operators under which the assessee was:
- Required to act on behalf of those operators; or
- Entitled to earn “commission” for marketing or promoting their services;
- The Department also did not produce any documentary evidence to show:
- That the assessee was acting as an intermediary; or
- That the operators were “clients” of the assessee as envisaged under
Business Auxiliary Service.
Accordingly, classification under BAS was asserted to be factually and legally unsustainable.