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We are engaged in tourism and hospitality industry. We understand that point-to-point journey falls under a different category whereas long trip holidays are governed by another set of principles of service tax which creates confusion. Can we classify all our services under one category and pay the service tax accordingly?

Tourism and hospitality industry has recently seen an upsurge in demand. Holiday packages vary from Ayurvedic rejuvenation tour to religious pilgrimage. The government is promoting medical tourism and encouraging foreign tourist, particularly NRIs, to undergo various medical treatments in the country at a much cheaper rates as compared to the international market.

Domestic tourism has also been on the rise. But one thing which dampens the spirit of the tourists is the cost factor. Service tax has become one of the major cost components for tour operators. The tour operator service has undergone a roller coaster ride since its inception in mid-1997. Tour operator service was introduced on September 1,1997, but remained in force only for a short time.

It was exempted from service tax from 18-07-1998 to 31-03-2000 vide service tax notification No. 52/98 dated 18-07-1998. As this service tax notification was effective only till 31-03-2000, from 01-04-2000, tour operator service was again treated as taxable service. As per the Finance Act, 1994, a person who is engaged in planning, scheduling, organizing or arranging tours by means like rail, air, waterways etc., are included in the scope of this service.

All facilities supplied in connection to a tour as a whole would be included in the purview of this service. Service not only contemplates travel plans but also includes boarding-lodging arrangements, joy rides, boating, sightseeing, provision for medical emergency, baby sitting service, porter service etc., journeys organized by an educational body other than a commercial training or coaching centre, imparting skill or knowledge or lessons on any subject or field. 

The word "tour" includes journey from one place to other irrespective of distance, whether situated in the same state or other, to any number of places but must be within the Indian territory. Services rendered by tour operators in respect of tours abroad will not attract service tax. It is interesting to note that tour performed in a Gondola or ropeway would not attract levy under this head, as ropeway is not a tourist vehicle. 
Tour operators employ booking agents on commission to reserve space in tourist vehicles. These booking agents cannot be taken as those responsible for conducting tours and are not liable to be taxed under this category. 
However, they will be taxed under another category. If the tour operator takes tourist vehicle on hire and pays rent to the owner of vehicle, it is the tour operator and not the owner of the vehicle who is liable to pay service tax. 
The tour operator cannot get any abatement in respect of the rent paid. Packages by means of discount in hotel accommodation provided by airlines cannot be considered as organization of tour but it is merely a facility provided by airlines. No service tax is payable on such services provided in Jammu & Kashmir. In case of, composite tour that includes destinations in India as well as abroad, service tax will be applicable only on services for tour in India. 
It is pertinent to note that plying of taxis between city and airport cannot be considered as tour operator service, however, the same may be classified under rent-a-cab service.  Abatement plays a vital role in costing. For tour operator services provided in relation to a package tour, abatement of 75% is available.
Thus, effective rate of service tax to be levied would be 25% of the normal rate, provided bill issued must indicate that it is inclusive of charges for such a tour. Here, 'package tour' means a tour wherein transportation, accommodation for stay, food, tourist guide, entry to monuments and other similar services in relation to tour are provided by the tour operator as part of the package tour to the person undertaking the tour.
In case, the service is provided solely for arranging or booking accommodation for any person in relation to a tour, abatement of 90% is available. Thus, effective rate of service tax would be 10% of the normal rate, provided invoice, bill or challan must indicate that it is towards charges for such accommodation. Exemption shall not be available if amount billed includes only service charges and does not include the cost of accommodation. Similarly, for services other than package tour and booking of accommodation, abatement of 60% is available. 
Thus, effective rate of service tax leviable would be 40% of the normal rate, provided the bill issued must indicate that the amount charged is the gross amount charged for such a tour. Thus, the service tax will depend on various conditions and criteria as discussed above. 

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