Handbook - ST On Travel Agent

HANDBOOK ON SERVICE TAX ISSUES RELATING TO
AIR TRAVEL AGENT/ TOUR OPERATORS/
OTHER TRAVEL RELATED SERVICES
Opinion provided by Compiled by
Appointed Consultants to Service Tax Council

Travel Agents Association India Travel Agents Association India
A.K.Batra & Associates
Chartered Accountants
The contents of this book are based on information generally available to the public from sources believed
to be reliable. TAAI has taken due care and caution in compilation of data as this has been obtained from
reliable sources including which it considers reliable and first hand. However, TAAI does not guarantee
the accuracy, adequacy or completeness of any information and it is not responsible for any errors or
omissions or for the results obtained from the use of such information and especially states that it has no
financial liability whatsoever to the members/users of this book. The information herein can change
without notice.
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CONTENTS
1. BRIEF FOR OPINION 3
2. INDEX 3
3. FREQUENTLY ASKED QUESTIONS

3.1 AIR TRAVEL AGENT 4-6
3.2 TOUR OPERATOR
3.2.1 OUT-BOUND TOUR 7
3.2.2 BOOKING OF HOTEL ROOMS 7-8
3.2.3 CAR ON RENT/HIRE 9
3.2.4 PASSPORT AND VISA ASSISTANCE SERVICES 10
3.3 OTHER RELATING ISSUES 11
4. APPLICABLE RATES AT A GLANCE 12-13
5. DETAILED DISCUSSION
5.1 APPLICABILITY OF SERVICE TAX ON AIR TRAVEL AGENT 14
5.1.1 TAXABILITY OF AIR TRAVEL AGENTS 15
5.1.2 PERSON RESPONSIBLE FOR PAYMENT OF SERVICE TAX 15
5.1.3 VALUE OF TAXABLE SERVICE 15-16
5.1.4 OPTION AVAILABLE TO AIR TRAVEL AGENTS 16-17
5.1.5 TAXABILITY OF SUB-AGENT 17-19
5.1.6 LOOKING AT THE TREND OF THE INDUSTRY 19
5.1.6(A) BOOKING THROUGH IATA/GSA/CONSOLIDATOR 19
5.1.6(B) ONLINE BOOKING OF TICKETS 20
5.1.7 TAXABILITY OF AMOUNT TOWARDS CANCELLATION CHARGES 20
5.1.8 LESSER COMMISSION RECEIVED 21
5.1.9 AVAILABILITY OF THE CENVAT CREDIT 21-23
5.2 SERVICE TAX ON OUTBOUND TOUR, HOTELS ROOMS,
CAR ON RENT/HIRE, PASSPORT AND VISA ASSISTANCE. 24
5.2.1 TAXABILITY OF THE OUT-BOUND TOURS 25-26
5.2.2 TAXABILITY OF BOOKING OF HOTEL ROOMS 31
5.2.3 TAXABILITY OF PROVIDING CAR ON RENT/HIRE 32-33
5.2.4 TAXABILITY OF PASSPORT AND VISA ASSISTANCE 34
5.3 OTHER RELATED ISSUES
5.3.1 APPLICABILITY OF SERVICE TAX ON PLB 35-36
5.3.2 APPLICABILITY OF SERVICE TAX ON INCENTIVES FROM GDS 36-37
5.3.3 SERVICE TAX ON REGISTRATION FEES OF TAAI 37
5.3.4 CENVAT CREDIT OF SERVICE TAX ON ANNUAL MEMBERSHIP FEE 38
5.3.5 SERVICE TAX ON AMOUNT RECEIVED FROM CLIENT 38
5.3.6 SERVICE TAX ON OVERSEAS SERVICES 39-41
5.3.7 REGISTRATION UNDER BUNESS AUXILIARY SERVICE 42
6. STATUTORY PROVISION
6.1 AIR TRAVEL AGENT’S SERVICES 43

6.2 TOUR OPERATOR SERVICES 43
6.3 BUSINESS AUXILIARY SERVICES 44-45
7. NOTIFICATIONS 46-47
8. NOTES
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DETAILED OPINION ON THE ISSUE RELATING TO
AIR TRAVEL AGENT & TOUR OPERATOR
Date: 29-07-2010
Querist: Travel Agents Association of India
Complied by: M/s A.K. Batra & Associates
1. BRIEF FOR OPINION
The querist “Travel Association to regulate the Travel industry in India, with
the primary purpose to protect the interests of those engaged in the industry,
to promote its orderly growth and development and to safeguard the rights of
the traveling public. With a membership data base of over 2400 Active; Allied
and Associate members comprising of IATA accredited Travel Agencies;
Airlines & General Sales Agencies; Hotels and Tour operators; TAAI is the
largest Travel Association of India.
The members of TAAI are basically IATA accredited Travel Agencies; Airlines
& General Sales Agencies; Hotels and Tour operators. Services rendered by
these members are likely to fall under the category of Air Travel Agents
Services, Tour Operator Services, or Agents Association of India”
(hereinafter referred as “TAAI” for the sake of brevity) was formed towards
the end of the year 1951 to create an
Business Auxiliary Services.
2. INDEX
PARTICULARS PAGE NO
Frequently Asked Question 4 to 13
Applicable Rate of Service Tax 12 to 13
Detailed Discussion 14 to 42
Statutory Provisions 43 to 45
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3. FREQUENTLY ASKED QUESTIONS
3.1 Air Travel Agent
1. What is the taxable service under Air Travel Agent service?
Every Air Travel Agent who books the air ticket for travel by air for any
person is liable to pay service tax under the category of Air Travel
Agent’s service on the amount received by him on booking of domestic &
international tickets.
2. Who is responsible for payment of Service Tax under Air Travel
Agent Service?
Every Air Travel Agent who books the air ticket for travel by air for any
person is liable to pay service tax under the category of Air Travel Agent.
3. What shall constitute taxable amount?
The gross amount received by the Air Travel Agent from any person in
respect of booking of air ticket shall be the taxable amount, however,
taxable amount does not include, the airfare collected by air travel
agent.
4. Whether Air Fare is includable in the taxable amount?
No, amount of airfare is exclusively excluded from the taxable value of
air travel agents.
5. What is the rate applicable?
There are options available to Air travel Agent for discharging its service
tax liability in respect of Air Travel Agent Services.
Option A: To pay Service Tax at prevailing rates (which is presently
10.3%) on the amount of commission received by Air Travel Agent from
Airlines.
Option B: To pay Service Tax at the rate of 0.618% of the basic fare in
case of domestic bookings and 1.236% of the basic fare in case of
international bookings.
Note: Basic fare means that part of air fare on which commission is
normally paid to air travel agent by the air line. However, if airline is
paying commission not only on basic fare but also on YQ then the value of
YQ is to be included in the gross amount for the purpose of calculating
service tax liability.
4
6. Whether option of paying Service Tax on basic fare is optional?
Yes, option of paying Service Tax is optional to the Air Travel Agent.
7. Whether option of paying Service Tax on basic fare will amount to

abatement or Exemption?
No, option of paying Service Tax on basic fare doesn’t amount to
abatement or exemption.
8. Whether option of paying Service Tax on basic fare once exercised

can be change later?
No, once the option of paying Service Tax on basic fare is exercised for
any financial year, same cannot be change for such financial year.
9. Whether Service Tax is applicable on the commission received by

the sub-agent from Air Travel Agent?
Commission received by sub-agent from Air Travel Agent, in respect of
booking of air passage are taxable under the category of “Business
Auxiliary Service.”
10. Whether Service Tax is applicable on the commission received by

sub-agent from customer?
Service charges/commission received by sub-agent from the customer
in respect of booking of air ticket shall be taxable under the category of
Air Travel Agent.
11. Whether option to pay Service Tax on basic fare is available to the
sub-agent?
Option to pay service tax on basic fare is not available to the sub-agent
as such option is available to the IATA air travel agent getting
commission directly from the Airlines.
12. What shall be the taxability of Air Travel Agent if tickets are booked
through other IATA/GSA/Consolidator?
Commission received by such IATA Agent or Air Travel Agent from other
IATA/GSA/consolidator shall be taxable under the category of “Business
5
13. What shall be the taxability of Air Travel Agent if tickets are booked
Online?
Same shall be taxable under the category of Air Travel Agent service.
14. Whether amount received towards cancellation charges shall be

taxable?
Yes, amount received towards the cancellation charges shall be taxable
under the category of “Air Travel Agent’s Service.”
15. Whether Air Travel Agent can avail the Cenvat credit of input
service for the payment of Service Tax?
Yes, Air Travel Agent is entitled to claim credit of service tax paid on
input service received and used in relation to providing output service
i.e. Air Travel Agent Service.
[For Detailed Discussion on Air Travel Ref 5.1, Page 14 to 23]
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3.2 Tour Operator
3.2.1 Out Bound Tour
1. What shall be the taxability of Out-Bound Tour?

Out-Bound tour shall be taxable if consideration of such tour is received
in Indian Currency (INR) under the category of “Tour Operator Service.”
2. What shall be the taxability of Out-Bound Tour, if consideration is

received in foreign exchange?
In such a case, services provided in respect of outbound tour shall be
treated as export of services, as all the conditions of Export of service
are cumulatively satisfied. Hence, such services may be exported by tour
operator without payment of Service Tax in terms of Rule 4 of Export
of Service Rules, 2005.
[For Detailed Discussion on Out bound Tour Ref 5.2.1, Page 25 to 26]
3.2.2 Booking of Hotel Rooms
1. What shall be the taxability of Tour Operator/Travel Agent if Tour

operator is providing service of arranging hotel accommodation?
In such a case, tour operator shall be liable to pay Service Tax at the
rate of 1.03% (after availing abatement of 90% at present rate of service
tax i.e. 10.30%) as per Notification No. 38/2007 dated 23.08.2007 on
the gross amount charges for such service.

Operator book hotel accommodation on direct payment basis i.e.
gross amount charged by hotel is collected from the customer and
same is remitted to the hotel and Tour Operator gets its
commission from the hotel at the later stage?
In such case tour operator shall be liable to pay service tax only on the
amount of commission received from the hotel under the category of
“Business Auxiliary Service.”
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3. What shall be the taxability of Tour Operator/Travel Agent in above
case, if hotel raises the invoice in the name of the Tour Operator
and Tour Operator in turn raises invoice on the customer?
In such a case tour operator shall be liable to pay service tax in respect
of the following amount:
• Tour operator shall be liable to pay service tax on the gross
amount charged from the customer after availing the abatement of
90% under the category of “Tour Operator Service.”
• Tour operator shall also be liable to pay service tax on the amount
of commission received from the hotel under the category of
4. What shall be the taxability of Tour Operator/Travel Agent if hotel

instead of giving commission in money, hotel gives additional
Rooms free of cost to the Tour Operator?
In such a case taxable value shall be the cost of such hotel room i.e.
amount generally charged by the hotels for providing such hotel
accommodation and same shall be taxable under the category of

operator is providing service of arranging hotel accommodation
which forms part of a package tour?
If a tour operator is providing service in relation to booking of hotel
accommodation which form part of package tour then Service Tax shall
be charged at the rate of 2.575% (after availing abatement of 75% at
present rate of service tax i.e. 10.30%) as per Notification No. 38/2007
dated 23.08.2007.

operator is providing service of arranging hotel accommodation
which forms part of a non-package tour?
If a tour operator is providing service in relation to booking of hotel
accommodation which form part of non-package tour then Service Tax
shall be charged at the rate of 4.12% (after availing abatement of 60% at
present rate of service tax i.e. 10.30%) as per Notification No. 38/2007
dated 23.08.2007.
[For Detailed Discussion on Hotel accommodation Ref 5.2.2, Page 31]
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3.2.3 Car On Rent/Hire
1. What shall be the taxability of Travel Agent if Tour operator/Travel

Agent provides car for point to point transport facility?
In above situation, service of providing car on rent/hire for specific

destination to customer will get cover under the category of “Rent-a-cab
Scheme service.” Thus, Tour Operator/Travel Agent shall be liable to pay
Service Tax on such service at the rate 4.12% (after availing abatement of
60% under Notification No. 1/2006-ST dated 01.03.2006) while raising its
invoices to the customers in this respect.
2. What shall be the taxability of travel agent if Tour operator/travel

agent provides car on rent for Outstation packages to its customers?
In above situation, service of providing car on rent/hire for Outstation

package will get cover under the category of “Rent-a-cab Scheme service.”
Thus, Tour Operator/Travel Agent shall be liable to pay service tax on
such service at the rate 4.12% (after availing abatement of 60% under
Notification No. 1/2006-ST dated 01.03.2006) while raising its invoices to
the customers in this respect.
3. What shall be the taxability of Travel Agent if Tour operator/Travel

Agent provides car on rent service which form part of package?
If Tour Operator/Travel Agent provide car on rent/hire service which form

part of a tour. In such a case same shall be taxable under the category of
“Tour Operator Service” at the rate as applicable to such tour i.e. 2.575%
in case of package tour (after availing abatement of 75% at the present rate
of tax i.e. 10.30%) and 4.12%in case of non-package tour (after availing
abatement of 60% at the present rate of tax i.e. 10.30%).
[For Detailed Discussion on Car on rent Ref 5.2.3, Page 32 to 33]
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3.2.4 Passport And Visa Assistance Service
1. Whether Service Tax applicable on the amount received from client for
passport and visa assistance?
Services of providing passport and visa assistance are presently out of the
purview of service tax. Therefore, amount received in this respect shall not be
subject to service tax.
2. Whether Service Tax applicable on the amount received from client for
passport and visa assistance, if same form part of package?
If such service are provided in relation to a tour. In such a case same shall
be taxable under the category of “Tour Operator Service.” at the rate as
applicable to such tour i.e. 2.575% in case of package tour (after availing
abatement of 75% at the present rate of tax i.e. 10.30%) and 4.12%in case of
non-package tour (after availing abatement of 60% at the present rate of tax
i.e. 10.30%).
3. Whether the Service tax is applicable on Visa processing Fee.
Such services are presently out of the purview of service tax. Therefore, these
service charges shall not be subject to service tax.
[For Detailed Discussion On Visa Assistance REF 5.2.4, PAGE 34]
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3.3 Other Related Issues
Discussed in Detail in Ref 5.3 to 5.9 to [ PAGE 35 TO 42]
1. Service tax is being charged twice from the customer once in the ticket
it appear in the fare column and secondly when air travel agent issues
invoice on the customer. Whether such taxation is correct as it amounts
to double taxation?
In this regard we would like to inform you that there is no double taxation,
service tax is levied by two independent service provider i.e. airlines and air
travel agent for two different services. Service tax on fare is levied by airlines
for transport of passenger by air service, provided to the customer or
passenger. And service tax is levied by the Air travel agent for providing
booking of air ticket service. It is pertinent to mention that service tax is not
levied twice on same service, rather it is charged on two different service
provided to the customer. However, confusion of double taxation has arisen
due to the fact that both the time service tax is collected by the air travel
agent.
Further, we would like to clarify that benefit of Cenvat credit of service tax
charged by Air travel agent on the commission shall be available to the
Airlines. Therefore, same should be billed to the airlines and accordingly,
Airline should pass the benefit of service tax paid to the agent, to the
customer/passenger.
2. Whether Cess is leviable on the service tax levied under Transport of

Passengers by Air Services.
Yes, cess @ 3% is leviable on the service tax levied under aforesaid category.
Service tax in case of domestic journey shall be Rs.103/-. And, in case of
international journey in economy class it shall be Rs.515/-.
1. For Domestic Journey in any class:

Gross Value of Ticket Rate / Amount of
(Basic Fare + YQ +YR) Service Tax
Less than Rs. 1000/- 10.3%
Rs. 1000/- or more Rs. 103/-
2. For International Journey in any class:
Gross Value of Ticket Rate / Amount of

(Basic Fare + YQ +YR) Service Tax
Less than Rs. 5000/- 10.3%
Rs. 5000/- or more Rs. 515/-
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4. APPLICABLE RATES AT A GLANCE
In this regard we would like to mention the applicable rate under the table as
given under:
Service Rate Category

Air Travel Agent’s Service
If option to pay on service tax on basic fare 10.3% Air Travel Agent
is not opted
If option to pay service tax on basic fare is
opted
• In case of Domestic Booking .618% Air Travel Agent
• In case of International Booking 1.236%

(of basic fare)
If Air Ticket are booked through another Business Auxiliary
10.30%
agent/consolidator Service
Cancellation charges of Air ticket are
received from the customer by Air Travel 10.30% Air Travel Agent
agent.
Tour Operator Service
Outbound Tour
• If consideration received in Foreign To be exported
Currency without payment
of tax
• If consideration received in Indian
Currency, in such a case if
2.575% (after
¾ if it is a package tour 75%abatement) Tour Operator service
¾ if under such tour only hotel 1.03% (after

90%abatement)
accommodation is provided
¾ any other case 4.12% (after

60%abatement)
12
Booking of hotel accommodation
• If bill/invoice raised is inclusive of 1.03% (after
Cost of hotel accommodation 90%abatement)
• If hotel accommodation so provided 2.575% (after

form part of package and invoice 75%abatement)
raised inclusive of all charges
Tour Operator service
• If bill/invoice raised is not inclusive 10.3%
of Cost of hotel accommodation (i.e. (on the amount
invoice indicate separately of commission)
commission charged for providing
such service)
Providing Car on rent/hire

• If only car on rent/hire service is 4.12% (after Rent-a-Cab Scheme
provided for point to point transport 60%abatement) service
facility.
• Tour operator/travel agent provides 4.12% (after Rent-a-Cab Scheme

car on rent for Outstation packages 60%abatement) service
to its customers.
• Tour operator provides car on

rent/hire service which form part of a
tour. Tour Operator service
- Form part of a package tour 2.575% (after
75%abatement)
- Form part of a non package 4.12% (after
tour 60%abatement)
Passport and Visa Assistance Service -NA- Not Taxable
Passport and Visa Assistance Service if form
part of a tour.
- Form part of a package tour 2.575% (after Tour Operator service
75%abatement)
- Form part of a non package tour 4.12% (after
60%abatement)
Performance Linked Bonus Received from 10.30% Business Auxiliary
Airlines Service
Other Related Issues -NA- Not Taxable
Incentives received from Global Distribution (Department is
Company litigating)
Registration Fes Charged from the members 10.30% Service provided by

for Convention. Club or Association.
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5. DETAILED DISCUSSION
5.1 APPLICABILITY OF SERVICE TAX ON AIR TRAVEL AGENTS SERVICE.
Air Travel Agent’s Services covers in its scope services provided to any person by
any other person engaged by Airline Companies for the purpose of booking of air
ticket on their behalf.
On the basis of statutory provisions governing Service Tax, we would like to

discuss the various aspect and taxability of the same in relation to Air Travel
Agent’s services.
Before discussing the same we would like to give summary table of discussion
for ready reference:
Discussio Particulars Page No

n Ref.
5.1.1 Taxability of Air Travel Agents on the air tickets booked 14
by them
5.1.2 Person Responsible for Payment of Service Tax 14
5.1.3 Value of Taxable Service 14 to 15
5.1.4 Options available to Air Travel Agents to pay service tax. 15 to 16
5.1.5 Taxability of sub-agent working for Air Travel Agent’s 16 to 18
Looking at the trend of the industry, we would like to

5.1.6 discuss further other way/manner of booking Air-Ticket 18-19
5.1.6(a) i.e. (a)Buy tickets from IATA/GSA/consolidator.
5.1.6(b) (b)Online booking of tickets.
5.1.7 Taxability of amount received towards Cancellation 19
Charges
5.1.8 Lesser commission received on account of ticket sold at 20
a lower price to a customer
5.1.9 Availability of the Cenvat credit of service tax paid on 21 to 23
Input Service
14
5.1.1 Taxability Of Air Travel Agents On The Air Tickets Booked By Them
Taxable service in relation to Air Travel Agent Service is reproduced as under:
“Taxable service in respect to air travel agent’s service means any service
provided or to be provided to a person, by an air travel agent in relation to the
booking of passage for travel by air [Section 65 (105) (l)]”.
Thus, any Air Travel Agent who is engaged in booking the passage for travel by
air is liable to pay service tax under the category of Air Travel Agent’s service on
the amount received by him on booking of domestic & international tickets as
per the applicable rate.
5.1.2 Person Responsible For Payment Of Service Tax
Every Air Travel Agent who books the passage for travel by air. [Notification No.
20/97 dated 26.06.1997]
“Air travel agent” means any person engaged in providing any service connected
with the booking of passage for travel by air – Section 65 (4)
5.1.3 Value Of Taxable Service.
In case of Air Travel Agent, the value of taxable service shall be the gross
amount charged by the air travel agent and includes the commission received
by the air travel agent from the airline but does not include, the airfare
collected by air travel agent in respect of service provided by him. In other
words, value of taxable service shall be the amount of commission the Air Travel
Agent’s received from the Airline Companies. However, if air travel agents also
charge certain amount from customer, then same shall also be includible in the
gross amount.
The stand that the value of taxable service in case of Air Travel Agent includes
the commission amount has been laid down in Rule 6 of Service Tax
(Determination of Value) Rules 2006, wherein commission received by air
travel agent from airline in specifically included in taxable value.
15
Further, the said rule also states that subject to the provisions contained in
sub-rule (1), the value of any taxable service, as the case may be, does not
include the airfare collected by air travel agent in respect of service
provided by him.
Hence, the amount of commission received by the Air Travel Agent from the
passengers shall form part of gross value and the same shall be subject to the
levy of service tax. In other words, every Air Travel Agent is liable to pay service
tax on the commission received by him on booking of domestic & international
tickets @ 10.30%.
Example: Suppose on the basis of agreement entered into between Air travel
Agent and Sub Agent, Air lines will provide the ticket of Rs. 10,000/- to an Air
Travel Agent for Rs.9500/- and Air Travel agent sell the same ticket to customer
at the rate of Rs. 10,500.
In such a situation, value of taxable value shall be Gross Amount charged by

the air travel agent excluding the cost of air ticket i.e. 1,000 (Gross amount
charged-Cost of Air Ticket + Commission received from airline i.e. 10,500-
10,000+500)
5.1.4 Options Available To Air Travel Agents To Pay Service Tax On Basic
Fare.
However, looking into the nature of transaction and the mechanism followed by
the service providers for realization of their value of taxable services, the
Department has given Air Travel Agent’s an option to pay service tax on the
basic value of fare collected by them.
These special rates are 0.618% of the basic fare in case of domestic bookings
and 1.236% of the basic fare w.e.f 01.05.2006 in case of international
bookings.
Note: Basic fare means that part of air fare on which commission is normally paid
to air travel agent by the airline. However, if airline is paying commission not only
on basic fare but also on YQ then the value of YQ is to be included in the gross
amount for the purpose of calculating service tax liability.
Hence there are two options available to Air travel Agent for discharging its
service tax liability in respect of Air Travel Agent Services.
16
Option A: To pay Service Tax at prevailing rates (i.e. 10.3% w.e.f 24.02.2009) on
the amount of commission received by Air Travel Agent from Airline companies.
Option B: To pay Service Tax at the rate of 0.618% of the basic fare in case of
domestic bookings and 1.236% of the basic fare in case of international
bookings.
In this respect, we would also like to submit that:
• According to Rule 6(7) of the Service Tax Rules 1994 payment of

service tax at the special rates prescribed is towards the discharge of his
service tax liability instead of paying service tax @ 10.30% of the value of
taxable service. In other words, no exemption has been granted, it is only
an alternate method of discharging service tax liability by Air Travel
Agent.
• Further, once option exercised, shall apply uniformly throughout the

financial year and shall not be changed under any circumstances.
5.1.5 Taxability Of Sub-Agent Working For Air Travel Agents
Sometimes an Air Travel agent also appoints agents (known as sub-agent) to

work on their behalf. These sub-agents purchases tickets from a air travel
agents on behalf of the customer and receive the commission from air travel
agents and not from airlines. Since these agents are not getting any commission
directly from airlines therefore the services provided by these sub agents
cannot be considered as Air Travel Agents Services and option to pay
service tax on basic fare is not available to these sub agents.
However w.e.f. 01.07.2003 the said services are taxable under the category of
“Business Auxiliary Services” under the head commission agent services.
Therefore, these sub-agents are required to pay Service Tax @ 10.30% on the
amount of commission received by them under the category of “Business
Auxiliary Services.”
To have a better clarity of the issue involved we would like to explain the
above proposition with the help of an example:-
17
I. Suppose on the basis of agreement entered into between Air Lines and an Air
Travel Agent, Air lines will provide the ticket (the cost of which is Rs.10,000/- &
Basic fare 9,000) to an Air Travel Agent for Rs.9500/-.
In such a situation, Air travel agent has an option to pay service tax either at
the rate of 10.30% on the commission received by him i.e. Rs.500/- or to pay
tax at special rate i.e. 0.618% on the basic fare i.e. Rs.9,000/-.
II. In the same example suppose if an agent/ tour operator instead of

entering into an agreement with Air lines to buy tickets from such Airline
Company decides to buy the tickets from Air Travel Agent then he is known as
sub agent.
Suppose Airline provide the ticket to Air Travel Agent for Rs. 9,500/-. Air Travel
Agent sells the same ticket to sub agent at the rate of Rs. 9700/-and sub agent
further sell the ticket to customer at the rate of Rs. 10,000.
In such a situation, Air travel agent has an option to pay service tax either at
the rate of 10.30% on the commission received by him i.e. Rs.500/- or to pay
tax at special rate i.e. 0.618% on the basic fare i.e. Rs.9,000/-.
However, sub agent shall be liable to pay service tax @ 10.30% on the
commission received by them i.e. Rs. 300 (Rs. 10,000/- less Rs. 9,700/-) under
the category of Business Auxiliary service. The alternate rate for discharging the
service tax liability which is applicable on Air Travel Agents is not applicable on
them.
Further, we would like to discuss the situation where sub agent also gets
commission/transaction fees/management fees/service charges (whatever
it may be called), from customer apart from the commission received from
air travel agent.
In such a situation, sub agent shall be liable to pay service tax on the
commission/management fees (whatever it may be called) received from
customer under the category of “Air Travel Agent Service.” However, the
commission received from the air travel agent will remain taxable under the
category of “Business Auxiliary Service.”
18
To have a better clarity of the issue involved we would like to explain the above
proposition with the help of an example:-
Suppose on the basis of agreement entered into between Air travel Agent and
Sub Agent, Air travel agent will provide the ticket (the cost of which is
Rs.10,000/-) to a Sub Agent for Rs.9700/- and sub agent further sell the same
ticket to customer at the rate of Rs. 10,500.
In such a situation, sub agent shall be liable to pay service tax @ 10.30% on the
commission received by them i.e. Rs. 500 (Rs. 10,500/- less Rs. 10,000/-) from
customer under the category of “Air Travel Agent service.”
However, commission earned from Air Travel Agent i.e. Rs. 300 (Rs. 10,000/-
less Rs. 9,700/-) will remain taxable under the category of “Business Auxiliary”
service @ 10.30%.
It is pertinent to mention here option to pay service tax on basic fare at the rate
0.618% or 1.236% & is not available to these sub agents as such option is
available only in respect of commission received from airlines.
5.1.6 Looking At The Trend Of The Industry, We Would Like To Discuss

Further Other Way/Manner Of Booking Air-Ticket I.E.
(a) Buy tickets from IATA/GSA/Consolidator.
(b) Online booking of tickets.
5.1.6(a) Booking Through Iata/ Gsa/Consolidator.
If an air travel agent (whether or not an IATA Agent) book air tickets through
IATA/GSA/Consolidator, in such a case such Air Travel is known as sub agent.
Therefore, as discussed above, services provided by such agent shall be taxable
under Business Auxiliary Service for the amount of commission received from
Air Travel Agent. For the purpose of levy of Service Tax, taxable value shall be
the gross amount charged by the service provider i.e. commission received from
Air Travel Agent.
19
It is pertinent to mention that sub-agents are liable to pay service tax under the
category of “Business Auxiliary Services” irrespective of the fact that how the
consolidators are discharging their service tax liability. In other words, whether
consolidators are discharging their service tax liability on basic fare or on the
commission, such fact does not affect the service tax liability of the sub-agent.
Sub agent are continued to be liable to pay Service Tax @ 10.30% on the
amount of commission received by them under the category of “Business
Auxiliary Services.”
5.1.6 (b) Online booking of tickets
If an Air Travel Agent is engaged in online booking of air ticket from the airlines.
In such a case Air travel agent is acting as an agent of the airlines and such
services shall be classified as “Air Travel Agents Service.” And as discussed
above, Air travel Agent has an option to pay Service Tax either at the rate of
10.30% on the commission earned by it on booking of domestic & international
tickets or to pay service tax at the special rate on the basic value of fare
collected by them (i.e. 0.618% of the basic fare in case of domestic bookings and
1.236% of the basic fare in case of international bookings).
5.1.7 Taxability Of Amount Received Towards Cancellation Charges

In this regard we would like to submit that department through its Circular No.
B43/7/97-TRU dated 11.07.97 has clarified that any amount received for
either booking of tickets or cancellation thereof would be subject to service tax.
Therefore, any amount received by Air Travel Agent for booking of tickets and
cancellation would be subject to service tax at the rate as applicable at the time
of provision of service which is 10.30% presently.
Here we would like to clarify that Circular No. B43/7/97-TRU dated 11.07.97
has been withdrawn after issuance of master circulars, however, the explanation
given in said circular for levy of service tax on the Air Travel Agent Services can
still be referred as it based on the principle of Section 67 read with Service Tax
Determination of Valuation Rules. Thus cancellation charges shall be subject
to service tax at the rate as applicable at the time of provision of service.
(10.3% presently)
20
5.1.8 Lesser Commission Received On Account Of Ticket Sold At A Lower
Price To A Customer
Suppose on the basis of agreement entered into between Air travel Agent and
Airline, Air lines will provide the ticket (the cost of which is Rs.10,000/-) to an
Air Travel Agent for Rs.9,500/-. Air Travel Agent further sell the same ticket to
customer for Rs. 9,800 though he could have sold the same for Rs. 10,000/-. In
such a case commission received by Air Travel agent shall be Rs. 300 i.e. 9,800-
9,500. Air travel Agent shall be liable to service tax on such amount earned as
commission under the category of “Air Travel Agent.”
5.1.9 Availability Of The Cenvat Credit Of Service Tax Paid On Input

Service
There are two options available to Air travel Agent for discharging its service tax
liability in respect of Air Travel Agent Services.
Option A: To pay Service Tax at prevailing rates (which is presently 10.3%) on
the amount of commission received by Air Travel Agent.
Option B: To pay Service Tax at the rate of 0.618% of the basic fare in case of
domestic bookings and 1.236% of the basic fare in case of international
bookings.
Under both the Options available, Air travel agent will be entitled to claim credit
of service tax paid on input services received and used in relation to providing
of output taxable services. Air Travel Agent will also be entitled to claim credit of
duty paid on inputs and capital goods used in relation to providing output
taxable services as the special rates at which the liability of service tax is being
discharged by Air Travel Agents are not abated rates after claiming exemption of
the value of taxable service.
The following example would help in understanding in ascertaining Service Tax

Liability:
Example:
Gross Amount charged from Domestic Bookings Rs 100 lakhs
Gross Amount charged from International Bookings Rs 100 lakhs
Total Commission Received Rs 15 lakhs
Service Tax paid on Input Services received & consumed in Rs. 0.50 lakh
relation to provision of output taxable services
Excise Duty paid on Inputs consumed and used in relation to Rs 0.05 lakh
provision of output taxable services
Excise Duty paid on Capital Goods used in relation to Rs 0.10 lakh
provision of output taxable services
21
Determination of S.T. Liability under Option A
In the above case Service Tax liability will be worked out as under:
Gross Amount Commission Rs. 15 lakhs

Service Tax Liability @ 10 %( Rs 15 lakhs X 10%) Rs. 1,50,000
Primary Education Cess @3 %( Rs. 1,50,000 X 2%) Rs. 3,000
Secondary & Higher Education Cess(Rs.1,50,000x1%) Rs. 1,500
Total Liability Rs. 1,54,500
Determination of Amount of Service Tax liability to be paid after availing

the available Cenvat Credit:
Service Tax Liability before availing Cenvat Credit Rs.1,54,500

Less : Cenvat Credit availed on:
Input Services Rs. 50,000
Inputs Rs. 5,000
Capital Goods (only for an amount not Rs. 5,000
exceeding 50 %in first year)
Total Cenvat Credit availed Rs 60,000 Rs. 60,000
Service Tax to be paid after availing Cenvat Credit Rs. 94,500
22
Determination of S.T. Liability under Option B
In the above case Service Tax liability will be worked out as under:
Gross Amount Charged from Domestic Bookings Rs.100 lakhs

Service Tax Liability @ 0.6 %( Rs 100 lakhs X 0.6%) Rs. 60,000
Primary Education Cess @2 %( Rs. 60000 X 2%) Rs. 1,200
Secondary & Higher Education Cess(Rs.60000x1%) Rs. 600
Total (A) Rs. 61,800
Gross Amount Charged from International Bookings Rs.100 lakhs

Service Tax Liability @ 1.2 %( Rs 100 lakhs X 1.2%) Rs. 120,000
Primary Education Cess @2 %( Rs. 120000 X 2%) Rs. 2,400
Secondary & Higher Education Cess(Rs.120000x1%) Rs. 1,200
Total (B) Rs. 1,23,600
Total Liability (A+B) Rs. 1,85,400
Determination of Amount of Service Tax liability to be paid after availing

the available Cenvat Credit:
Service Tax Liability before availing Cenvat Credit Rs.1,85,500

Less : Cenvat Credit availed on:
Input Services Rs. 50,000
Inputs Rs. 5,000
Capital Goods (restricted to maximum 50%in Rs. 5,000
first year)
Total Cenvat Credit availed Rs 60,000 Rs. 60,000
Service Tax to be paid after availing Cenvat Credit Rs. 125,400
Hence, under both the options, Air Travel Agent can avail the benefit of
Cenvat Credit.
23
5.2 Applicability Of Service Tax On Outbound Tour, Booking Of Hotels
Rooms, Providing Car On Rent/Hire, Passport, And Visa Assistance.
Before discussing the various aspects in respect of above query, we would like to
reproduce the facts as briefed to us as under:
TAAI is seeking opinion in respect of following service provided by a travel

agent/tour operator which may be provided independently or may form part of a
tour package.
• Outbound Tour;
• Booking of Hotels Rooms;
• Providing Car on Rent/Hire;
• Passport & Visa Assistance;
Before discussing the same we would like to give summery table of discussion
for ready reference:
Discussion Ref. Particulars Page No
5.2.1 Taxability of Outbound Tour 25 to 26
5.2.2 Taxability of Booking of Hotels Rooms 31
5.2.3 Taxability of Providing Car on Rent/Hire 32 to 33
5.2.4 Taxability of Passport and Visa assistance 34
In the light of above facts briefed to us, we would like to discuss the queries
raised by querist as under:
24
5.2.1 Taxability Of The Outbound Tour
As per the brief provided to us, outbound tours are the tour provided by tour
operators which are partly or fully performed in another country (Outside India).
Service in relation to outbound tour provided to any person by a tour operator

shall be taxable under the category of “Tour Operator Service.” However, as per
Export of Service Rules Tour Operator Services are covered in rule 3(i)(ii) of
such rules. These services shall be treated as export of services, if the following
conditions are cumulatively satisfied:-
(a) Such service shall be used for business or any other purpose outside India
(b) Service must be partly performed out of India.
(c) Payment for such services is received by the service provider in convertible
foreign exchange
Thus, in order to qualify as Export of Service, all the above conditions have to be
cumulatively satisfied.
Practical application of above conditions in case of Outbound Tour

Tour operators satisfy the first two conditions, which are required to be
considered outbound tour service as export of service. Thus, in order to qualify
as Export of Service, service provider must satisfy the third condition i.e.
consideration must be received in convertible foreign exchange. Thus, Service
tax implication of Outbound Tour can be discussed under two different
situations which are as follows;
1. Taxability of outbound package tours where the consideration is received in

foreign exchange.
In such a case, services provided in respect of outbound tour shall be treated

as export of services, as all the conditions of Export of service are
cumulatively satisfied. Hence, such services may be exported by tour
operator without payment of Service Tax in terms of Rule 4 of Export of
Service Rules, 2005.
25
2. Taxability of outbound package tours where the consideration is being
received in INR.
In such a case, services provided in respect of outbound tour shall not be

treated as export of services, thus, tour operator shall be liable to pay
service tax on amount received in Indian currency (INR) under the category
of ‘Tour Operator’s Services’.
5.2.2 Taxability Of Booking Of Hotels Rooms
Service tax implication of arranging or booking hotel accommodation can be

discussed under three different situations which are as follows;
1. Travel agent/tour operator is providing services solely of arranging or

booking hotel accommodation to any person.
2. Travel agent/tour operator is providing services of arranging or booking

hotel accommodation to any person when such services form part of a
package tour.
3. Travel agent/tour operator is providing services of arranging or booking

hotel accommodation to any person when such services form part of a non-
package tour.
Now we would like to discuss the each situation, as under;
Situation 1: Where services solely of arranging or booking hotel

accommodation is provided.
In this regard we would like to mention that department vide its Notification
No. 38/2007 dated 23.08.2007 has clarified that an abatement of 90% from
the gross amount charged to the client has been provided where the tour
operator provides the services solely of booking or arranging accommodation
and the bill issued for this purpose includes cost of such accommodation.
Therefore, if a tour operator is providing service in relation to booking of hotel

accommodation in such case Service Tax shall be charged at the rate of 1.03%
(after availing abatement of 90% at present rate of service tax i.e. 10.30%) as per
Notification No. 38/2007 dated 23.08.2007.
26
Further, bill/invoice issued by Tour operator shall indicate charges towards
such accommodation. In other words no abatement shall be available, if
invoices/bills don’t include cost of such accommodation. It can be explained
with the following example:
Example: Suppose Tour operator book hotel accommodation for a client and
pays Rs. 6,000/- to the hotels for accommodation and in turn raises invoice of
Rs. 7,000/- on client for such service.
In such a case tour operator shall be liable to pay service tax on Rs. 7,000/- at
the rate of 1.03% after availing abatement of 90% i.e. 7000-6300= 700 * 10.30%
=72.10.
However, in the same example suppose tour operator raises invoice specifying
the hotel charges as 6,000 and commission of Rs. 1000.
In such a case tour operator shall be liable to pay service tax on Rs. 1,000/- at
the rate of 10.30% abatement of 90% shall not be available as invoice does not
include cost of such accommodation.
Further, there may be a situation where tour operator book hotel

accommodation on direct payment basis i.e. gross amount charged by hotel is
collected from the customer and same is remitted to the hotel. Tour operator
gets its commission from the hotel at the later stage.
In such a situation if hotel raises the invoice in the name of clients and Tour
operator collect the amount from customer and remit the same to the hotel. In
such case tour operator shall be liable to pay service tax only on the amount of
commission received from the hotel under the category of “Business Auxiliary
Service.” This can be explain with the help of following example given as under:
Example: Suppose Tour operator book hotel accommodation for a client and
pays Rs. 6,000/- to the hotels for accommodation. Hotel raises invoice on client
and tour operator collects the amount i.e. Rs. 6,000/- and remit the same to the
hotel. Hotel later gives the commission of Rs. 1,000/- to Tour Operator.
In such a situation, Tour operator shall be liable to pay service tax on Rs.
1,000/- at the rate of 10.30%.
27
However, if hotel raises the invoice in the name of the tour operator and
tour operator in turn raises invoice on the customer. In such a case tour
operator shall be liable to pay service tax in respect of the following
amount:
• Tour operator shall be liable to pay service tax on the gross amount
charged from the customer after availing the abatement of 90% under the
category of “Tour Operator Service.”
• Tour operator shall also be liable to pay service tax on the amount of
commission received from the hotel under the category of “Business
In addition to above there may be situation where instead of giving

commission in money, hotel gives additional Rooms free of cost to the tour
operator.
In this respect we would like to bring into your knowledge Rule (3) of the Service
Tax (Determination of Value) Rules, 2006 reproduced herein below:
“Subject to the provisions of section 67, the value of taxable service, where the
consideration received is not wholly or partly consisting of money, shall be
determined by the service provider in the following manner:-
(a) the value of such taxable service shall be equivalent to the gross amount
charged by the service provider to provide similar service to any other person in
the ordinary course of trade and the gross amount charged is the sole
consideration
(b) where the value cannot be determined in accordance with clause (a), the
service provider shall determine the equivalent money value of such consideration
which shall, in no case be less than the cost of provision of such taxable service.”
In is clear from the above that if consideration is received by service provider in

other then money, in such a case taxable value shall be the cost of such hotel
room i.e. amount generally charged by the hotels for providing such hotel
accommodation and tour operator shall be liable to pay service tax on the same
under the category of “Business Auxiliary Service.”
28
Situation 2: Where services of arranging or booking hotel accommodation
form part of a package tour.
In this regard we would like to clarify that department vide its Notification No.
38/2007 dated 23.08.2007 has clarified that abatement of 75% from the
gross amount charged to the client has been provided where the tour operator
provides the services in relation to a package tour.
Further, in the same Notification department has also clarified that the
expression “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 view of above explanation as provided in the Notification, in order to claim

abatement of 75%, the value of package shall include the following;
1. Transportation;
2. Accommodation for stay;
3. Food;
4. Tourist guide;
5. Entry to monuments; and
6. Other similar services.

accommodation which form part of package tour then Service Tax shall be
charged at the rate of 2.575% (after availing abatement of 75% at present rate of
service tax i.e. 10.30%) as per Notification No. 38/2007 dated 23.08.2007.
Further, bill/invoice issued by Tour operator shall indicate these charges are for
whole package/tour. In other words tour operator shall issue single invoice for
whole package.
29
Thus, Service tax implication in above situation summarized as under:
• Service of arranging hotel accommodation as part of tour package is
covered under the category of “Tour Operator service.
• Abatement of 75% has been provided from the gross amount charged to
the client.
• Bill/invoice issued by Tour Operator shall indicate that it is inclusive of

charges for such a tour.
Situation 3: Where services of arranging or booking hotel accommodation

form part of a non package tour.
In this regard we would like to clarify that department vide its Notification No.
38/2007 dated 23.08.2007 has clarified that abatement of 60% from the
gross amount charged to the client has been provided where the tour operator
provides the services in relation to a non-package tour.
Here, we would like to bring into your knowledge that non package tours are the
tour wherein apart from hotel accommodation; other services like food,
transportation etc is also provided under such tour. However, such tour do not
have all the requisite of the package tour.

accommodation which form part of non-package tour then Service Tax shall be
charged at the rate of 4.12% (after availing abatement of 60% at present rate of
service tax i.e. 10.30%) as per Notification No. 38/2007 dated 23.08.2007.
Further, bill/invoice issued by Tour operator shall indicate these charges are for
such non-package tour.
Thus, Service tax implication in above situation summarized as under:

• Service of arranging hotel accommodation as part of non package tour is
covered under the category of “Tour Operator service.
• Abatement of 60% has been provided from the gross amount charged to
the client.
• Bill/invoice issued by Tour Operator shall indicate that it is inclusive of

charges for such a tour.
30
AVAILABILITY OF CENVAT WHERE ABATEMENT IS BEING CLAIMED.
If a tour operator is providing service in relation to which abatement benefit

are availed, in such a case benefit of Cenvat credit on inputs/input
services/capital goods used for providing such service is not available to the
tour operator.
However, in case tour operator is providing services on which service tax is paid
at the full rate i.e. without availing any abatement. In such case Cenvat credit of
Input/input service/capital good used for providing such service shall be
available to the tour operator.
However, difficulty may arise when tour operator provides both kind of service
i.e. service on which abatement benefit are availed and services on which tour
operator service tax is paid at full rate.
In such a case it is advisable to the tour operator to maintain separate accounts

for receipt, consumption and inventory of all input/input services/capital good
in respect of taxable service and abated service (i.e. service in respect of which
abatement is availed).
However, if no separate account is maintained by the tour operator, in such a

case tour operator shall follow either of the following option:
• The tour operator shall pay amount equal to 6% of value of the services
on which abatement benefit are availed.
• The tour operator shall pay amount equivalent to the CENVAT credit on
inputs/input services/capital goods used for providing service on which
abatement benefit are availed.
31
5.2.3 Taxability Of Providing Car On Rent/Hire
Tour operator/travel agent has an arrangement with its client/customers
wherein it provides Car on Rent/Hire.
Service tax implication of providing car on rent or hire can be discussed under
three different situations which are as follows;
1. Tour operator/travel agent provides car for point to point transport

facility.
2. Tour operator/travel agent provides car on rent for Outstation packages

to its customers..
3. Tour operator provides car on rent/hire service which form part of a

package tour.
Situation 1: Tour operator/travel agent provides car for point to point transport
facility.
Under Situation-1, tour operator provides car on rent for point to point
transport facility wherein the cab is not at the disposal of customers and
customer can take the vehicle accompanied with the drivers of tour
operator/travel agent for a specific destination and for a specific period of
time/Km.
In above situation, Service of providing car on rent/hire for specific destination

to customer will get cover under the category of “Rent-a-can Scheme service.”
Thus, tour operator/travel agent shall be liable to pay service tax on such
service at the rate 4.12% (after availing abatement of 60% under Notification No.
1/2006-ST dated 01.03.2006) while raising its invoices to the customers in this
respect.
However, if above service form part of a tour, in such a case same shall be
taxable under the category of “Tour Operator Service” at the rate as applicable to
such tour i.e. 2.575% in case of package tour (after availing abatement of 75% at
the present rate of tax i.e. 10.30%) and 4.12%in case of non-package tour (after
availing abatement of 60% at the present rate of tax i.e. 10.30%).
32
Situation 2: Tour operator/travel agent provides car on rent for Outstation
packages to its customers.
Under Situation-2, tour operator provides car on rent for outstation package i.e.
Delhi to Agra and then back to Delhi for a fixed consideration. Here we would
like to mention that such service shall be regarded as Renting a cab services. As
tour operator/travel agent provides the vehicle to the customer for a particular
period and distance and the customer use such vehicle at its own will or it may
not use the vehicle at all. The vehicle is entirely at the disposal of customer for a
particular period or even beyond that on payment of extra charges.
Further under the outstation package, customer can use the car as per the
package taken. For instance: If Delhi/Agra/Delhi package is taken, customer
can visit any place in Agra and then back to Delhi.
Thus, in such a situation tour operator/travel agent is providing the Cars on

rent to its customers. Thus it can be safely concluded that tour operator/travel
agent is engaged in renting the cabs as the cabs are at the disposal of
customers. Thus, tour operator/travel agent shall be liable to pay service tax at
the rate 4.12% (after availing abatement of 60% under Notification No. 1/2006-
ST dated 01.03.2006) while raising its invoices to the customers in this respect.
Situation 3: Tour operator provides car on rent/hire service which form part of
a tour.
If tour operator/travel agent provide car on rent/hire service which form part of
a tour. In such a case same shall be taxable under the category of “Tour
Operator Service” at the rate as applicable to such tour i.e. 2.575% in case of
package tour (after availing abatement of 75% at the present rate of tax i.e.
10.30%) and 4.12%in case of non-package tour (after availing abatement of 60%
at the present rate of tax i.e. 10.30%).
33
5.2.4 Taxability Of Passport And Visa Assistance Service
Tour operator assists its customers/clients in performing the visa or passport.

Travel agent/tour operator charges some amount as ‘service charges’ for providing
aforesaid services. Such services are presently out of the purview of service tax.
Therefore, these service charges shall not be subject to service tax.
However, if such service are provided in relation to a tour. In such a case same shall
be taxable under the category of “Tour Operator Service.” at the rate as applicable to
such tour i.e. 2.575% in case of package tour (after availing abatement of 75% at the
present rate of tax i.e. 10.30%) and 4.12%in case of non-package tour (after availing
abatement of 60% at the present rate of tax i.e. 10.30%).
However, in case tour operators have deposited the service tax on service charges
collected from clients for providing passport and visa assistance service which does
not form part of any tour package. In such a case, tour operator may file refund
application of the same in Form-R (In Triplicate) to Assistant Commissioner/Deputy
commissioner provided that incidence of service tax has been not been passed to
the clients. In other words tour operator has paid the service tax out of its own
pocket without charging the same from the clients.
Application(Form-R) should be accompanied by such documentary or other

evidence as the applicant(Tour Operator) may furnish to establish that the amount
of service tax in relation to which such refund is claimed was not collected from, or
paid by him and the incidence of such tax had not been passed on by him to any
other person(Clients). In case service tax is being charged from the client, in such a
case certificate must be obtained from the client that service tax so charged is
refunded to them.
34
5.3 Other Relating Issues
5.3.1 APPLICABILITY OF SERVICE TAX ON PERFORMANCE LINKED

BONUS (Plbs) RECEIVED FROM AIRLINES.
In above query, TAAI seeks opinion in respect of taxability of performance linked

commission received by air travel agent from Airlines for achieving the target of
booking air ticket and for promoting the business of airlines companies.
Such services tax shall be subject to service tax under the clause (ii) of
definition of business auxiliary services as provides in section 65(19) which is
reproduced as under:
“Promotion or marketing of service provided by the client”
In general promotion is an activity concerned with making the product/service

more popular, whereas marketing is an act to organize sale of a product/service
in the best possible way.
In the present case Air travel agent is promoting and marketing the services
provided by the airlines and also generating business for them. In respect of
such service Airline companies are giving commission to the air travel agent.
Further, in addition to such commission Air travel Agent is also getting
performance linked bonus. Such bonus are linked with the target (i.e. booking
air ticket) that air travel agent achieve in a period. In this way, the air travel
agent also acting as a commission agent of the Airlines as they are getting
bonus based on business generated by them. Thus service is covered under
clause (ii) of Section 65 (105)(zzb) and same is also covered under the head
“commission agent”. According to the definition of Commission Agent provided
by way of Explanation to the definition of Business Auxiliary Service,
“commission agent” means any person who acts on behalf of another person
and causes sale or purchase of goods, or provision or receipt of services, for a
consideration, and include any person (Emphasis supplied).
Thus, air travel agent shall be liable to pay service tax on gross amount received
(i.e. performance linked bonus) from airlines under the category of “Business
Auxiliary Services.” (At presently service tax rate is 10.3%)
As discussed above air travel agent shall be liable to pay service tax on
performance linked bonus received from the airlines. As per the facts briefed to
us no invoice is being raised on airlines for such commission (PLBs). Therefore,
amount so received from the airlines shall be considered as inclusive of service
tax and air travel agent shall pay service tax out of such commission on cum
duty basis. This can be explained with the help of the example given below:
35
Example: Tour operator gets Performance linked bonus of Rs. 100 form the
airlines for the target achieved in the month of July. Amount so received by tour
operator shall be considered inclusive of service tax and air travel agent shall be
liable to pay service tax
= Gross amount received x 10.30 = 100*10.30 = 9.34

110.30 110.30
5.3.2 Applicability Of Service Tax On Incentives Received From Global

Distribution System (Gds) Companies.
In above query, TAAI seeks opinion in respect of taxability of Incentive received

by air travel agent from Global Distribution Companies (hereinafter referred to
as ‘GDS’). GDS companies like Amadeus/Galileo pay incentive to travel
agencies, for availing the service of Computerized Reservation System
(hereinafter referred to as ‘CRS’).
Here what needed to be analyzed is whether the incentive received by Air Travel
Agent from GDS companies shall be subject to Service Tax?
Service tax is a tax on Taxable services. In present case, Air Travel Agent
received incentive not for providing any taxable service. Hence, a doubt may
arise that no-one would pay any incentive, until some benefit accrue to one who
pays such incentive.
The Finance Act, 1994 (Act governing Service tax) was enacted to levy service tax
on specified services, where it is specifically provided that in order to levy service
tax there has to be provision of service by one person to another person. Hence,
it is an undisputed fact that service tax is levied on the value added portion of
services provided or to be provided. However, in present case, the travel agent
does not provide any service to GDS Companies.
It is humbly submitted that nowhere under the provisions of the Finance Act,
1994 the legislature has intended to levy tax on such incentive/benefit accruing
to the assessee (without provision of any service). The service tax can be
levied only when the relationship between two persons is that of service provider
and service recipient. Any imposition of service tax without the establishment of
the said relationship and provision of service by the service provider would be
unconstitutional and ultra vires.
36
In the light of the above, it can be unambiguously stated that GDS Companies is
not the client of the Travel agent. On the contrary, GDS Companies are
providing support to the travel agents, therefore, service tax is not leviable on
incentive/ commission received from GDS Companies for using CRS
Systems.
We would like to bring into your knowledge that department is disputing on

above fact and demanding service tax on the incentive received from the global
distribution companies under the category of “Business Auxiliary Service.” There
are no of cases which are under litigation. Therefore, there is calculative risk in
not paying the service tax on such incentive. However, if Air travel agent did not
want to take such calculative risk they may voluntarily discharge service tax
liability under the category of ‘Business Auxiliary service’ on incentive under
Section 73(3).
5.3.3 Whether Service Tax Is Applicable On Registration Fees Charged By

Taai For Convention.
In above query, TAAI seeks opinion in respect of taxability of registration fees

received by TAAI from its members for convention service. In this respect we
would like to submit that TAAI shall be liable to pay service tax for any amount
received from its member for providing any services to its member. Here we
would like to reproduce taxable service in relation to service provided by Club or
Association as under:
“Taxable service means any service provided or to be provided to its member, by

any club or association, in relation to provision of services, facilities or advantages
for a subscription or any other amount – Section 65 (105) (zzze)”.
In the present case TAAI is charging Registration fees for providing convention
services to its member. Such service is covered under the category of “Service
provided by Club or Association.”
Thus, TAAI shall be liable to pay service tax on gross amount received (i.e.
Registration Fees) from members under the category of “service provided by
Club or Association.”
37
5.3.4 Can Members Of Taai Take The Cenvat Credit Of Service Tax Paid On
Annual Membership Fees Charged By Taai?
In this regard we would like to submit that according to Rule 3(1) of CENVAT
Credit Rules, 2004, credit is available to an output service provider in respect
to duties paid on inputs and capital goods, service tax and education cess paid
by it on input Services.
Where, input service means service used in relation to an output service by

service provider i.e. tour operator, air travel agent etc as the case may be.
The membership fees paid by the members are for the membership of the
association (TAAI). The primary purpose of TAAI is to protect the interests of
those engaged in the industry, to promote its orderly growth and development
and to safeguard the rights of the traveling public.
Since, such services are in relation to the business of the service provider as
same is for safeguard their interest and to promote their business. Therefore,
members of TAAI can avail the CENVAT credit of service tax paid on the
membership fees of TAAI.
5.3.5 Whether Service Tax Applicable On The Amount Received From

Client For Booking Hotel, Where Travel Agents Receive Money And Pass
Them On To The Hotels-Either In India Or Overseas.
In above query, TAAI seeks opinion in respect of taxability of amount received
from client for booking hotel where travel agent receive monies and pass the
same to hotel and no other service charges are collected from the clients. It is
pertinent to mention here that as per the fact briefed to us hotel raises the
invoice in the name of the travel agent for providing such service and travel
agent in turn raises the invoice of the same amount in the name of the clients.
In such a case as discussed under Para 3.2.2 services of arranging or booking

hotel accommodation for any person shall be liable to service tax under the
category of “Tour Operator Service.” However, such service shall be charged at
the rate of 1.03% (after availing abatement of 90% at present rate of service tax
i.e. 10.30%) provided that bill/invoice issued by Tour operator shall indicate
charges towards such hotel accommodation. In other words no abatement shall
be available, if invoices/bills don’t include cost of such accommodation.
38
It is pertinent to mention here that the fact that no service charges are charged
from the client will not alter the taxability of the same. However, if hotel
accommodation services are provided outside India i.e. hotel situated outside
India and consideration of the same is received from clients in foreign exchange.
In such a case, service in relation to booking hotel accommodation shall be
treated as export of service as conditions of export as discussed under Para
3.2.1 are cumulatively satisfied. Hence the travel agent is not liable to pay
service tax on the same. This can be explained with the help of an example given
as under:
Example: Suppose Tour operator book hotel accommodation for a client outside
India. Tour operator receives $ 600 from the client and remits the same to the
hotel. In such a situation, such service shall be treated as export of services and
such service may be exported without payment of service tax in terms of Rule 4
of Export of Service Rules, 2005.
It is to be clarified once again that if payment is received in convertible foreign

exchange in respect of booking hotel accommodation abroad, only then such
service shall not be subject to service tax.
5.3.6 Whether Service Tax Is Applicable On Overseas Services, Where
Travel Agencies Receive The Payment From Client And Remit Payment In
Us Dollars To Such Overseas Service Provider
WHAT IF PAYMENT ARE RECEIVED FROM CLIENTS IN INR AND REMITTED

IN INR DOES IT COMES UNDER THE PURVIEW OF SERVICE TAX.
Before replying the same we would like to mention the fact as explained to us;
1. Services of overseas travel agent are availed by travel agent for providing
overseas services i.e. booking tour, hotels overseas, sightseeing etc to
clients.
2. Services are provided to the client outside India.
3. Tour operator raises invoice/bills on client for such package tour
4. Overseas travel agent raises invoice on travel agent for such service.
5. Travel agents receive payment from clients in foreign currency and remit
the same to these overseas travel agents in foreign currency.
39
Firstly, in respect of the amount received from clients for overseas services in
relation to tour, travel agent is liable to pay service tax under the category of
“Tour Operator Service.”
As per the brief provided to us services are being provided outside India and
consideration for the same is received in foreign currency. Therefore, such
amount received from clients shall be treated as export as all three conditions of
export as discussed under Para 3.2.1 are cumulatively satisfied. Hence, travel
agent is not liable to pay service tax on the amount received from client.
However, if the payment from the client is received in Indian currency in such a
case, one of the essential condition to qualify export i.e. payment is to be
received in foreign currency remain unsatisfied, therefore, travel agent shall be
liable to pay service tax under the category of “Tour Operator Service.”
In this respect we further like to bring into your knowledge that:

Service provided by overseas travel agents to clients are covered under the
category of Tour operator service as they are providing services to the tourist in
relation to their tour outside India. Consequently, service tax shall be payable
on the value of such services at the rate as in force at the time of provision of
service.
Liability to pay service tax -

Usually the service provider is the person liable to make payment of service tax.
However, in case taxable services are provided by the service provider having
business establishment outside India and such service are received by the
service recipient in India, then the service recipient is vested with the
responsibility of discharging the service tax liability on the taxable services so
received by it in India. In other words, in such cases, the service recipient is the
person liable to pay service tax subject to the provisions of Section 66A.
In the present case, the travel agent receives services from the overseas travel
agent located outside India. In such a case, the travel agent shall be liable to
pay service tax under reverse charge mechanism because the travel agent is
having its office in India and foreign travel agents do not have any office in India
40
from where they are providing services. Therefore, as per section 66A read with
Section 68(2) of the Act, the services shall be treated as if the recipient i.e. the
Company has itself provided the service in India. Consequently, according to
Rule 2(1)(d)(iv) of Service Tax Rules, 1994, the Company shall be the person
liable for paying service tax under reverse charge mechanism or tax shift
mechanism.
In addition to the above, we would also like to draw the attention of the
Company towards the classification of services made under Taxation of
Services (Provided from Outside India and Received in India) Rules, 2006.
According to these rules, as are applicable w.e.f 18.04.2006, all the services
have been classified into 3 categories as under:-
Rule Services
Rule 3 (i) Services related to Immovable Property
Rule 3 (ii) Services related to Performance of Service
Rule 3 (iii) Service related to Receiver of Service
Tour Operator service is governed by Rule 3(ii) of these Rules. According to this
Rule, Services shall be treated as provided from outside India and received in
India if such services are performed inside India. It has been further clarified
that if such service is partly performed inside India, it shall be considered to
have performed Inside India.
However, as per the brief provided overseas travel agent are

performing/providing all their services outside India. Services of booking tour,
hotels etc, outside India. No parts of services are performed inside India.
Thus, the said services shall not fall under the above mentioned category i.e.
“Service related to Performance of Service.”
Therefore, in view of the above discussion it is reiterated that travel agents shall
not be liable to make service tax in respect of such service. In other words tour
operator are under no obligation for making payment of service tax on the
amount paid to these overseas travel agent located outside India provided no
service are provided in India by such overseas agent.
41
5.3.7 Is It Mandatory For All Travel Agencies Handling Tour Operator
Business To Register Under Business Auxiliary Services As Well?
Further, if an IATA agency is buying tickets from consolidator, in such a

case are these travel agencies supposed to register under Business
Auxiliary Services or any other appropriate head.
In the first part of the query TAAI seeks opinion that Is it necessary FOR Air
Travel Agent/IATA Agent to register under the category under Business
Auxiliary Servicer?
In this respect we would like to submit that whether an assessee is registered

under one category or other, it does not affect the service tax liability as the
same will depend on the nature of the service. If an Assessee fails to get itself
registered in appropriate category then penalty under Section 77 shall be
leviable. The nature of the business of travel agent is such that there are
different source of Income. Amount received from tourist or customers in respect
of a tour get taxed under the category of “Tour Operator Service.” However,
beside that travel agents also gets commission from various person i.e. Rail
agent or air travel agent or hotels, for booking ticket or accommodating their
hotels. Such commission has been made taxable under the category of
“Business Auxiliary Service.” Therefore, it is recommended that travel agent
shall get themselves registered under the category of “Business Auxiliary
Service” if they are providing any service liable to be taxed under the category of
Business Auxiliary Service as discussed supra.
In respect of second part of query, TAAI seeks opinion in respect of category

under which booking of air ticket from consolidator shall be taxable. In this
regard we would like to submit that, if an air travel agent book air tickets
through Consolidator, in such a case as discussed under Para 3.1.5, Air Travel
Agent while buying tickets from such Consolidator act as their sub-agent
therefore the commission received by such sub agent shall be taxable under
Business Auxiliary Service and air travel agent are liable to register under such
category.
For the purpose of levy of Service Tax, taxable value shall be the gross amount
charged by the service provider i.e. commission received from Air Travel Agent
as per the applicable rate (Presently 10.30%).
42
6. STATUTORY PROVISION
Relevant Statutory Provision of Service Tax
6.1 Air Travel Agent’s Services

Taxable Service
Taxable service in respect to air travel agent’s service means any service
provided or to be provided to any person, by an air travel agent in relation to the
booking of passage for travel by air [Section 65 (105) (l)].
Definitions
“Air travel agent” means any person engaged in providing any service
connected with the booking of passage for travel by air – Section 65 (4)
6.2 Tour Operator Services

Taxable Service
Taxable service means any service provided or to be provided to any person, by a
tour operator in relation to a tour – Section 65 (105) (n).
Definition
Tour Operator
“Tour operator” means any person engaged in the business of planning,
scheduling, organising or arranging tours (which may include arrangements for
accommodation, site seeing or other similar services) by any mode of transport,
and includes any person engaged in the business of operating tours in a tourist
vehicle or a contract carriage by whatever name called, covered by a permit,
other than a stage carriage permit, granted under the Motor Vehicles Act, 1988
or the rules made thereunder
Explanation.— For the purposes of this clause, the expression “tour” does not
include a journey organised or arranged for use by an educational body, other
than a commercial training or coaching centre, imparting skill or knowledge or
lessons on any subject or field;’ – Section 65 (115)
Tour
“Tour” means a journey from one place to another irrespective of the distance
between such places – Section 65 (113)
43
6.3 Business Auxiliary Services
Taxable Service
Taxable service in relation to business auxiliary services means any service
provided or to be provided to a client, by any person, in relation to business
auxiliary service– Section 65 (105) (zzb).
Definitions
Business Auxiliary Service
W.e.f .01.09.2009
“Business Auxiliary Service" means any service in relation to,-
(i) promotion or marketing or sale of goods produced or provided by or
belonging to the client; or
(ii) promotion or marketing of service provided by the client; or
Explanation:- For the removal of doubts, it is hereby declared that
for the purposes of this sub clause, “services in relation to promotion
or marketing of service provided by the client” includes any services
provided in relation to promotion or marketing of games of chance,
organized, conducted or promoted by the client, in whatever form or
by whatever name called, whether or not conducted online, including
lottery, lotto, bingo.;
(iii) any customer care service provided on behalf of the client; or
(iv) procurement of goods or services, which are inputs for the client; or
Explanation.- For the removal of doubts, it is hereby declared that
for the purposes of this sub-clause, “inputs” means all goods or
services intended for use by the client.’;
(v) production or processing of goods for, or on behalf of, the client; or
(vi) provision of service on behalf of the client; or
(vii) a service incidental or auxiliary to any activity specified in sub-
clauses (i) to (vi), such as billing, issue or collection or recovery of
cheques, payments, maintenance of accounts and remittance,
inventory management, evaluation or development of prospective
customer or vendor, public relation services, management or
supervision, and includes services as commission agent, but does
not include any activity that amounts to manufacture of excisable
goods.
44
Export of Service Rules 2005
Rule 3(1) (as amended) of the Export of Services Rules 2005 divides the services
into following three categories for the purpose of export of services:
(i) Services related to Immovable Property (Rule 3(1)(i))
(ii) Services related to Performance of Service(Rule 3(1)(ii))
(iii) Services related to Receiver of Service(Rule 3(1)(iii))
Tour operator’s Services provided by the company falls under Rule 3(1)(ii) of
Export of Service Rules, 2005 which prescribe that such services are export of
services if all the following conditions are satisfied:
1. Services provided are to be used in or in relation to business or commerce;

and
2. Such services should, either partly or fully, be performed outside India.
3. Payment for such services provided is received by the service provider in
convertible foreign exchange.
Rule 4 of Export of Services Rules 2005 provides that any service, which is
taxable under Section 65(105) of Finance Act 1994, may be exported without
payment of service tax.
In simple words, if a taxable service is being exported, service provider need not
charge service tax from its clients on such services meant for export.
45
7. NOTIFICATIONS
NOTIFICATION NO. 38/2007–SERVICE TAX DATED 23.08.2007
G.S.R. (E). In exercise of the powers conferred by sub-section (1) of section 93

of the Finance Act, 1994 (32 of 1994), the Central Government, on being
satisfied that it is necessary in the public interest so to do, hereby makes the
following further amendment in the Notification of the Government of India in
the Ministry of Finance (Department of Revenue), No. 1/2006-Service Tax, dated
the 1st March, 2006, vide number G.S.R. 115 (E), dated the 1st March, 2006,
namely: -
In the said Notification, in the Table, for S.No. 2 and the entries relating
thereto, the following shall be substituted, namely: -
(1) (2) (3) (4) (5)
“2. (n) (i) Services provided or to be The bill issued for this 25
provided to any person, by a purpose indicates that it is
tour operator in relation to a inclusive of charges for
package tour. such a tour.
Explanation.- The expression

“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.
10
46
(ii) Services provided or to be (a) The invoice, bill or
provided to any person, by a challan issued indicates
tour operator in relation to a that it is towards charges
tour, if the tour operator is for such accommodation,
providing services solely of and
arranging or booking (b) this exemption shall not
accommodation for any person apply in such cases where
in relation to a tour. the invoice, bill or challan
issued by the tour
operator, in relation to a 40
tour, only includes the
service charges for
arranging or booking
accommodation for any
person and does not
include the cost of such
accommodation.
(iii) Services, other than The bill issued indicates

services specified in (i) and (ii) that the amount charged in
above, provided or to be the bill is the gross amount
provided to any person, by a charged for such a tour.
tour operator in relation to a
tour.
Abatement (deduction) is allowed from the gross amount charged from any
person by service provider is subject to the following two conditions:-
i) No credit of duty on inputs or capital goods or the CENVAT Credit of

Service Tax on Input Services , used for providing such taxable service has
been taken under the provisions of Cenvat Credit Rules, 2004 and
ii) Benefit of Notification No. 12/2003 i.e. exemption of the value of goods and
materials transferred during the course of providing of service, has not
been availed by him-Notification No. 18/2005 dated 07.06.2005.
47
8. NOTES
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HANDBOOK ON SERVICE TAX ISSUES RELATING TO

AIR TRAVEL AGENT/ TOUR OPERATORS/

OTHER TRAVEL RELATED SERVICES

Opinion provided by Compiled by

Appointed Consultants to Service Tax Council

3. FREQUENTLY ASKED QUESTIONS

4. APPLICABLE RATES AT A GLANCE 12-13

6.1 AIR TRAVEL AGENT’S SERVICES 43

1. BRIEF FOR OPINION

Frequently Asked Question 4 to 13

Applicable Rate of Service Tax 12 to 13

7. Whether option of paying Service Tax on basic fare will amount to

8. Whether option of paying Service Tax on basic fare once exercised

9. Whether Service Tax is applicable on the commission received by

10. Whether Service Tax is applicable on the commission received by

14. Whether amount received towards cancellation charges shall be

[For Detailed Discussion on Air Travel Ref 5.1, Page 14 to 23]

3.2.1 Out Bound Tour

1. What shall be the taxability of Out-Bound Tour?

2. What shall be the taxability of Out-Bound Tour, if consideration is

3.2.2 Booking of Hotel Rooms

1. What shall be the taxability of Tour Operator/Travel Agent if Tour

2. What shall be the taxability of Tour Operator/Travel Agent if Tour

4. What shall be the taxability of Tour Operator/Travel Agent if hotel

5. What shall be the taxability of Tour Operator/Travel Agent if Tour

6. What shall be the taxability of Tour Operator/Travel Agent if Tour

1. What shall be the taxability of Travel Agent if Tour operator/Travel

In above situation, service of providing car on rent/hire for specific

2. What shall be the taxability of travel agent if Tour operator/travel

In above situation, service of providing car on rent/hire for Outstation

3. What shall be the taxability of Travel Agent if Tour operator/Travel

If Tour Operator/Travel Agent provide car on rent/hire service which form

[For Detailed Discussion on Car on rent Ref 5.2.3, Page 32 to 33]

3. Whether the Service tax is applicable on Visa processing Fee.

[For Detailed Discussion On Visa Assistance REF 5.2.4, PAGE 34]

2. Whether Cess is leviable on the service tax levied under Transport of

1. For Domestic Journey in any class:

2. For International Journey in any class:

Gross Value of Ticket Rate / Amount of

Service Rate Category

• In case of International Booking 1.236%

¾ if under such tour only hotel 1.03% (after

¾ any other case 4.12% (after

• If hotel accommodation so provided 2.575% (after

Providing Car on rent/hire

• Tour operator/travel agent provides 4.12% (after Rent-a-Cab Scheme

• Tour operator provides car on

Registration Fes Charged from the members 10.30% Service provided by

On the basis of statutory provisions governing Service Tax, we would like to

Discussio Particulars Page No

Looking at the trend of the industry, we would like to

Taxable service in relation to Air Travel Agent Service is reproduced as under:

5.1.2 Person Responsible For Payment Of Service Tax

5.1.3 Value Of Taxable Service.

In such a situation, value of taxable value shall be Gross Amount charged by

In this respect, we would also like to submit that:

• According to Rule 6(7) of the Service Tax Rules 1994 payment of

• Further, once option exercised, shall apply uniformly throughout the

5.1.5 Taxability Of Sub-Agent Working For Air Travel Agents

Sometimes an Air Travel agent also appoints agents (known as sub-agent) to

II. In the same example suppose if an agent/ tour operator instead of

5.1.6 Looking At The Trend Of The Industry, We Would Like To Discuss