Discussion on Tour operators and Travel Agents

Is a Tour Operator different from a Travel Agent?

Can a Tour Operator avail Input Tax Credit if 18% GST is charged on outward supplies?

The services of a Tour Operator are covered under Schedule Entry 23 of Notification No.11/2017-Central Tax (Rate) dated 28/06/2017. The statutory definition of a Tour Operator is –

“tour operator” means any person engaged in the business of planning, scheduling, organizing, arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport, and includes any person engaged in the business of operating tours.

What are the essentials for being classified as a Tour Operator?

The basic essential is that a Tour Operator must organize tours. The word ‘Tour’ is not defined under GST law. If we refer to the Service tax regime, the word ‘Tour’ was defined as “A journey from one place to another irrespective of the distance between such places.”

A Tour Operator is therefore a person who renders any services of –

Planning a tour,
Scheduling a tour
Organizing a tour, or,
Arranging a tour.

In addition to the above, the services of a Tour Operator may include allied services such as hotel booking, booking of transportation such as car or coach, sightseeing services, entry to monuments, museums and shows, etc.

GST law does not prescribe any definition for the words ‘Travel Agent’. Again, if we refer to the definition of a Travel Agent under Service tax law, we find that a travel agent is defined as ““travel agent means any person engaged in providing any service connected with booking of passage for travel, but does not include air travel agent and rail travel agent”. A simple reading of the definition tells us that a travel agent merely provides booking services such as booking of tickets on trains, buses, etc. In the Service tax law, Air Travel Agent was covered under special provisions, hence excluded from the definition of a ‘Travel Agent’. However, that is not relevant for the current discussion.

On comparison of ‘Tour Operator’ and a ‘Travel Agent’ we find that the major points of difference which emerge are –

Tour Operator	Travel Agent
Defined under GST law	Not specifically defined under GST law, covered under broader category of intermediary. (only ‘Air Travel Agent’ is defined)
Plans, Schedules, Organizes or arranges Tours	Books passage for transportation of passengers
Has considerable leeway in deciding the itinerary of the client. The Tour Operator designs the package for the passenger based on his knowledge and experience. To that extent, a Tour Operator is a skill that is gained through experience or through organized learning such as tourism courses.	A Travel Agent is largely an executor of instructions given by the passenger.
A Tour Operator acts as an advisor to the passenger and guides the passenger on many aspects such as local festivals and customs, timings of visit to monuments or museums, suitable accommodation, suitable places for food and drink, etc.	A Travel Agent does not provide such services, but merely books tickets on instruction of the passenger.

What is the GST rate applicable to a Tour Operator?

We once again refer to Schedule Entry 23 of Notification No.11/2017-Central Tax (Rate) dated 28/06/2017. The said entry specifies GST rate for a Tour Operator subject to some conditions. We reproduce the said schedule entry for immediate reference –

Sl No.	Chapter, Section or Heading	Description of Service	Rate (per cent.)	Condition
23	Heading 9985 (Support services)	(i) Supply of tour operators services.Explanation.- “tour operator” means any person engaged in the business of planning, scheduling, organizing, arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport, and includes any person engaged in the business of operating tours.	2.5	1. Provided that credit of input tax charged on goods and services used in supplying the service, other than the input tax credit of input service in the same line of business (i.e. tour operator service procured from another tour operator) has not been taken[Please refer to Explanation no. (iv)]2. The bill issued for supply of this service indicates that it is inclusive of charges of accommodation and transportation required for such a tour and the amount charged in the bill is the gross amount charged for such a tour including the charges of accommodation and transportation required for such a tour.
23	Heading 9985 (Support services)	(ii) Services by way of house-keeping, such as plumbing, carpentering, etc. where the person supplying such service through electronic commerce operator is not liable for registration under sub-section (1) of section 22 of the Central Goods and Services Tax Act, 2017.	2.5	Provided that credit of input tax charged on goods and services has not been taken [Please refer to Explanation no. (iv)].
		(iii) Support services other than (i) and (ii) above.	9	-]

From the above schedule entry, we find that the applicable rate of GST for a Tour Operator is 5% subject to the condition that Input Tax Credit of any Input goods or services is not taken. The only one exception where the Tour Operator can take ITC is the GST charged by another Tour Operator. Thus, when one Tour Operator procures services from another Tour Operator, the recipient Tour Operator can take the ITC of GST levied by the supplier Tour Operator.

Can the Tour Operator take ITC on all input goods and services if the tax rate of 18% is levied on outward supplies?

Let us examine the above question with reference to the rate schedule. Here we find that –

Entry No.23, heading 9985 pertains to a wide range of support services,
Specific rate, subject to conditions, has been prescribed for two identified support services, i.e., tour operator services and house-keeping services under sub-clause (i) and (ii) of the said entry,
Sub-clause (iii) of the said entry prescribes a general rate for support services other than the identified services specified in sub-clause (i) and (ii),
If a tour operator supplies tour operating services but charges 18% GST with the intention to claim ITC, the services supplied by the tour operator do not change their character and become ‘support services other than (i) and (ii) above’, so as to be covered under sub-clause (iii) of entry No.23. The supply remains that of tour operator services for which specific rate of 5% is prescribed subject to restricted ITC,
The said entry does not provide an option to the tour operator to levy 18% GST and take ITC.
That said, the tour operator will be allowed to take ITC of GST charged by another tour operator. This amendment was effective vide Notification No. 1/2018 Dated 25-01-2018.
In the light of the above, tour operator has to levy GST of 5% with restricted ITC. There is no alternative option to levy the rate of 18% and take ITC on Input goods and services.

We draw the reader’s attention to Delhi AAR ruling in the matter of TUI India (P.) Ltd. vide Order No. 09/DAAR/2018 dated June 28, 2019 where the AAR has also come up with the same conclusion. The AAR observed in paragraph 64 of the ruling as under –

“64. The ‘tour operators services’ are covered under entry (i) of S. No. 23 of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 and they are required to pay GST @ 5% (2.5% CGST + SGST) (without ITC) subject to fulfilment of conditions and they are not covered under entry (ii) of the S. No. 23 of the said Notification before 25.01.2018 and entry (iii) of S. No. 23 of the said Notification from 25.01.2018 and hence option to pay GST @ 18% (9% CGST + 9% SGST) (with ITC) is not available to them.”

In view of the above, discussion, we find that a tour operator does not have the option to levy GST @ 18% and avail of ITC on input goods and services.

Alternative argument –

On the other hand, there is a view that merely by charging 18% tax and claiming ITC, tour operator’s services will be covered under sub-clause (iii) of entry No.23, apparently, for the reason that the condition to sub-clause (i) uses the words ‘Provided…’, the logic being that the word ‘provided’ itself carves out an option for the supplier to levy full rate of tax and take ITC. We believe this argument to be weak. Whether this argument can stand the test of law has to be seen, especially in view of the AAR issued in the matter of TUI India (P.) Ltd.

It is also worth discussing another interesting aspect discussed in TUI India (P.) Ltd. AAR. This pertains to services of ‘accommodation only’ in foreign hotels, provided by the tour operator to the client. The question put to the AAR is as under –

“10. Whether in Case of ‘Accommodation Only’ Services, GST will be charged @ 18% on only the Service Fee / Convenience Fee charged by the applicant, if the applicant satisfies the following conditions of Pure Agent :

i. It acts as a Pure Agent of its B2B Client to incur expenditure or costs for supply of hotel services.

ii. It books the hotel services purely as per the requirements of the B2B client and does not do so on its own accord.

iii. It does not use for its own interest hotel services so procured. However, it gets the bill from Hotel in its own name.

iv. It receives only the actual amount incurred to procure the hotel services, in addition to the amount received for the services it provides on its account.”

In response to the question of ‘Accommodation only’ services provided in foreign hotels by the Tour Operator, the AAR observed in paragraph 62 of the ruling –

“62. The applicant is supplying booking of hotel accommodation services. They are admittedly paying GST @ 18% (9% CGST + 9% SGST) on service fee / convenience fee / commission received from clients and also on target based sales commission received from the foreign hotel aggregators (DOTW). The value of ‘hotel accommodation’ paid by the client to them, which is remitted by them to the foreign hotel / hotel aggregator cannot be included in such taxable value, provided the conditions of pure agent are satisfied.”

The AAR has classified the ‘Accommodation only’ services supplied by the Tour Operator under category of pure agent services (subject to fulfilment of relevant conditions). Consequently, GST would have to be levied only on the commission component, including additional or incentive based commission received by the Tour Operator from foreign hotels/foreign hotel aggregators. This is a welcome clarification by way of AAR reference.

We trust this brief discussion will be of some help to the travel industry which is passing through severe downturn due to Covid-19 epidemic. Questions or comments of readers on this article are welcome.

Dipen Lathi,
Chartered Accountant
www.Lathico.com

DISCLAIMER : No assurance is given that the revenue authorities/ appellate authorities/ courts would concur with the views expressed herein. Our views are based on the existing provisions of law and our interpretation thereof. We do not assume responsibility to update the views consequent upon such changes, if any. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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