20th January 2017
To All Members,
Sub: Extension of CENVAT Credit benefit to tour operators paying service tax on abated value.
This is further to our circular dated 16th January 2017 regarding Service Tax changes effective from 22nd January 2017 vide notification no.4/2017 dated 12th January 2017.
In this regard, we would like to inform you that IATO has been pleading with the Ministry of Finance for last 5 years to extend CENVAT Credit to Tour Operators paying service tax on abated value and in our last budget recommendations also we pleaded for the following:-
“2. EXTENSION OF CENVAT CREDIT BENEFIT TO TOUR OPERATORS PAYING SERVICE TAX ON ABATED VALUE
2.1 W.e.f. from 01.10.2014, the Govt. has in a limited manner relaxed the restriction of inadmissibility of CENVAT credit to tour operators in respect of input services procured and used by them to support their output services. For this purpose, the Govt. has issued notification No. 8/2014-ST dated 11.7.2014. From 01.10.2014, CENVAT credit is available to the tour operators (paying service tax on abated value) only to the extent of service tax paid by the input service tax provider also working as tour operator. In other words, service tax charged by a tour operator to another tour operator will be available as CENVAT credit to the receiver tour operator even if both the tour operators pay service tax on abated value.
2.2 A tour operator is also availing input services from a host of other service providers. The prominent input services are services of hotels, cab operators / bus transporters, air/rail travel agent etc. At present, the tour operators are not entitled to avail CENVAT credit in respect of service tax charged by these prominent service providers while paying output service tax on abated value.
2.3 We have come to know that in the case of service by hotels in term of renting of hotel, inn guest house, club or other commercial place for residential or lodging purposes, the service tax is payable by the hotel , inn etc. on 60% of the gross amount. However, the hotel is entitled to avail full CENVAT credit in respect of input services without any discrimination.
IATO Recommendation:- It is recommended that as in the case of hotels, the tour operators may be allowed benefit of CENVAT credit in respect of service tax charged by all the service providers including counterpart tour operators, hotels, cab operator/transporter, rail/air travel agent (for air ticket), tourist guide, foreign currency sellers / money changers etc.” UNQUOTE
In this regard, our Immediate Past President, Mr. Subhash Goyal also met Hon’ble Mr. Arun Jaitley on 1st January 2017 and requested to accept our this genuine demand.
Ministry of Finance has acceded to our demands by extending CENVAT Credit on all inputs services. However, to justify CENVAT Credit on all input services, the abatement to tour operators has been reduced to 40 % and service tax will be applicable on the 60%, which works out to 9% on the package tour cost (including Swachh Bharat Cess and Krishi Kalyan Cess).
After availing the inputs credit on our services, our members will be highly benefitted as the overall service tax percentage will go down on the package tour.
We shall discuss this in detail during our interactive meeting on Monday, the 23rd January 2016 at The Ashok Hotel at 4 pm. Those who have not sent their confirmation, kindly send their confirmation to IATO office and join us for the meeting.