Representation on the Eligibility of Service Exports from India Scheme (SEIS) benefit to Inbound Tour Operators (Tour operators)
DEL/057/2020 18th June 2020
Shri Balesh Kumar
Directorate of Revenue Intelligence
Central Board of Indirect Taxes & Customs
Ministry of Finance, Government of India
7th Floor, D Block, I.P. Bhawan, I.P. Estate
Subject: Representation on the Eligibility of Service Exports from India Scheme (SEIS) benefit to Inbound Tour Operators (Tour operators)
We, at Indian Association of Tour Operators (IATO) wish to thank you for giving us opportunity to represent before your good office with respect to the SEIS eligibility for tour operators.
IATO is National Apex Body of Indian Tourism and Travel Industry founded in 1982. It has over 1600 members covering all segments of Tourism Industry. All its active members are recognized by the Ministry of Tourism, Government of India.
We wish to bring your attention to the letters dated 20.05.2020 issued by Shri. B. Vijaya Kumar, Senior Intelligence Officer, Directorate of Revenue Intelligence, Zonal Unit Hyderabad (hereinafter referred ‘senior officer’) to some of the members of IATO. In the said letters, the senior officer has raised certain concerns on the eligibility of SEIS scrips granted to the tour operators who are members of IATO. A copy of said notice issued to one of the members of IATO, has been annexed as Annexure A.
In light of the above, we wish to represent before your good office in order to address the concerns raised with respect to eligibility of SEIS to tour operators and seek relief in this matter.
At the outset, we would like to mention here that the eligibility of SEIS benefit to tour operators has been debated in detail before with Director General of Foreign Trade (DGFT), New Delhi under Ministry of Commerce. IATO on behalf of its members have filed representations along with clarifications from time to time to establish the eligibility of SEIS benefit to tour operators. It may be noted here that DGFT after taking into account submissions made by IATO has granted SEIS benefit to the tour operators. Such SEIS claims were granted to tour operators only after due verification of entire facts and after ensuring that the claims submitted by the tour operators meet the eligibility criteria laid out in the Foreign Trade Policy 2015-20. Therefore, the tour operators have been bona-fide in their approach towards availing SEIS benefits.
It is humbly submitted before your good office, that initiation of such investigation by Department of Revenue Intelligence would cause undue hardship to the tour operators. Consequently, questions on the eligibility of SEIS benefit to tour operators and any denial of the same would have huge repercussions on the tourism industry which is already suffering due to the slump in demand amongst travellers. As you are aware, that the most visible and immediate impact of the COVID-19 pandemic is seen in tourism sector – inbound, outbound and domestic.
We wish to highlight here that the benefits arising due to grant of SEIS claims have already been built into the pricing by tour operators over the past years. Therefore, such investigations and litigations would only add to the challenges already being faced by this industry.
We humbly wish to submit that the senior officer while issuing the letters, has erred in understanding the business model of the Inbound tour operators who provide services to foreign tourists against forex billings, leading to new concerns being raised with respect to eligibility of SEIS benefits to them. The senior officer has questioned the very basis which differentiates a tour operator from a ticketing agent or a booking agent of a hotel and hence disputed the classification of tour operator services, the value on which SEIS has been claimed and have also requested for information from tour operators such as commission component, details of outward remittance, etc.
In the succeeding paragraphs, we have briefly explained the business model of our industry and then addressed the concerns raised by the senior officer on the entitlement of SEIS to tour operators.
- A brief background of Inbound Tour Operators operations
- At the outset, we wish to highlight that tour operators specialise in customizing and designing inbound tour itineraries for travellers coming to India on the basis of their needs, interests and budget. The tour operator industry operates in a manner where a traveller approaches the Foreign Tour Operators (FTOs) who in turn approach the tour operators in India for designing the suitable packages.
- Tour operators put together a combination of cities, hotels, transport, entertainment, sight-seeing, meals, air tickets, guide services etc. to create a package for FTOs which qualifies as ‘tour operator’ services. Such tour operators engage with FTOs directly and render services to the FTOs on their own account. Tour operators provide information relating to the price, category of hotel, type of travel etc. for each tour package. They market these services as consolidated pre-packaged tours to be rendered by them and not by any third party.
- On receiving the orders from FTOs/direct travellers, tour operators procure each service such as hotels, transporters, restaurants, airlines, trains, experience providers, guide etc. as input services from various service providers. Thereafter, the tour operators create itinerary, designs and deliver tour packages which are best suited to traveller’s needs, interests, budgets using their own intellect. In other words, these input services are the costs incurred by tour operators which are eventually used to create appropriate packages after adding value to each component procured.
- Further, such tour operators take the responsibility of ensuring that the packages are delivered to the travellers and they are accountable for all risks/ concerns associated with such packages including risk of cancellations, risk of foreign exchange fluctuations, risk of shortcomings in services of hotel, guide, breakdown of vehicle and replacement or last minute flight cancellation or any challenge due to weather condition or strikes etc.
- Clarifications w.r.t SEIS Eligibility to Tour Operators
In the following paragraphs, we have highlighted the specific concerns raised by the senior officer with respect to the eligibility of SEIS benefit to tour operators and our clarifications on the same.
- Tour Operators are covered under section 7471 of the Central Product Classification
a) As per Foreign Trade Policy 2015-20 (FTP), Service providers of notified services located in India shall be eligible for SEIS. The notified services and rates of rewards are listed in Appendix 3D.
b) Serial No. 7.B of Appendix 3D under SEIS covers ‘Travel agency and tour operator services’ as an eligible service with Central Product Classification (CPC) as 7471.
c) CPC classification 7471 defines this category as follows:
“74710 Travel agency and Tour operator services
Services rendered for passenger travel by travel agencies, tour operators, and similar services; travel information, advice and planning services; services related to arrangement of tours, accommodation, passenger and baggage transportation; ticket issuance services. These services are provided on a fee or contract basis.”
d) It may be noted that the services rendered by tour operators include providing information, planning the itinerary, making arrangements of tours, accommodation, transportation etc. Such services provided by tour operators squarely fall under the aforesaid classification and are accordingly, eligible for SEIS benefit.
e) We wish to highlight that the first concern has been raised stating that CPC 731 which pertains to ‘Passenger transportation by Air’ is not covered under Appendix 3D and is not eligible for SEIS claims. In this regard, we wish to submit that tour operators are not engaged in provisioning of passenger transportation by air. Air transportation services are rendered by Airline companies and tour operators use these as an input service like they would do in case of local transportation, if the tour so demands. As explained in the business model above, in case air travel is intended to be a part of the tour, then tour operators procure such services from airlines and add other services such as hotel, transport, guide etc to prepare a suitable package for customers which qualify as ‘Travel agency and tour operator services’ classified under CPC 7471.
f) Therefore, CPC classification 731 is not applicable in the present case as tour operators are not providing services of passenger transportation by air.
- Tour operators should be allowed to claim SEIS on entire invoice value
a) It is highlighted that Net foreign exchange (NFE) earnings as defined in Para 3.08 of Foreign trade policy 2015-20 is computed as the gross earnings of foreign exchange reduced by total expenses/payments/remittances made in foreign currency.
b) It is submitted that tour operators recognize full value i.e. entire consideration received from FTOs/ travellers as revenue in books of accounts. Thus, entire consideration received in foreign exchange by tour operators is considered for the purpose of computing SEIS eligibility. Thereafter, tour operators are deducting the foreign expenditure incurred by them from the foreign exchange earnings for computing the benefits under SEIS claims.
c) It may be noted that tour operators have applied for SEIS scrips in the past on the full value of foreign exchange remittance received by them reduced by foreign exchange expenditure pursuant to which Director General of Foreign Trade (DGFT) under Ministry of Commerce have granted scrips to such tour operators after due verification of all facts and documents.
d) It appears that the primary concern raised by the senior officer is in relation to the value on which SEIS is claimed by tour operators. It has been questioned that tour operators include foreign currency received in respect of air travel and hotel accommodation in the value for claiming SEIS benefit even when air transportation services and hotel accommodation services are not provided by tour operators, but by Airlines and Hotels, respectively.
e) In this regard, we wish to re-iterate that services provided by tour operators is ‘Travel agency and Tour operator services’ and not air transportation and hotel accommodation services. Air transportation and hotel accommodation services are merely input services procured by tour operators and not the output services which are exported to FTAs. These input elements for tour operators are not pass through services. Tour operators add value, their expert knowledge to put together an ideal combination of cities, hotels, transport, entertainment for their clients. A package is created out of disjointed and unrelated elements by the tour operators. It is also relevant here to note that all the risks associated with the package such as risk of cancellations, risk of foreign exchange fluctuations are borne by tour operators and not the individual vendors – Airlines, hotels, transports etc.
f) We would also like to highlight here that Inbound tour operators also provide services in the neighbouring locations such as Nepal, Bhutan, Sri Lanka etc. along with services in India as a part of package. In this case, tour operators deduct the outward remittances from the inward forex remittances before claiming the SEIS benefit.
g) Basis the above, the entire value of package which is created by the tour operators after combining various elements which is bringing foreign exchange to the country should be eligible for SEIS. Therefore, SEIS claims have been correctly claimed by tour operators on the entire value of tour and travel services.
- Tour operators are the sole recipients of Foreign exchange.
a) It may be noted here that service providers from whom tour operators procure services issue invoices in Indian rupees with GST. Under this arrangement, all hotels, airlines, transporters etc. are quoting, contracting and delivering services in Indian Rupees. It may be noted that the tour operators are the primary and the only recipient of the Foreign exchange remittance and not the vendors/service providers in India who provide airline or hotel services. The FIRCs are also given to the tour operators.
b) Accordingly, in this business model, the input services provider do not claim foreign exchange benefits as they do not receive any payments in forex when dealing with Indian tour operators. Therefore, in this scenario, it is clear that there will never be a double SEIS benefit flowing to two parties on the same value.
c) Since there is no risk of double benefit of SEIS by tour operators and input service providers, tour operators should be eligible to get incentives for earning foreign exchange for India.
- Goods and Service tax (GST) is also paid on full value of consideration
a) It is imperative to note that GST also recognizes ‘Tour operator’ services as a different supply which is separately classified and taxed. Tour operators discharge GST under the classification of ‘Tour operator’ services on the entire sale value at which such packages are sold to the FTAs.
b) The same is an accepted position by the GST authorities which implies that the entire amount recovered by tour operators is considered as consideration for levying GST. Applying the same analogy, the operators should be eligible to claim SEIS benefit on the entire value.
c) It may be noted that on one hand levying GST on the entire consideration received by tour operators and on the other hand, denying SEIS benefit on certain value would be an unfair position to take.
- No commission or fees component is received by Tour operators from FTOs or Foreign tourists
a) It is submitted that tour operators do not receive any commission or fee from the FTOs or foreign tourists. It is submitted that tour packages are specifically designed and are customized basis preferences of people travelling into India. It is imperative to note here that these operators are essentially working on a Principal to Principal (P2P) model. Indian tour operators enter into separate agreements with FTOs and vendors from whom services are procured. The tour packages are not sold on commission basis.
b) The amount charged by tour operators from FTOs is basis the value provided to the customers and not the actual costs incurred by it while procuring input services. The tour operators need to be differentiated from mere travel agents who only earn commission on each booking made by them for the travellers. Instead, tour operators recognize full value i.e. entire consideration received from FTOs/ travellers as revenue in books of accounts.
c) As iterated above, tour operators are responsible to combine various input services to provide a complete package to foreign tourists. Further, it is the primary responsibility of tour operators to ensure smooth provisioning of various services provided in package such as tour guide, pick up and drop facility, etc. Thus, services provided by tour operator are on its own account after undertaking all risks and such services are not rendered on behalf of someone else.
d) Therefore, such operators are not merely acting in the capacity of an agent and no commission, or percentage fees is charged by tour operators as a part of remuneration from FTOs or Foreign tourists.
e) It can be concluded that the foreign exchange earned by tour operators does not have any element of commission in it.
f) It is important to highlight again that the tour operators engage with FTOs directly to provide them a tour package on their own account. This qualifies as a ‘tour operator’ service as per CPC code 74710 and is thus an eligible service for claiming SEIS benefit on the entire amount charged by them from the FTOs.
It is humbly submitted that the SEIS scrips have been granted by DGFT (Directorate General of Foreign Trade) after a due verification of entire facts and after ensuring that the claims submitted by the tour operators meet the eligibility criteria laid out in the Foreign Trade Policy 2015-20. The tour operators have explained their business model in detail from time to time and provided clarifications as required from the DGFT authorities.
At this point, we would like to mention that the travel industry is already bleeding because of various reasons including lack of growth in tourist inflows. As you are aware, the COVID-19 pandemic has led to a significant impact on the tourism industry due to the resulting travel restrictions as well as the slump in demand among travellers and this shall continue for the remaining part of the year, at least. This is also coupled with a difficult GST regime where the taxation on tour and travel operators is unfavourable with lack of input credit under GST and additional compliances such as multiple state-wise registrations.
SEIS benefit has definitely been a relief to boost our industry which has encouraged Indian tour operators to venture into new markets. This helps to increase their Inbound tours and the same has already been inbuilt into the pricing for the past years. These Inbound tours lead to flow of foreign exchange into our country which deserves to be appreciated by the Government. The Government has reiterated time and again to focus on inbound tourism and to promote India as the destination foreign tourists should come to. Tour operators not only promote India but are also one of the biggest employment providers in the country. It is very important that the policy imperatives provided by the government to the tour operators are not negated by an erroneous interpretation leading to denial of these benefits and causing undue litigation and hardship to this industry.
We humbly request your good office to take into account our submissions and quash the investigations initiated by the senior officer. We also request your good office to decide in principle that SEIS benefits would be eligible to the tour operators on full value of foreign remittance received so that this industry does not face any further hardship.
In case required, we humbly request time for an in-person or virtual meeting with your good office considering the lockdown situation due to COVID -19 so that we can explain the above matters in greater detail.
For and on behalf of Indian Association of Tour Operators
Shri Ajit Kumar
Chairman of Central Board of Indirect Taxes & Customs,
Ministry of Finance, Department of Revenue,
Government of India
North Block, New Delhi
Shri D.P. Naidu
Additional Director General
Directorate of Revenue Intelligence, Hyderabad Zonal Unit
Ministry of Finance, Government of India
Shri B. Vijaya Kumar
Senior Intelligence Officer
Directorate of Revenue Intelligence
Zonal Unit Hyderabad
Ministry of Finance
Department of Revenue