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  • ARTICLE - India

    Online Portal’s Hotel Booking Service Qualifies as Tour Operator Service

    15 Jan

    India tour operator service - Introduction

    In an important judgment, the CESTAT New Delhi has ruled in favor of a prominent online travel company, involved in facilitating hotel room bookings via its website and mobile application. This decision overturns the service tax demand raised by the Revenue Department, which had classified the service under ‘short-term accommodation’ rather than ‘tour operator’ service.

    Key highlights of the decision

    Service Classification as Tour Operator

    The Tribunal emphasised that the online portal acted as a facilitator, connecting hotels with customers. Scrutinising the ‘Privilege Partnership Agreement’ between the online portal and hotels, and the ‘User Agreement’ with customers, it was clear that the portal's role was limited to providing an online booking platform. Consequently, it did not directly render hotel accommodation services.

    Eligibility for 90% Abatement

    Challenging the Department’s stance, the Tribunal clarified that the definition of a ‘tour operator’ extends beyond individual transactions. The portal, engaged in organizing tours including accommodation arrangements, rightfully fits into the ‘tour operator’ category. Therefore, it is eligible for a significant 90% abatement as per the relevant notifications.

    Rejection of Short-Term Accommodation Service Classification

    The Tribunal noted that for a service to be classified under short-term accommodation, it must be provided directly by the hotel. The online portal, lacking the necessary licenses and infrastructure, could not be equated with a hotel. This understanding further fortified the classification of the portal’s service as that of a tour operator.

    Implications of the Judgment

    This ruling sets a precedent for similar cases, impacting how online travel agencies are taxed. It underscores the distinction between being a service provider (hotel) and a service facilitator (online portal). Moreover, it provides clarity on the applicability of tax abatements in the travel and hospitality sector.

    Implications of the decision

    The CESTAT's decision is a significant development in the tax position for online portals offering hotel booking services. It delineates the thin line between direct service provision and facilitation, a crucial distinction in the digital age where online platforms are ubiquitous. This ruling not only offers relief to the online travel company in question but also paves the way for similar businesses to understand their tax liabilities better. It is a testament to the evolving nature of tax laws and their interpretation in the context of modern, technology-driven services. 

    India tour operator service - Conclusion

    For businesses operating in this area, it's crucial to stay abreast of such legal precedents and ensure compliance with the nuanced interpretations of tax laws.

    Final thoughts

    If you have any queries on this article on the India tour operator service, or Indian tax matters more generally, then please get in touch.

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