QUESTION

ABC is engaged in the business of tour and travel agent. He has two option to pay GST on amount charged by him on the tour and travel, either @ 5% with no ITC and @18% and may avail ITC. Query: 1. On tour operator services, he is charging GST @ 5% from his customers. For providing these services, he is taking input services likely accommodation, transportation, air ticketing etc from different vendors engaging in the business of tour and travels agents. Whether he can take ITC on input services being received from these individual vendors for supplying tour operators services? Sometimes he provides the services of providing hotel/room accommodation only (not complete travel package) to his customers after getting the same from other vendors in the business of tour and travels agents. Query: 2. Whether ABC can charge GST @ 5% (with no ITC) on the service of providing hotel/room accommodation only to his customers or he has to charge GST @ 18%?

ANSWER  

Facts of the case: ABC is engaged in the business of tour and travel agent. He has two option to pay GST on amount charged by him on the tour and travel, either @5% with no ITC and @18% and may avail ITC. Query: 1. On tour operator services, ABC is charging GST @5% from his customers. For providing these services, he is taking input services likely accommodation, transportation, air ticketing etc from different vendors engaged in the business of tour and travels agents. Whether he can take ITC on input services being received from these individual vendors for supplying tour operators services? Sometimes he provides the services of providing hotel/room accommodation only (not complete travel package) to his customers after getting the same from other vendors in the business of tour and travels agents. Query: 2. Whether he can charge GST @5% (with no ITC) on the service of providing hotel/room accommodation only to his customers or he has to charge GST @18%?

Law Applicable: Notification No. 11/2017-Central Tax (Rate)

Interpretation: Query:1 As per s.no. 23 of  Notification No. 11/2017-Central Tax (Rate) tax rate on supply of  tour operators services is 5% subject to the condition that ITC on goods and services used in supplying the service other than the ITC of input service in the same line of business (i.e. tour operator service procured from another tour operator) has not been taken.

Therefore  ITC can be availed only of the input services procured from other tour operators for providing output supply and not on other inputs/input services.

Query:2 Tax rate of 5% is applicable on supply of Tour Operator Services where "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.

However in this case ABC is providing services of hotel/room accommodation only (not complete travel package), therefore rate of 5% as per aforesaid notification will not be applicable. Thus the same is taxable @ 18%.

Note: Please check if you can reduce tax liability by planing billing of the hotel directly in name of the client and operate as a pure agent for the hotel charges and raise invoice of service charges @18%.

Suggestion: The ITC can be availed of the input services if the same is used to provide output supply.

From the facts of the case, it seems that the travel agent is raising invoice(taxable value) of service charges only, if this is the case then the credit of services provided by other tour operator but not taken in valuation can't be availed.

Therefore it is suggested to please check carefully if the tax is paid on service charges only, whether the provision of the pure agent is taken into consideration. Any mistake in valuation may result in litigation.
(Reply dt. 17/03/2021)