Special Correspondent

Two master circulars issued on clarifications

Abatement rate fixed at 75 p.c. against 60 p.c.

The latest circulars supersede all earlier ones

NEW DELHI: In a welcome relief for the tourism and hospitality sector, the Centre on Thursday hiked the rate of abatement from 60 per cent to 75 per cent for the purpose of calculating the service tax payable by tour operators on ‘package tour’ services.

With the Central Board of Excise and Customs (CBEC) issuing an amendment notification to this effect, tour operators henceforth will be required to pay service tax only on 25 per cent instead of the earlier 40 per cent of the gross amount charged on customers for such package tours.

Under the service tax regulations, services provided by tour operators in relation to a tour are leviable to service tax under ‘Tour Operators Service’.

Hitherto, a tour operator providing package tour services, including provision of transportation and accommodation for stay, was liable to pay service tax on 40 per cent of the gross amount charged for such tours. In effect, 60 per cent of the gross amount charged was provided as abatement for the purpose of levy of service tax.

At the instance of the Indian Association of Tour Operators (IATO) and Tourism Ministry’s recommendation for an increase in the rate of abatement on package tour services, the Advisory Committee on Service Tax Abatement prescribed the rate of abatement at 75 per cent on package tours where the gross amount charged is to include cost of accommodation, food, transport arrangement, tourist guide, entry to monuments and other similar categories of expenditure.

Meanwhile, as a trade facilitation measure, the Government also issued two consolidated circulars containing clarifications on matters relating to the levy of service tax in lieu of all clarifications issued so far. While the first master circular pertains to matters relating to technical issues, the other deals with issues relating to procedures.

These two circulars, the statement said, supersede all earlier circulars, clarifications and communications issued from time to time by the CBEC, Director General (Service Tax) and various field formations on matters relating to levy of service tax.

However, orders issued for the purposes of uniformity in connection with classification of services under Section 37B of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994, by the CBEC, continue to be valid, the statement added.