M. Veeraiyan, Technical Member - This is an appeal against the order of the Commissioner (Appeals) No. 323/2005 CE dated 09.12.2005.

2. Heard both sides.

3. The relevant facts in brief are as follows:

(a) The appellants are registered under the category of Tour Operator Services'. They are providing the services using their own vehicles and also using hired vehicles belonging to third parties.

(b) During the course of audit of records, it was found that they have not paid service tax on services rendered using vehicles belonging to other persons. Accordingly, further investigation was undertaken.

(c) On the basis of investigation, a show-cause notice dated 22.06.2004 proposing demand of service tax amounting to Rs. 2,62,762/- along with interest and proposing imposition of penalties under Sections 76, 77 and 78 was issued. There was also a proposal in the show-cause notice to impose penalty on the managing partner.

(d) Original authority confirmed the demand of service tax along with interest as proposed in the show-cause notice and also imposed penalties under Sections 76, 77 and 78. However, he did not impose any penalty on the managing partner.

(e) On appeal by the party, Commissioner (Appeals) has upheld the order of the original authority.

4. Learned CA appearing for the appellants challenges the order on the following grounds:

(a) The activities of giving vehicles with driver on hire cannot be treated as falling under the scope of Tour Operator Services'. They are not having control over the journey and are merely functioning as tourist vehicle operator. Tour operator is different from tourist vehicle operator.

(b) Every "journey from one place to another" cannot be considered as 'tour' in the absence of ingredients of tour such as planning, scheduling.

(c) For attracting levy under the category of Tourist Operator Services', "tour should be in a vehicle covered by a tourist permit". Burden is on the revenue to prove that the activities fall under the taxable category of service. No evidence was relied upon to show that the vehicles provided by various individuals were having tourist permits except presuming that the vehicles cannot be operated for tour without tourist permits.

(d) They were merely operating the vehicles on behalf of the vehicle owners and billing the customers on behalf of the vehicle owners. The activities of promoting, billing, and collecting on behalf of other persons are not covered under the scope of Tour Operator Services'. They have retained only 5% of the amount as their commission and passed on the balance of amount collected by them including service tax amount to the vehicle owners. Therefore, if at all service tax is payable by them, it should be on the commission retained by them under the category of 'Business Auxiliary Services'.

(e) That they were not paying service tax in respect of the services rendered with vehicles of third parties was a fact which was on record for the past four years prior to investigation/audit. Further, the legal position as to the liability was not clear during the relevant period necessitating amendments and therefore, invocation of extended period of limitation was not justified. On the above grounds, no penalty should be imposed.

(f) In the alternative, the appellants prayed for benefit of Notification No. 15/2007-ST dated 04.04.2007 issued under Section 11C read with section 83 of the Finance Act by which service tax in excess of tax calculated on a value which was equivalent to 40% of the gross amount was exempted.

5. Learned Superintendent (AR) defended the impugned order by reiterating the findings of the Commissioner (Appeals).

6.1 We have carefully considered the submissions from both sides and perused the records.

6.2 The appellants are registered as service tax provider under the category of Tourist Operator Service'. They have paid service tax in respect of such services using their own vehicles. The dispute relates to the services rendered by them to their cust