MakeMyTrip tax charge points to grey areas in rules

Government has alleged the Nasdaq-listed company evaded service tax of Rs 67 crore

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Complexities and grey areas in interpretation of law are at the core of the tax demand on leading travel portal MakeMyTrip, say legal experts.

The government has alleged service tax evasion of Rs 67 crore by the Nasdaq-listed company. Apart from registering a case against it, the Directorate General of Central Excise Intelligence also arrested a company official. MMT has paid 25 crore to DGCEI “under protest” and will seek a refund later. It also paid  s 15 crore service tax it was deemed liable to pay as a tour operator.

DGCEI has ended up classifying MMT as a hotel service provider in raising the demand; it asserts it is a tour operator. “You do not stay in a MakeMyTrip or a Cleartrip hotel. You book on the portal and stay at a hotel that is supposed to raise an invoice in your name,” said a sector official.

Travel portals say payment of service tax on a hotel or air ticket is not their responsibility. “We as online portals account for a small fraction of hotel bookings. It is not possible for us to do this on behalf of the actual service providers,” the official added.   Portals such as MMT are mandated to pay service tax on approximately 10 per cent of the hotel booking rate, estimated to be their commission. The hotel selling a room through an operator is required to pay service tax of 60 per cent of the rate; it gets a rebate on the remaining 40 per cent. There could be smaller hotels that enjoy 100 per cent abatement due to their size or rate structure.

The high court here on Thursday directed the Union government not to take coercive action against MMT and to establish the alleged tax evasion through documents in the next hearing. Concern has been raised on the additional arrest of a company official. “One of the fundamental questions raised is whether the authorities can arrest anyone without a show cause notice, which is a company/individual’s right, so that he can put across his view,” said a lawyer.

Gunjan Mishra, Managing Associate, Luthra & Luthra Law Offices, said the provisions related to power to arrest, which has been introduced in the service tax laws just a couple of years back, ex-facie confers a very wide power as well as discretion to the tax authorities to arrest any person who has evaded the payment of service tax. “Since the arrest can be made at the beginning of the investigation itself, such an exercise of power can be prone to arbitrary and or whimsical action to the disadvantage of taxpayers”.

“The past few years have seen a rise in instances of frivolous VAT (value added tax) demands against some online portals such as Amazon, Flipkart, etc, though such demands were subsequently quashed by the courts. The government should form a well-thought strategy for taxing all online portals providing goods as well as services in the (proposed) goods and services tax regime,” said Pritam Mahure, a Pune-based chartered accountant.