Online travel portals taking consumers for a ride

Ludhiana: In a shocking case of fleecing consumers and evading service tax, Directorate General of Central Excise Intelligence (DGCEI), Ludhiana regional unit, has exposed a big scam involving country’s top online travel portals, majority of whom are based at Gurgaon.

The officials have zeroed in on as many as five portals, which have not been depositing the amount of 14.5 % service tax collected from their customers for activities such as hotel booking, holiday package, etc. to the department, which is added to the total bill amount.

Recently, the officials arrested the vice president (VP) of one such company on the suspicion of bungling to the tune of Rs 70 crore through service tax evasion.

He was released only after the company deposited Rs.15 crore in the court last week and promised to pay Rs 10 crore in the next 15 days as a pre-condition for the bail.

Sources reveal that the department has sent summons to four other travel portals and asked their top representatives to appear before it for questioning and explain their position on evading the service tax.

The joint teams led by officers from DGCEI’s headquarters and Ludhiana regional office in a thorough investigation of about two months unearthed this scam which was in operation from past couple of years. The scale of service tax evasion through this is estimated at around Rs 150 – 200 crores.

While officials from the department are tight-lipped about this high-profile case, sources informed TOI that this evasion attracts a penality of 100% along with penal action and the amount of penalties on remaining companies was being assessed.

Interestingly some offline travel companies too are under DGCEI’s scanner for service tax evasion.

How the tax evasion has become a knotty affair

Suppose an Online travel portal strikes a deal with a hotel for renting out its room at a flat rate of Rs. 8,000 per day and portal rents it for Rs. 10,000 to a customer, as per the excise and taxation department officials, the portal should pay up 14.5 % service tax on Rs. 10,000 which amounts to Rs. 1,450.

Whereas the online portals claim that they are supposed to pay the service tax on Rs. 2,000 (Selling Price Rs. 10,000 – Cost Price Rs. 8,000) which is the amount of their profit earned.

The companies have claimed that they were depositing the service tax on the amount of cut they earn from giving the service to the customers.