Haj Group Organizers Work For Profit Motive, Unlike Haj Committees – SC Holds HGOs Liable To Pay GST

"Therefore, when the Haj Committee facilitates the Haj pilgrims by making arrangements for their visit to the Kingdom of Saudi Arabia for undertaking the Haj pilgrimage, there is a complete absence of profit motive. On the contrary, the money received by the Haj Committee from the Haj pilgrims goes to the statutory fund, which in turn, has to be used inter alia for the benefit of Haj pilgrims. Even the budget of the Haj Committee is required to be submitted to the Central Government. Thus, the Central Government has all pervasive control over the Haj Committee. The State Governments have the same control over the State Committee. On the other hand, there are no onerous duties attached to HGOs. They earn profit by rendering service to Haj pilgrims. Except for the stringent conditions for the registration, the Government has no control over HGOs."

The Court also held that the HGOs supply service to the service recipient in India and the service is rendered by providing a package for the Haj Pilgrimage to the service recipient who is located in a taxable territory. That is how the service provided by the HGOs is taxable for service tax.

In this case, a batch of Writ Petitions were filed before the Apex Court by All India Haj Umrah Tour Organizer Association Mumbai questioning the liability of the Haj Group Organizers (HGOs) or Private Tour Operators (PTOs) to pay service tax on the service rendered by them to Haj pilgrims for the Haj pilgrimage.

As per the bilateral agreement between India and the Kingdom of Saudi Arabia, the Haj pilgrimage can be undertaken from India only through the Haj committee or HGOs.

Section 66B of the Finance Act, 2012 the percentage of service tax leviable was 14% on the value of all services other than those mentioned in the negative list. A mega exemption notification was issued in the year 2012 which contained several exemptions.

Paragraph 5(b) of the Mega Exemption Notification provided for the exemption on services by a person by way of conduct of any religious ceremony. Paragraph 5A of the Mega Exemption Notification provided for the exemption to services by specified organisations in respect of a religious pilgrimage facilitated by the Ministry of External Affairs of the Government of India, under bilateral arrangement.

The Mega Exemption Notification defines specified organisations as Kumaon Mandal Vikas Nigam Limited, a Government of Uttarakhand Undertaking and the Committee or State Committee as defined in Section 2 of the Haj Committee Act, 2002.

From 1 July 2017, under the provisions of IGST Act, the same tax regime was continued and an identical exemption notification was issued under the IGST Act and GST Act simultaneously.

Some of the HGOs and PTOs filed petitions before the Apex Court to challenge the levy of service tax on the services regarding the Haj pilgrimage. The Court in the year 2019 directed the Petitioners to make representation to the Government of India for grant of exemption from service tax, which was rejected by the GST Council.

Most of the petitions that have been filed before the Supreme Court in this case challenge the orders rejecting representations.

In some of the petitions, a declaration has been claimed that the provisions of the laws relating to service tax are not applicable to services rendered by HGOs and PTOs to Hajis for performing the religious activity of Haj/Umrah.

Senior Counsel Arvind P. Datar and Senior Counsel Gopal Sankarnarayanan appeared for the Writ Petitioners, while AAG N. Venkatraman appeared for Revenue before the Apex Court.

It is pertinent to note that HGOs render services to Haj pilgrims by purchasing flight tickets, arranging and making payments for accommodation in Saudi Arabia, arranging and making available food during their stay in Saudi Arabia, arranging and making payments for transportation in Saudi Arabia and providing foreign exchange in the form of Saudi Riyals

The Apex Court noted that the 2012 Rules have a direct connection with the liability to pay service tax as the Rules decide the place of provision of service.

The Court further referred to Rule 2 (i)(b) of the Service Tax Rules, 1994 and noted that there are four categories listed in the Rule out of which the HGOs are covered under the fourth category which is the usual place of residence of the recipient of service. In this case, the recipients of service from HGOs are Indian residents and accordingly, their place of residence in India will be the place of provision of service.

The Court added that service is rendered by HGOs to Haj pilgrims within taxable territory.

"As per Item (iv) of sub-clause (b) of Clause (i) of Rule 2 of the said Rules of 2012, the location of the service receiver will be the usual place of residence of the Haj pilgrim in India. Therefore, the service rendered by the HGOs to Haj Pilgrims is taxable for service tax as the service to Haj pilgrims is provided or agreed to be provided in taxable territory. The service is rendered by providing or agreeing to provide Haj pilgrimage tour package," the Bench held.

• Applicability of Exemption Notification

The Court noted that the Mega exemption notification makes a clear distinction between 'religious ceremony' and 'religious pilgrimage.'

Additionally, the Court opined, "The service rendered by HGOs to Haj pilgrims is to facilitate them to reach at the destination to perform rituals/religious ceremonies. No religious ceremony is performed or conducted by the HGOs. The religious ceremony is conducted by Haj pilgrims or by someone else in the Kingdom of Saudi Arabia. According to us, there is absolutely no ambiguity in sub-clause (b) of clause 5…"

The Court noted that the Mega Exemption Notification cannot be invoked by the HGOs.

"Thus, the HGOs supply service to the service recipient having location in India. The service is rendered by providing a package for the Haj Pilgrimage to the service recipient who is located in the taxable territory. That is how the service provided by HGOs is taxable for service tax," the Bench held.

• Issue of Discrimination

The Court considered the submission of the Petitioners that there is no difference between the service rendered by HGOs and the service rendered by the Haj Committee to the Haj pilgrims. It is contended that the nature of service rendered by both is the same.

Further, the Petitioners contended that for the purposes of this exemption, the Haj Committee cannot constitute a class in itself. In short, the submission is that two equals are being treated as unequal.

The Court noted that in a given case, different classes of service providers may be rendering the same service to the same class of service recipients. That, per se, does not amount to discrimination.

The Bench referred to the duties of the Haj Committee, also of the State Haj Committees and noted that the Haj Committees are statutory bodies working under the control and supervision of the Government. The Haj Committees are the agencies and instrumentalities of the State.

"Therefore, when the Haj Committee facilitates the Haj pilgrims by making arrangements for their visit to the Kingdom of Saudi Arabia for undertaking the Haj pilgrimage, there is a complete absence of profit motive," the Court held.

"The money received by the Haj Committee from the pilgrims for rendering service goes to a statutory fund created under the 2002 Act which is to be used only for the purposes specified in the 2002 Act. That is the reason why the Haj Committee constitutes a class in itself when it comes to rendering service to Haj pilgrims. It is a separate class as distinguished from HGOs. There is an intelligible differentia for this classification," the Bench observed.

The Court thus held that the arguments based on discrimination have not substance at all as the HGOs and the Haj Committees do not stand at par as the Haj Committees constitute a separate class by themselves.

In the light of these observations, the Court dismissed the Petitions.