Service Tax - the Haj Exemption
IMMEDIATELY on seeing the Haj Exemption Notification No. 17/2014 - Service Tax, Dated: August 20, 2014, I contacted Ataur Rahman, the Chief Executive Officer of the Haj Committee of India. I had the honour of breaking the news to him. His first reaction was "Issued? Great!"
I asked him, "Are you responsible for the exemption from service tax for Haj Committee?"
His humble answer was, "no not responsible, but an effective pleader for it, yes!"
If you wonder why I contacted Ataur Rahman; he is one of our most distinguished IRS (C&CE) officers and an expert on Service Tax having co-authored an authoritative book on service tax called 'All about Service Tax' to his credit. It is the department's loss that he is at present away from the Department, but he is engaged in God's work as CEO of the Haj Committee of India. I could learn a lot of things on the working of the Haj Committee and the Service Tax issue in my brief interaction with Ataur Rahman.
First of all, a small correction. In Friday's DDT, I had mentioned that Haj Committee facilitates religious pilgrimage to Haj/Umrah. Rahman corrects me that Haj Committee of India conducts only Haj operations and not Umra. I regret the error and profusely apologise to my readers for this indiscretion which should not have happened.
Haj Committee of India (HCOI) is a statutory body of Ministry of External Affairs (MEA),Government of India, constituted under the Haj Committee Act, 2002. HCOI is tasked with making arrangements for the pilgrimage of Muslims for Haj. The legal provisions make it clear that HCOI is an extended arm of the Central Government.
The services availed by the Haj pilgrims are transportation by Airlines, accommodation, transportation and related services in Kingdom of Saudi Arabia (KSA) and provision of foreign exchange at the time of embarkation. HCOI does not provide these services directly but it collects the exact amounts incurred on these counts and pays to the service providers.
Aren't the services provided by the Haj Committee already out of the Service tax purview?
Haj is one of the five basic tenets of Islam and is a compulsory religious obligation on a Muslim who can afford to perform it. Thus, all the expenditure incurred by a Haj pilgrim starting from his residence till reaching back to his residence after performing Haj, is part of the religious obligation of Haj. As such one view is that the whole activity of Haj is exempted in terms of Serial No.5(b) of the Notification No.25/2012-ST dated 20.06.2012. ( conduct of any religious ceremony )
The HCOI arranges accommodation, transportation and Haj related facilities/services provided in KSA through Consulate General of India (CGI), Jeddah who arrange these services and make payment to the service providers. As the place of provision of these services is outside India, these would be exempt vide S. No.34 of the Notification No. dated 20.06.2012. ( Services received from a provider of service located in a non- taxable territory by - (a) Government, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession; )
Service tax on air travel is paid by the airlines. An amount is taken from the pilgrims for disbursing equivalent Saudi Riyals in cash to them at the embarkation point. Since this is a pure cash transaction there is no service element in it as per section 65B(44) and, therefore, the question of Service Tax does not arise. Even if there is any tax element, it is payable by the bank disbursing the cash.
The value of the aforesaid services is excluded in terms of Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006 since HCOI acts as a “pure agent” in procuring these services/goods on behalf of pilgrim. Wherever applicable, service tax is to be paid by the service providers concerned e.g. Airlines, bank.
An amount of Rs.1,000/- per pilgrim is collected by HCOI as miscellaneous charges to take care of the expenditure on establishment/ documentation/ arrangements incurred by HCOI and State Haj Committees. These charges can be considered a statutory levy as HCOI is empowered in this regard under Section 30 of the Haj Committee Act, 2002. If so, no service tax would apply on such charges as HCOI is nothing but part and parcel of the Government in terms of Section 66D (a).
Then why the notification granting the exemption? May be to remove doubts and make the position absolutely clear without a need for interpretation by bright auditors and brighter investigators.
DDT is grateful to Ataur Rahman for his scholarly assistance - talking to such officers is rejuvenating and makes one feel that everything is not lost.