Supreme Court Upholds Service Tax on Haj Tour Operators: All India Haj Umrah Tour Organizer Association Mumbai vs. Union of India (26 July 2022)

Introduction

Date of the Judgment: 26 July 2022

Citation: (2022) INSC 642

Judges: A.M. Khanwilkar, J., Abhay S. Oka, J., C.T. Ravikumar, J.

Are private tour operators who organize Haj pilgrimages liable to pay service tax? This was the core question before the Supreme Court of India in a recent case. The Court examined whether services provided by Haj Group Organizers (HGOs) and Private Tour Operators (PTOs) to Haj pilgrims should be subject to service tax, considering the unique nature of the pilgrimage and existing tax exemptions. The bench comprised Justices A.M. Khanwilkar, Abhay S. Oka, and C.T. Ravikumar, with the majority opinion authored by Justice Abhay S. Oka.

Case Background

The case involves multiple writ petitions filed by various organizations representing HGOs and PTOs, along with one individual petitioner who wished to undertake the Haj pilgrimage. These petitions challenged the government’s decision to reject representations for exemption from service tax on services related to the Haj pilgrimage. The petitioners argued that the services they provide should be exempt from service tax, similar to exemptions granted to the Haj Committee of India. They also contested the validity of certain rules under the service tax regime and claimed that the levy of service tax was discriminatory and violated the rights of pilgrims.

Timeline

Course of Proceedings

The judgment notes that some HGOs and PTOs had previously filed petitions challenging the levy of service tax on Haj pilgrimage services. The Supreme Court, in an earlier order dated 11th December 2019, directed the petitioners to make a representation to the Government of India for an exemption from service tax. Following this, a detailed representation was made on 19th December 2019. However, the GST Council rejected this representation on 14th March 2020, based on the recommendation of the Fitment Committee. This decision was communicated by the Government of India on 5th May 2020, leading to the current batch of writ petitions challenging the rejection and seeking a declaration that service tax laws are not applicable to HGOs and PTOs for Haj/Umrah services.

Legal Framework

The legal framework for this case is primarily based on the Finance Act, 1994, which introduced service tax in India. Key provisions include:

• Section 66B of the Finance Act, 1994: This section is the charging section for service tax, stating that a tax of 14% shall be levied on the value of all services, other than those specified in the negative list, provided or agreed to be provided in the taxable territory. The court quoted the section verbatim: “SECTION 66B. Charge of service tax on and after Finance Act, 2012 .— There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen percent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.”
• Section 66C of the Finance Act, 1994: This section empowers the Central Government to frame rules for determining the place where services are provided.
• The Place of Provision of Services Rules, 2012: These rules, framed under Section 66C, determine the location where services are deemed to be provided. Key rules include:
  • Rule 2(h): Defines the “location of the service provider.”
  • Rule 2(i): Defines the “location of the service recipient.”
  • Rule 3: States that the place of provision of a service shall generally be the location of the recipient of service.
  • Rule 4: Specifies the place of provision for performance-based services.
  • Rule 8: States that the place of provision of a service, where both provider and recipient are in the taxable territory, shall be the location of the recipient of service.
• Integrated Goods and Services Tax Act, 2017 (IGST Act): This act, along with the Central Goods and Services Tax Act, 2017 (GST Act), replaced the service tax regime from 1st July 2017. The court noted that the provisions of the IGST Act are largely pari materia with the 2012 Rules.

Arguments

Petitioners’ Arguments:

• Exemption under Mega Exemption Notification: The petitioners argued that paragraph 5(b) of the Mega Exemption Notification exempts services by a person by way of conduct of any religious ceremony, which should include the services provided by HGOs/PTOs for the Haj ceremony. They contended that the word ‘person’ should include all those involved in the Haj ceremony, including pilgrims. They also argued that the object of granting exemption is to reduce the financial burden on Haj pilgrims.
• Violation of Article 14: The petitioners argued that granting exemption to Haj pilgrims who go through the Haj Committee but denying it to those who go through HGOs/PTOs is discriminatory and violates Article 14 of the Constitution. They pointed out that the services provided by both are virtually identical, and both are monitored by Tawafa Establishments in Saudi Arabia.
• Place of Service Provision: The petitioners contended that the location of the service recipient for Haj pilgrimage should be the Kingdom of Saudi Arabia, where the religious ceremony takes place, not India. They relied on Rule 2 of the 2012 Rules and argued that service tax should not be levied on services provided outside the taxable territory. They cited decisions of CESTAT and High Courts to support their argument that outbound tours are not liable to service tax.
• Beneficial Interpretation of Exemptions: The petitioners argued that the exemption notification should be interpreted liberally to give full effect to its beneficial object, as it aims to reduce the financial burden on pilgrims. They relied on the decision of the Supreme Court in Government of Kerala & Anr. v. Mother Superior Adoration Convent [2021 (5) SCC 602] to support this argument.
• Violation of Article 25: The petitioner in Writ Petition (C) No.1329 of 2020 argued that charging service tax and GST on HGOs violates the rights guaranteed under Article 25 of the Constitution of India.

Revenue’s Arguments:

• Taxable Services: The Revenue argued that services provided by HGOs/PTOs are not part of the negative list under Section 66B of the Finance Act, 1994, and are therefore taxable. They contended that HGOs/PTOs are located in India, and the service is provided in India, making it taxable under the service tax regime.
• Interpretation of Exemption Notification: The Revenue argued that paragraph 5(b) of the Mega Exemption Notification applies only to the service provider who himself performs the religious ceremony, not to HGOs/PTOs, who merely arrange travel and accommodation. They distinguished between “religious ceremony” and “religious pilgrimage,” noting that paragraph 5A only exempts services by specified organizations for religious pilgrimages.
• No Discrimination: The Revenue argued that the classification between pilgrims going through the Haj Committee and those going through HGOs/PTOs is based on an intelligible differentia with a rational nexus to the object of the statute. They contended that the Haj Committee is a statutory body with specific duties and responsibilities, making it a separate class from HGOs/PTOs. They cited several decisions of the Supreme Court to support their argument that different classes of persons doing the same activity can be treated differently.
• Service Tax as Indirect Tax: The Revenue argued that service tax is an indirect tax that can be passed on to the service recipient, and it is a value-added tax on the service activity, not a direct tax on the service provider.
• Applicability of 2012 Rules: The Revenue argued that Rule 8 of the 2012 Rules applies, making the service taxable as both the service provider and recipient are located in the taxable territory.

Submissions by Parties

Issues Framed by the Supreme Court

The Supreme Court framed the following broad issue for consideration:

1. Whether Haj Group Organizers (HGOs) or Private Tour Operators (PTOs) are liable to pay service tax on the service rendered by them to Haj pilgrims for the Haj pilgrimage?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• Union of India & Ors. v. Rafique Shiekh Bhikan and Anr. [2012 (6) SCC 265] – This case discussed the unique role of HGOs/PTOs and the nature of the Haj pilgrimage.
• Federation Haj PTOs of India v. Union of India (Writ Petition (C) No.4 of 2019, dated 4th February 2019) – This case recognized the role of HGOs/PTOs as tour operators for pilgrims.
• Government of Kerala & Anr. v. Mother Superior Adoration Convent [2021 (5) SCC 602] – This case discussed the interpretation of beneficial exemptions.
• All–India Federation of Tax Practitioners & Ors. v. Union of India & Ors. [2007 (7) SCC 527] – This case discussed the nature of service tax and its applicability to services provided within the country.
• Cox & Kings India Ltd. v. Commissioner of Service Tax, New Delhi [2014 (35) S.T.R. 817] (CESTAT) – This case held that outbound tours are not liable to service tax.
• Atlas Tours and Travels Pvt. Ltd. v. Commissioner of Service Tax, Mumbai [2015-TIOL-306-CESTAT-MUM] (CESTAT) – This case also held that outbound tours are not liable to service tax.
• S. K. Dutta, Income Tax Officer v. Lawrence Singh Ingty [1968 (2) SCR 165] – This case dealt with discriminatory exemptions under the Income Tax Act.
• Rustom Cavasjee Cooper v. Union of India [1970 (1) SCC 248] – This case discussed the effect of law and the onus on the state to justify its actions.
• In Re the Special Courts Bill 1978 [1979 (1) SCC 380] – This case discussed the classification under Article 14.
• Kunnathat Thatehunni Moopil Nair, etc. v. State of Kerala & Anr. [1961 (3) SCR 77] – This case discussed the validity of tax laws under Article 14.
• East India Tobacco Company, etc. v. State of Andhra Pradesh & Anr. [1963 (1) SCR 404] – This case discussed the principles of classification under Article 14.
• Vivian Joseph Ferriera & Anr. v. Municipal Corporation of Greater Bombay & Ors. [1972 (1) SCC 70] – This case discussed the burden of proof in cases of discrimination.
• Jaipur Hosiery Mills (P) Ltd., Jaipur v. State of Rajasthan & Ors [1970 (2) SCC 26] – This case discussed the principles of reasonable classification.
• Commissioner of Customs (Import) Mumbai v. Dilip Kumar and Company and Ors. [2018 (9) SCC 1] – This Constitution Bench judgment discussed the strict interpretation of exemption notifications.
• Commissioner of Customs (Preventive) Mumbai v. M. Ambalal and Company [2011 (2) SCC 74] – This case discussed the interpretation of beneficial exemptions.
• M. Jhangir Bhatusha & Ors. v. Union of India & Ors. [1989 Suppl. (2) SCC 201] – This case upheld different treatment given to State Trading Corporation and private importers.
• Bharat Surfactants (Private) Ltd. & Anr. v. Union of India & Anr. [1989 (4) SCC 21] – This case discussed the classification of persons for taxation purposes.
• P.M. Ashwathanarayana Setty & Ors. v. State of Karnataka & Ors. [1989 Suppl. (1) SCC 696] – This case discussed the principles of classification under Article 14.
• Sanghvi Jeevraj Ghewar Chand & Ors. v. Secretary, Madras Chillies Grains & Kirana Merchants Workers Union & Anr. [AIR 1969 SC 530] – This case discussed the principles of classification under Article 14.
• Bangalore Water Supply & Sewerage Board v. Workmen of Bangalore Water Supply & Sewerage Board & Ors [1994 (2) LLN 1239] – This case discussed the classification of employees for service conditions.
• Union of India & Ors. v. Bengal Shrachi Housing Development Ltd. and Anr. [2018 (1) SCC 311] – This case discussed the nature of service tax as an indirect tax.
• R.C. Jall v. Union of India [1962 Suppl. (3) SCR 436] – This case discussed the nature of indirect taxes.
• R. K. Garg v. Union of India & Ors. [1981 (4) SCC 675] – This case discussed the approach of the Court in matters of economic regulation.

Legal Provisions:

• Section 66B of the Finance Act, 1994: Charge of service tax.
• Section 66C of the Finance Act, 1994: Power to frame rules for determining the place of service provision.
• Rule 2(h) of the Place of Provision of Services Rules, 2012: Definition of “location of the service provider.”
• Rule 2(i) of the Place of Provision of Services Rules, 2012: Definition of “location of the service recipient.”
• Rule 3 of the Place of Provision of Services Rules, 2012: Place of provision generally.
• Rule 4 of the Place of Provision of Services Rules, 2012: Place of provision of performance-based services.
• Rule 6 of the Place of Provision of Services Rules, 2012: Place of provision of services relating to events.
• Rule 8 of the Place of Provision of Services Rules, 2012: Place of provision of services where provider and recipient are located in the taxable territory.
• Rule 9 of the Place of Provision of Services Rules, 2012: Place of provision of specified services.
• Section 2(14) of the IGST Act: Definition of “location of the recipient of services.”
• Section 2(15) of the IGST Act: Definition of “location of the supplier of services.”
• Section 12 of the IGST Act: Place of supply of services where the location of the supplier and recipient is in India.
• Section 13 of the IGST Act: Place of supply of services where the location of the supplier or recipient is outside India.
• Section 5 of the IGST Act: Levy of tax on inter-state supply of services.
• Section 9 of the GST Act: Levy of tax on intra-state supply of services.
• Section 3 of the Haj Committee Act, 2002: Constitution of the Haj Committee of India.
• Section 9 of the Haj Committee Act, 2002: Duties of the Haj Committee.
• Section 17 of the Haj Committee Act, 2002: Constitution of State Haj Committees.
• Section 27 of the Haj Committee Act, 2002: Duties of State Haj Committees.
• Section 30 of the Haj Committee Act, 2002: Creation of Central Haj Fund.
• Section 32 of the Haj Committee Act, 2002: Creation of State Haj Funds.

How the Authorities were Considered by the Court

Findings and Decision

The Supreme Court, after considering the arguments and authorities, made the following findings:

• Taxable Services: The Court held that services provided by HGOs/PTOs are indeed taxable under the service tax regime. These services do not fall under the negative list of services and are not exempt under the relevant notifications.
• Interpretation of Exemption Notification: The Court rejected the petitioners’ argument that paragraph 5(b) of the Mega Exemption Notification applies to HGOs/PTOs. The Court clarified that this exemption is for those who conduct the religious ceremony themselves, not for those who merely arrange travel and accommodation. The Court noted that paragraph 5A of the notification specifically exempts services provided by certain organizations for religious pilgrimages, but HGOs/PTOs are not included in this category.
• No Violation of Article 14: The Court held that there is no violation of Article 14 of the Constitution. The classification between pilgrims going through the Haj Committee and those going through HGOs/PTOs is based on an intelligible differentia, with a rational nexus to the object of the statute. The Court emphasized that the Haj Committee is a statutory body with specific functions and responsibilities, making it a separate class from HGOs/PTOs.
• Place of Service Provision: The Court held that the location of the service recipient is the usual place of residence of the pilgrim, which is in India, not Saudi Arabia. Therefore, the services are deemed to be provided in India and are taxable under the service tax regime. The Court applied Rule 8 of the Place of Provision of Services Rules, 2012, which states that the place of provision is the location of the recipient if both provider and recipient are in the taxable territory.

Final Decision:

The Supreme Court dismissed all the writ petitions. The Court upheld the levy of service tax on the services provided by HGOs/PTOs to Haj pilgrims. The Court concluded that there is no merit in the challenges to the service tax regime as applied to HGOs and PTOs.

Flowchart of the Court’s Decision

Implications

The Supreme Court’s judgment has significant implications for the taxation of religious pilgrimage services in India:

• Service Tax Liability: HGOs and PTOs organizing Haj and Umrah pilgrimages are now clearly liable to pay service tax on the services they provide. This clarifies the tax obligations of these operators and ensures that they are not exempt from service tax.
• No Discrimination: The Court’s decision affirms that there is no discrimination in treating pilgrims going through the Haj Committee differently from those going through HGOs/PTOs. This distinction is based on the unique nature and statutory functions of the Haj Committee.
• Place of Service: The ruling clarifies that the place of service is the location of the service recipient, which is the pilgrim’s place of residence in India, not the location of the religious ceremony. This ensures that services provided by HGOs/PTOs are taxed within the Indian territory.
• Impact on Pilgrims: The judgment may lead to an increase in the cost of Haj and Umrah pilgrimages for those who choose to go through private tour operators, as the service tax will likely be passed on to the pilgrims.
• Future Cases: This judgment sets a precedent for the taxation of similar services related to other religious pilgrimages. It highlights the importance of the location of the service recipient and the strict interpretation of exemption notifications.

Conclusion

The Supreme Court’s decision in All India Haj Umrah Tour Organizer Association Mumbai vs. Union of India (2022) is a landmark judgment that clarifies the service tax liability of Haj tour operators. The Court has upheld the levy of service tax on services provided by HGOs and PTOs, rejecting the petitioners’ claims for exemption and challenging the classification. This ruling has significant implications for the taxation of religious pilgrimage services and provides clarity on the interpretation of exemption notifications and the place of service provision. The judgment emphasizes the importance of a clear and consistent application of tax laws, while also recognizing the unique nature of religious pilgrimages. It also highlights the need for HGOs and PTOs to comply with service tax regulations, which may impact the cost of pilgrimages for those who choose to go through private operators.