DECEMBER 14, 2018

By CA Pritam Mahure

RECENTLY, one of my friends enquired about the rate of GST applicable on air travel. When I informed that it is 5% on economy fares, he mentioned that for Haj pilgrimage, there are, apparently, two rates, viz. 5% - when air travel is made through private tour operator and 18% - when air travel arrangements are made by the Haj Committee.

I wasn't convinced so, decided to dig deeper and decipher!

Every person observing Islam is expected to perform Haj at-least once in their lifetime. It is pertinent to note that the passenger travelling for Haj, are mainly senior citizens with weaker financial background. Additionally, most of the pilgrims lack experience of air/ international travel.

To facilitate the travel, Haj Committee of India, which is established under the Haj Committee Act, 2002 makes arrangements including air travel, disseminating information and looking after the general welfare of Hajis.

Why entire flight is booked?

Every year, more than 1.75 lakhs citizens travel for Haj. As the quota for each country is limited, citizens need to travel for Haj either through Haj Committee or approved travel agency.

Haj is performed in the month of Zulhijja (final month in Islamic Calendar) and it's completion is marked on the day of Eid-al-Adha. Given that large number of devotees need to go to Haj at a specific time, there is always a shortage of scheduled flights during the time of Haj. Thus, to meet the increased demand, Haj Committee / Ministry of Civil Aviation books entire aircrafts (through a process of tender).

Herein, Haj Committee collects money from pilgrims and transfers this amount to the airlines.

What is the issue?

It appears that GST @ 18% is levied on Haj travel [refer sr. no. 17 of Not. No. 11/2017-CT(R)] by treating the transaction as supply of chartered aircraft rather than GST @ 5% [refer sr. no. 8 of Not. No. 11/2017-CT(R)] as applicable for air travel.

How much is the economic impact?

It is pertinent to note that cost of Haj travel is approx. INR 2.50 lacs wherein travel cost accounts for approx. INR 1 lacs. Thus, effectively, higher GST rate results in additional travel cost of approximately INR 13,000 extra per pilgrim (computed @ 18% on say travel cost of INR 1,00,000/- instead of @5%).

Certainly, this is a substantial amount for financially weaker citizens, as most use entire life savings to travel to Haj.

Is it a case of charter hire or citizens booking entire flight?

Booking of entire flight for Haj travel may not be equated with charter hire.

Rather its more comparable as a group of citizens booking together, as the tickets are issued by airlines to the passengers.

Rate different, though, intention and destination remains same!

It's a paradoxical situation that a person (say Mr A) travelling by scheduled flight for Haj will pay GST @ 5% whereas another person (say Mr B), who is travelling on the basis of arrangements made by Haj Committee will pay GST @ 18%.

This is certainly a paradoxical situation, as in the instant case, though intention and destination of both (Mr A and Mr B) remains same, still Mr B pays additional 13%!

Further, when a person travels to any part of the world, GST @ 5% is applicable, whereas when he travels for Haj, levying GST @ 18% appears to be giving more importance to form over substance.

So, in the instant case, if due importance is given to substance (air travel) than form (booking entire flight) then GST @ 5% needs to be applied.

Air travel - Globally zero-rated, but taxed in India

Typically, across the world, international air travel is zero-rated. However, in India air travel is liable for GST @ 5% (except for business class which attracts GST @ 12%).

Thus, when, to meet shortage of flights, an aircraft is booked for Haj, levying a higher rate of GST (i.e. 18%) than the GST rate applicable on economy fares and even business class, does not appear to be the intention of the legislature.

Exemption available for Haj and Kailash Mansarovar

Services by specified organisation (which, inter-alia, includes Haj Committee) in respect of a religious pilgrimage facilitated by the Government of India under bilateral arrangement are exempted [refer Entry No. 60 of Not. No. 12/2017-CGST (rate)]. Similar exemption was provided in Service Tax regime.

When the services by specified organisations are specifically exempted, ideally, the intention is to reduce the impact of GST in such cases. Thus, in case of back to back arrangements for air travel, keeping in mind the intention, the GST rate, as applicable to main service (i.e. 5% in the instant case), should be made applicable.

Prayer for clarity!

In absence of specific clarity, levying GST @ 18% (as supply of chartered aircraft) on services of air travel arranged for the pilgrims by the Haj Committee, prima-facie, appears to defeat the purpose of reasonable fares for Haj travel.

It is hoped that CBIC issues a suitable clarification at the earliest before the issue snowballs in to another avoidable controversy.

(The Author is a Chartered Accountant and has authored books on GST and Gulf VAT. The views expressed are strictly personal)