CBIC & GST Council: Suppress greed and collect taxes legitimately
I sincerely believe every Indian wants to pay taxes legitimately & contribute to the nation building. I am also aware that Law is not a rational code & that it is an adage that the law is an ass & I am responsible for it. Truer in case of a democracy. However, this does not mean that that the collection of taxes can be a con game just because the common citizens is probably incapable of analyzing the taxable event & challenge the same because the law is drafted in the most difficult language to the extent that the matters go right up to the apex court for solving even the interpretation issues!
In this article, I would like to discuss the illegality of the levy of GST on total Overseas Tour Package cost payable to the Tour operator @ 5 % vide Notification No. 11/2017. It is pertinent to point that a notification has been issued to levy the tax but then application of mind is completely missing. There is complete violation of the basic principles of the collection of taxes. In effect, the Government of India (GoI) is illegally collecting Rs. 5000 per Rs. 100000 spent by the travelers, as explained later.
The readers will kindly note that the total Overseas Tour Package cost will mainly comprise of 4 major components. 1. Airline Tickets 2. Visa fees 3. Payment for lodging & boarding to the overseas agent (Counterpart of the Indian Tour Operator located overseas) & 4. Contribution margin of the Indian Tour Operator.
Now, let us analyze the illegalities by way of an example arising out of an empirical experience. The family of 4 decides to go to Easter Europe for 14 days tour & required to pay Rs. 120000 plus Euro 1825 towards the cost of the trip per person. As per the law, the tour operator then charges you 5% (2.5 % SGST & 2.5 % IGST) on the total package cost of Rs. 261635 (1 Euro=Rs. 79.80) & thus collects a sum of Rs. 13081.75 as GST. The total amount of GST for the family of 4 is Rs. 52327. As pointed out there is no quarrel with the fact that tax is collected but the point is whether that is legitimate or not?
Now, let us see what is the truth of the matter? Please note that the tour operator is simply a conduit through whom the payment must pass through to the final Service provider. For e.g., the airline ticket is issued in the name of the passengers & the airline will collect the applicable taxes when the payment is collected through the conduit i.e. the tour operator. Therefore, the tax liability in respect to the travel airfare is collected by the airline from the traveler while issuing the ticket. The simple point of law is that how on this amount, the tax can be collected for the second time when this amount is paid to the tour operator in the total package cost. On the other hand, please note that if this amount is not taxable at the level of the airline when the tickets are issued then how it can become suddenly taxable when the services of the tour operator are used. Finally, please note that the tour operator cannot avail the GST credit even though they make the payment because the tax invoice pertaining to this payment is directly in the name of the traveler. The readers will therefore observe that the illegality is self-evident because the same payment in respect of the service cannot be taxed twice once when he airline issues ticket to the traveler & second time when this payment is part of the tour package cost. Alternatively, the air travel cost cannot be subjected to tax if the same is not taxable at the level of the airline. The point is that the notification does not allow any leeway to the tour operator to show reimbursements & avoid double taxation, which should have been permitted. On the other hand, if you will see the case of only Overseas Travel being booked by the agent then the tax is not recovered on the reimbursed amount but only on the value of service charges charged by the agent in respect of the service rendered. Therefore, it goes without saying that legitimacy in collection of taxes needs to be exercised diligently even in case of the tour operators.
The readers will note that the issuance of Visa is also a direct transaction between the traveler & the overseas country consulate/service provider & the taxes directly collected by the concerned authorities & deposited with the government. Therefore, the readers will note that the same illegalities are applicable in respect of visa fee collection as applicable in the of airfare as described in the earlier paragraph.
Now, we come to the substantial payment of lodging & Boarding Chagres to the counterpart located overseas of the Indian Tour Operator. In our example, a sum of Euro 1825 is remitted for the lodging & Boarding Chagres. The readers will note that GST is consumption-based tax & therefore this principle cannot be compromised at any point of time because this is the very basis of the taxation system. The readers will note that the lodging & Boarding services are rendered abroad & therefore once again cannot be taxed in India & further, the readers will note that these services are taxed in the jurisdictions where they are actually delivered because the government in whose jurisdiction, the service is delivered cannot let go that tax collection. Finally, the Indian Parliament cannot tax the service delivered & consumed in territorial jurisdiction beyond the jurisdiction of the Parliament. Therefore, the CBIC & GST council has indulged into a grave error in levying & collecting an illegal tax imposed specifically by way of a notification. This transaction is not covered under Reverse Charge Mechanism also for the same reason i.e. there is no service delivered in India & the tour operator is not the service recipient, but the traveler is. It is also pertinent to point that if the traveler was paying directly to the foreign entity instead of the Indian tour operator then there would be no GST payable. The readers would be surprised to note that this is exactly what happens as per the transaction trail. The most freak outcome of the levy of this GST is that it renders the Indian Tour Operators unviable & promotes tour bookings directly with the foreign tour operator to save the substantial amount of GST incidence. It is difficult to comprehend that how the CBIC, Tax Research Unit & the GST Council overlook such illegalities in the first instance while issuing the notification & continue with it. The matter was taken up with the CBIC & TRU but as usual there is no response till this point of time. It is really shameful & disgusting that when the illegalities are pointed out, instead of rectification, they are met with stoic silence. Therefore, this is sent to all concerned & put in public domain & I will respond to any objections from the bureaucracy.
In this overseas travel transaction through a tour operator, is there no tax to be collected? No that is not the case. The applicable tax on airline ticket & visa stands collected directly from the traveler. Regarding the lodging & Boarding Chagres, please note that Annexure IV to the Exchange Control Manual lays down strict guidelines citing paragraphs 8B.5 & 8C.7 to be adhered diligently. The regulatory guidelines make it specifically clear that it envisages an agency relationship therefore it is not an option to deviate from this structure to fudge the accounts for walking out of the controls put in place by the RBI. It appears that operating structure is specifically defined in terms of agency agreements so that effective control is possible & therefore needs to be sacrosanct. Therefore, whatever commission is being received by the Indian Tour operator is subject to GST but even that is not right in my opinion because of two reasons. 1. The services are delivered outside Indian jurisdiction & consumed there. 2. The intermediary providing the service is located outside India. Last but not the least important is the fact that the remittance to the foreign entity is made against Liberalized Remittance Scheme (LRS) signed by the traveler therefore even this is a direct transaction between the traveler & the foreign entity as such i.e. the two are responsible & accountable to the law therefore no GST should be leviable under these circumstances on payment routed through the Indian tour operator. Finally, in the GST taxation system, the Value addition is to be taxed therefore the tax must be paid on the 4th component i.e. the contribution margin by the Indian tour operator.
The tour operators are not bothered about the illegality because they want to be in good books of the government & as on date there is no room for dissent & finally the common citizen does not understand the illegality therefore the moot question is that does this give rights to the CBIC & the GST council to perpetuate the illegality? Is the Court intervention even required & to be insisted upon even in such cases! The GoI frames rules to punish the violators of the law but what happens when the lawmakers & implementers are caught on the wrong foot? Why they are not willing to accept their mistake in the first place & make amends. After all, to err is human.
It is true that the collection of taxes is very important to run the nation but then legitimacy & diligence needs to be exercised so that the citizen’s feel pride in compliance with the payment of taxes. The government needs to lead by example by making taxation provisions, which are clean & unambiguous for compliance.
(Above are personal view of Author and he can be reached at email@example.com)