Foreign Airlines Operating in India Sent Showcause Notices for Alleged Non-payment of Tax
New Delhi: The Directorate General of Goods and Services Tax Intelligence (DGGI) has taken action against 10 foreign airlines operating in India, issuing showcause notices for an alleged non-payment of tax totaling Rs 10,000 crore. The targeted airlines include significant carriers such as British Airways, Lufthansa, Oman Air, Emirates, and Singapore Airlines, according to officials.
The notices, dispatched over a span of three days, pertain to unpaid tax obligations on the import of services by Indian branches from their respective head offices. Notably, officials have clarified that airlines are not encompassed by a circular dated June 26 that addresses the valuation of the supply of import of services by a related person, where the recipient is eligible for full input tax credit.
A significant contention raised by the officials is that airlines engage in both exempt and non-exempt services, rendering them ineligible for the benefits outlined in the circular. The DGGI had previously requested a breakdown of exempt and non-exempt services from the airlines, with only four out of the 10 airlines complying.
The notices cover the period from July 2017, when the Goods and Services Tax (GST) was rolled out, to March 2024. Despite this substantial development, the carriers have not responded to queries from ET.
A senior official highlighted that the overseas headquarters of these airlines provided services such as aircraft maintenance, crew payments, and rentals to their India offices. The DGGI asserts that as these services are offered from one legal entity to another, they are subject to GST, which the airlines have purportedly not fulfilled.
The applicability of the taxation on such services has been a subject of debate, initiated by a probe in August 2023. Foreign airlines argued that as the place of service encompassed both the head office and branch office, the tax liability should only apply to the taxable portion in India. This issue was further escalated when the concerns were raised with the respective country’s embassies and subsequently referred to the fitment committee under the GST Council.
Despite the approval of the June 26 circular to clarify the valuation of the “supply of import of services” by a related person, experts contend that the circular does not adequately address the concerns raised by foreign shipping lines and airlines. Saurabh Agarwal, a tax partner at EY, remarked, “Given their unique business models, involving a mix of taxable and exempt supplies, some companies in the sector may not qualify for this relief.”
The developments surrounding the showcause notices and the ongoing debate on the applicability of GST to foreign airlines in India indicate a complex and evolving landscape in the realm of tax compliance and international business operations.
