More Than 10 Foreign Airlines Under GST Radar for Non-payment of Tax

The Directorate General of Goods and Services Tax Intelligence (DGGI) has sent show cause notices to 10 foreign airlines functioning in the country, for alleged non-payment of tax amounting to Rs 10,000 crore, as per the officials. They contain British Airways, Lufthansa, Oman Air, Emirates, and Singapore Airlines, they added.

The notices, transmitted over the past 3 days, deal with unpaid tax dues on the import of services by Indian branches from head offices.

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On valuation of the supply of import of services by a related person, airlines are not covered by a June 26 circular in which the receiver is qualified for the whole ITC. It is the circular mentioned by Infosys following a recent integrated GST demand amounting to Rs 32,000.

The airlines would deal with both exempt and non-exempt services and make them ineligible under the circular, as per the official. DGGI asked for a segregated list of exempt and non-exempt services from airlines. “Of the 10, only four airlines provided the list and the rest failed to furnish any explanation”, the official mentioned.

The notices cover the period from July 2017, when GST was introduced, to March 2024. A senior official stated that the overseas headquarters of these airlines were providing services such as aircraft maintenance, as well as making payments for crew and rentals.

The Directorate General of GST Intelligence (DGGI) has stated that these services are provided from one legal entity to another and are therefore subject to GST, which the airlines have not paid. An investigation into the matter began in August 2023.

DGGI had called in key executives from the India offices of these airlines in December last year and January this year to request explanations and the list of services that were eligible for tax exemption.

Foreign airlines claimed that, as the place of service was both the head office and branch office, airlines should pay GST on what was levied to tax in India. They also approached their respective countries’ embassies, which then raised the concerns to the finance ministry.

The problem was directed to the fitment committee under the GST council. The council approved the June 26 circular, stating the valuation of the “supply of import of services” by an affiliated person.

Experts stated the circular does not have airline issues. The circular falls short of addressing the concerns of foreign shipping lines and airlines. Given their unique business models, concerning a mix of taxable and exempt supplies, some companies in the sector may not authorize this relief.