• Notification Date: 16-12-2023
• Notification No: N/A

Foreign Airlines are likely to be charged with Tax in accordance with GST Notices

About a dozen foreign airlines including British Airways, Etihad, and Emirates that have received Goods and Services Tax (GST) demand notices pertaining to cross charges are likely to pay up the amount and not contest its validity, people aware of the matter said. 

Most of these airlines are based outside India and plan to claim rebates in their home countries on the additional goods and services tax paid. 

Cross charges refer to transactions between separately registered units of a single entity. Under GST, an Indian entity and its head office are treated as separate units. This means transactions between them come under the purview of the tax regime, even if they are without consideration. 

Many foreign airlines have been under investigation on this count. According to the GST department, there has been deemed supply of services and it was found that their India-specific services were not billed here, which led to the tax notices being issued. 

Finnair, KLM Royal Dutch Airlines, Qatar Airways, Virgin Atlantic and British Airways confirmed they have received the notices from the Directorate General of GST Intelligence (DGGI). The GST authorities also sent notices to Etihad, Emirates, Saudi Airlines, Air Arabia, Oman Air, and Kuwait Airways. 

Senior officials from a European carrier stated that they are likely to pay the fines to the DGGI but said that imposing import tax under GST on airlines is ambiguous under the current framework of Indian taxation. 

Ambiguous Issue: 

"Taxability and valuation of a foreign public service entity (like an airline) cross charges has been a vexed issue under GST with ambiguity continuing on whether there is an actual provision of service/supply to trigger GST, potential arguments on nil valuation," the official said. 

Another official from a foreign carrier said most airlines are likely to claim tax rebates in their own countries on the expenses incurred due to the DGGI's notices and are not likely to contest the charges. 

“Airlines need to establish the place of supply with respect to the charges in question and determine the applicability of GST on each item separately,” Manish Mishra, a partner at JSA Advocates & Solicitors reported. “In respect of supply of goods or equipment supplied/leased outside India, it can be argued that the same should not be leviable to GST as these supplies have taken place outside India. Regarding charges towards services, the incidence of GST would depend upon the specific nature of service and the way the same is discharged.” 

However, the issue remains contentious and would get resolved only at higher levels of adjudication, he said. 

“In GST, the point of supply is the point of taxation. If the point of supply is abroad, payment is on a reverse-charge mechanism. If the airline is headquartered abroad and has delivered services in India, taxability is here,” a senior government official had earlier stated. 

Most airlines declined to comment on the matter officially, saying they always operate in accordance with laws, rules, and regulations and they are prepared to collaborate with the authorities to ensure compliance, if necessary. 

“Action by DGGI is well within the framework of GST. Though in all probability, action will be decriminalised and converted into payment of dues with nominal penalty,” aviation expert Vipul Saxena further added. 

This makes the process compliant with the orders without impacting the relationships between India and the countries to which these airlines belong, Saxena said. While Indian carriers may get a cost advantage over foreign airlines in India, airline companies with offices in other countries too have similar tax obligations.