15.12.2023: Foreign airlines may pay tax in accordance with GST notices, claim rebate

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 told Moneycontrol 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.

“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 told Moneycontrol.

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.

Source: Money Control

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