India could exempt supply of services between the head offices and local entities of foreign airline operators from the goods and services tax (GST), said people familiar with the matter.

Foreign airlines with offices in India have received GST notices over the past few months for non-payment of tax on import of services by Indian entities from their head offices.

The issue has been referred to the fitment committee under the GST Council and the overall view is veering around to exempting the tax and giving relief to airlines, the people said. A final call on the clarification would be taken after the examination of the issue by the fitment committee, they said. “There is a grey area on the services from head office to branch office which is unique to both airlines industry and the shipping industry as it is difficult to determine place of service in case of maintenance and rental from one office to other,” a senior official told ET on condition of anonymity. The Directorate General of GST Intelligence (DGGI) last year issued notices to 12 foreign airlines on account of levy of GST on import of services by Indian branch offices.

Head offices of airlines or shipping firms usually provide for maintenance, payments to crew and rental cost, among others. Tax authorities claim these were services rendered by the headquarters to the local entity, one legal entity to another, and liable to tax in India.

Foreign airlines have represented to the government, including the finance ministry, on the issue, saying that the place of service was both head office and branch office and airlines should be liable to pay only what is taxable in India. For instance, payment for hotel accommodation used by the Indian staff outside of India. Some shipping companies have also received similar notices.

The matter was also taken up by the embassies of these countries after the DGGI summoned the management of the airlines. The DGGI has asked its officials to refrain from taking any coercive action, according to people in the know.

The official cited earlier said there was a need for clarity on the issue. “It is (whether the service is taxable) required to be determined on the basis of each transaction, which can be a complicated process, especially for these two sectors,” the official said. 

Source: The Economic Times