Government’s ambitious plan of cross subsidising air travel for India’s unchartered smaller towns by levying a tax on prime routes runs into rough weather as major airlines threaten legal action over this.
Lobby group Federation of Indian Airlines
(FIA) contests that the government has no authority to impose a levy in the nature of tax on air services and such an effort would be a violation of the legal framework of the country. Federation of Indian Airlines
consists of IndiGo, SpiceJet, Jet Airways
and GoAir, which between them has more than 80 percent market share.
In August, the Ministry of Civil Aviation published draft of the amendments to the Aircraft Rules 1937, through which it intends to empower itself to establish a Regional Connectivity Fund to promote the scheme.“In order to fund the Regional Air Connectivity Fund, the Central government may impose a levy on scheduled flights being operated in India and the fund shall be administered and utilized in a manner specified by the Central government,” said the draft.
This move marks a sharp escalation of conflict over the surcharge, as the government is in the last leg of announcing the final guidelines of the Regional Connectivity Scheme (RCS). In an elaborate letter sent by the lobby group to the ministry, it says that the proposed amendment to the Aircraft Rules 1937 by insertion of the new Rule 88C is not legally tenable and may be tantamount to attempt to usurp powers of the authority of the Parliament. “A levy in the nature of tax can only be levied having regard to the provisions contained in Constitution, by authority of law. The power to impose levy in the nature of tax must be clearly provided in the statute. The draft rules as published are therefore beyond authority of law and illegal,” FIA said.
What do the airlines say?
The government does not have authority to impose a levy in nature of tax on air services
What does the government say?
The government says it has taken permission from the law ministry and the rule empowers it to take steps on any economic regulation of air transport service
Why does the government want to levy a tax?
To create a fund in order to give viability gap funding to airlines flying in remote routes under the Regional Connectivity Scheme
“We will oppose it and if necessary will go to court, this illegal way of funding a government scheme is against business interest,” said an executive of an airline which is part of FIA.
When Business Standard approached civil aviation secretary Rajiv Nayan Choubey, he said that the ministry disagrees with the airlines viewpoint and will defend itself in court if legally challenged. “Under the law, we can impose levy for passenger convenience, service and other matter, so this is not at all subversion. We have given our suggestion to the law ministry and they are in agreement with us, everyone has the right to go to court and so do we to defend ourselves,” Choubey said.
This paper had earlier reported that the government’s think tank Niti Ayog objected to the idea of levying tax on trunk routes to fund the scheme as it felt it was unnecessary and costly, and will tamper with the laws of market forces.
Legal experts concurred airlines view saying that a tax can only be levied if it is authorized by a law. “Even the rules cannot prescribe a tax to be imposed if the main substantive law does not expressly provide for levying a tax,” said Lalit Bhasin, managing partner Bhasin & Co.
A senior ministry official said that the government may walk the middle path by connecting the levy with the capacity on the route. For instance, levy will be higher for Delhi-Mumbai route but lesser in low capacity routes.
RCS proposes to reduce the cost of operation for airlines to places off the main routes through concessions, through a Viability Gap Fund (VGF) of an annual corpus of Rs 500 crores. For this the Centre plans a levy of Rs 8,000 per departure on airlines pushing up air fares in the prime routes.