Foreign airlines receive Rs 10,000 crore tax evasion notices from DGGI

The show cause notices, sent over the last three days, pertain to unpaid taxes on services imported by Indian branches from their respective head offices

The Directorate General of Goods and Services Tax Intelligence (DGGI) has issued show cause notices to ten foreign airlines operating in India for allegedly evading taxes amounting to Rs 10,000 crore, according to a report by Economic Times.

The report quoted officials as saying that among the airlines are British Airways, Lufthansa, Oman Air, Emirates, and Singapore Airlines.

The notices, sent over the last three days, pertain to unpaid taxes on services imported by Indian branches from their respective head offices, the officials stated.

The report quoted an official as saying that airlines are excluded from a June 26 circular regarding the valuation of supply of imported services by a related party when the recipient is entitled to a full input tax credit. This circular was referenced by Infosys in relation to a recent integrated Goods and Services Tax (GST) demand of Rs 32,000 crore.

The official explained that airlines provide both exempt and non-exempt services, making them ineligible under the circular. The DGGI had previously requested a detailed list of exempt and non-exempt services from airlines, the report said.

The report cited the official as saying, “Of the ten, only four airlines provided the list and the rest failed to furnish any explanation."

The notices cover the timeframe from July 2017, when GST was implemented, to March 2024.

Airlines subject to GST, says DGGI

According to a senior official, the overseas headquarters of these airlines have been handling services like aircraft maintenance, crew payments, and rentals. The DGGI asserts that since these services are provided from one legal entity to another, they are subject to GST, which the airlines have not remitted.

An investigation into the matter began in August 2023. The DGGI summoned key executives from the Indian offices of these airlines in December last year and January this year, requesting explanations and a list of tax-exempt services.

Foreign airlines contended that GST should only be applied to taxable services within India, given that the place of service included both the head office and branch office. They also reached out to their respective embassies, which brought the issue to the attention of the finance ministry, the report said.

As a result, the matter was referred to the GST Council's fitment committee. The council subsequently approved a circular on June 26, which clarified the valuation of the "supply of import of services" by a related person.