Oil marketing companies have cited issues like sales tax as a barrier to the Civil Aviation Ministry's plan to rationalise additional charges that airlines have to pay while uplifting aviation turbine fuel (ATF) at airports across India, officials said.
Currently, airlines have to pay taxes for certain services, such as 'throughput charges', 'into-plane charges' and 'fuel-infrastructure charges' when they take the ATF at any airport for their planes.
"These charges are taxed multiple times as they are billed in a circuitous manner," a senior government official said.
A second official said the Ministry of Civil Aviation had formed a committee to develop a direct-billing mechanism between airline companies and airport operators so that these multiple taxes can be removed.
The committee comprises representatives from airlines, airport operators, oil marketing companies (OMCs), other service providers among others.
According to government estimates, if a direct-billing mechanism is implemented, airlines would be able to save around Rs 400 crore per year. In India, ATF accounts for almost 40 per cent of any airline's total expenditure. Therefore, any taxation on ATF always has a huge impact on airline companies.
"The OMCs have told us that there are certain provisions in the sales tax regime at the state-level, as well as in the excise tax regime, which may prevent direct billing," the official said.
During one of the meetings of the committee, the official said, the OMCs -- Indian Oil, Hindustan Petroleum and Bharat Petroleum -- stated that the state governments would be reluctant to let go of the tax revenues that come from the circuitous billing.
The official said the committee was expected to submit its report soon.
Explaining the matter, the first official quoted above said: "Take the example of billing for throughput charges, which is done by the airport operator to the oil company.
"In turn, oil company passes on the charges by billing airlines. However, due to such convoluted billing process, taxes such as GST and excise duty and VAT is added on to throughput charges."
The official said that at the Delhi airport, if the throughput charges levied by the airport operator is only Rs 100, the airline ends up paying Rs 164 as it is paying "tax on tax", which includes the goods and services tax (GST), excise duty and value-added tax (VAT).
According to the official, had the throughput charges been invoiced directly by the airport operators to the airlines, the latter would have got the input tax credit for the GST paid and there would be no application of excise duty or VAT.
"The other charges -- fuel infrastructure charges and into-plane charges -- are also being billed similarly in circuitous manner, leading to tax on tax," the official said.