Lufthansa, Emirates among 10 foreign airlines in trouble over tax dues: Report

The Directorate General of Goods and Services Tax Intelligence (DGGI) has issued showcause notices to 10 foreign airlines, including British Airways, Lufthansa.

Oman Air, Emirates, and Singapore Airlines, for alleged non-payment of taxes totaling Rs 10,000 crore, The Economic Times reported. The notices, sent over the past three days, address unpaid tax dues related to the import of services by Indian branches from their head offices, added the report.

According to officials quoted in the report, the airlines are not covered by a June 26 circular concerning the valuation of the supply of import services by a related person when the recipient is eligible for full input tax credit.

The circular, cited by Infosys in response to a recent integrated GST demand of Rs 32,000 crore, does not apply to airlines because they deal in both exempt and non-exempt services.

DGGI had previously requested a segregated list of exempt and non-exempt services from the airlines.

Of the 10 airlines, only four provided the list, while the others did not furnish any explanation. The notices cover the period from July 2017, when GST was introduced, to March 2024.

A senior official indicated that the overseas headquarters of these airlines provide services such as aircraft maintenance, crew payments, and rentals, which are considered transactions between separate legal entities and are thus subject to GST.

The airlines, however, have not paid these taxes.

The investigation began in August 2023, with key executives from the India offices of these airlines summoned in December 2022 and January 2023 to provide explanations and lists of tax-exempt services, noted the ET report.

Foreign airlines contended that GST should only be paid on taxable services in India, arguing that the place of service was both the head office and branch office.

They also sought intervention from their respective embassies, which raised the issue with the finance ministry, as reported by ET on June 18.

The issue was subsequently referred to the fitment committee under the GST Council, which approved the June 26 circular to clarify the valuation of the “supply of import services” by a related person.

However, experts, including Saurabh Agarwal, a tax partner at EY, told the publication that the circular does not adequately address the concerns of foreign airlines and shipping lines.

Due to their unique business models involving a mix of taxable and exempt supplies, these companies may not qualify for the relief provided by the circular.