British Airways, Lufthansa, other foreign airlines face Rs 10,000 cr GST demand from DGGI

The Directorate General of Goods and Services Tax Intelligence (DGGI) has issued show-cause notices to ten foreign airlines operating in India. The airlines include British Airways, Lufthansa, Oman Air, Emirates, and Singapore Airlines.

DGGI has alleged unpaid taxes amounting to Rs 10,000 crore, according to officials quoted by Economic Times. These notices, dispatched over the past three days, address tax dues on the import of services by the Indian branches from their respective head offices.

The June 26 circular

Officials stated that airlines are not covered by the June 26 circular on the valuation of the supply of import of services by a related person, where the recipient is eligible for full input tax credit. This circular was referenced by Infosys in a recent integrated GST demand of Rs 32,000 crore.

The period covered by the notices spans from July 2017, when GST was introduced, to March 2024. The airlines’ headquarters abroad are said to have been providing services such as aircraft maintenance, crew payments, and rentals, which the DGGI claims are liable for GST as they are services offered from one legal entity to another, Economic Times reported.

Airlines deal in both exempt and non-exempt services, making them ineligible under the said circular. The DGGI had previously requested a segregated list of exempt and non-exempt services from the airlines, but only four of the ten provided the necessary information.

The question of location of service

Foreign airlines have argued that GST should only be paid on services taxable in India, given the place of service was both head office and branch office. They also raised their concerns through their respective embassies to the finance ministry.

The issue was subsequently referred to the fitment committee under the GST Council, which approved the June 26 circular clarifying the valuation of the “supply of import of services” by a related person. However, tax experts have noted that this circular does not adequately address the concerns of foreign shipping lines and airlines due to their unique business models involving a mix of taxable and exempt supplies.