DGGI summons 10 foreign airlines operating in India over alleged GST evasion

The airlines that have received summons include, "Indian offices of British Airways, Lufthansa (German Airlines), Singapore Airlines, Etihad Airways, Thai Airways, Qatar Airways, Saudi Arabia Airlines, Emirates, Oman Airlines, Air Arabia," sources added. The investigations have been carried out by DGGI Meerut and Mumbai zones, sources said. All these airlines have been under scanner since October 2023.

CNBC-TV18, quoting sources had first reported on October 18 last year that DGGI was then conducting search operations at Indian offices of foreign airlines, including Etihad, Emirates, Saudi Airlines, Qatar Airways, Air Arabia, Oman Air, and Kuwait Airways.

Alleging, "Tax evasion is on account of import of services from head office by Indian branch offices," sources had indicated that the Indian offices of these foreign airlines were not complying with GST rules.

Meanwhile, sources said, "Indian offices of British Airways, Lufthansa (German Airlines), Singapore Airlines, Etihad Airways, Thai Airways, Qatar Airways, Saudi Arabia Airlines, Emirates, Oman Airlines, and Air Arabia are yet to come back to DGGI with clarifications and they have been seeking more time to respond to the summons," sources added. However, tax experts have their perspectives on the matter.

SIA spokesperson in an email response to a query sent by CNBCTV18 said, "Singapore Airlines (SIA) has been in regular correspondence with the Directorate General of GST Intelligence (DGGI) following the latter’s initial summons. SIA has since been cooperating with them on all matters related to the ongoing investigation."

Abhishek A Rastogi, founder of Rastogi Chambers, who is arguing before writ courts on the import of such services for different sectors, explained, "Every penny paid by the Indian branch office would not be subject to tax merely because there is a remittance from India. The taxability depends on the nature of the transaction and the place of provision for such services.

For instance, the remittances made by the Indian branch office to the overseas head office with respect to crew salaries may not be taxable and will depend on the nature of the employment contract. Similarly, the remittances which were made for hotel accommodation, used by the Indian staff outside of India, may again not qualify as import of services as the place of provision of the actual rental accommodation is outside of India."

"There are various costs which could be for more than one jurisdiction and hence allocation of such expenses will remain a challenge. It may not be possible to determine the value of the import of services on an actual basis and in such a case, the ratio of the Indian revenue and the global revenue could be a determinant to derive the proportional Indian cost of import of services," Rastogi added.

Rajat Mohan, executive director at MOORE Singhi, said, "The Directorate General of GST Intelligence (DGGI) is honing in on specific sectors that are implicated in widespread issues potentially leading to tax evasion risks for a broad spectrum of taxpayers. This focused scrutiny by DGGI, might not be well-received in the aviation sector and could be viewed as unfavorable targeting.

Adding to the complexity, the Central Board of Indirect Taxes and Customs (CBIC) issued a circular in 2023, which provides guidance on the interpretation of a key judgment related to the Northern operating system case. The CBIC emphasizes that the judgment's application should not be generalized across all cases of employee secondment. Instead, it insists that each case warrants a thorough examination of its unique facts and circumstances, underscoring the need for a tailored approach to ensure fairness and accuracy in tax assessments.

The method adopted by DGGI, particularly the issuance of summons in this context, raises concerns regarding its adherence to established norms and constitutional principles. Typically, the procedural protocol involves the issuance of formal notices, followed by an in-depth collection and analysis of pertinent information, culminating in a reasoned adjudication based on the intrinsic merits and facts of each case. This deviation from standard procedural conduct suggests a need for a more structured and principled approach in handling tax matters."

CNBC-TV18 has reached out to other foreign airlines as well and comments are awaited.