The Directorate General of GST Intelligence (DGGI) is conducting search operations at Indian offices of foreign airlines, including Etihad, Emirates, Saudi Airlines, Qatar Airways, Air Arabia, Oman Air, and Kuwait Airways, according to CNBC-TV18 sources. The search operations come close on the heels of GST notices served to the online gaming and casino industry that have brought back the ghost of the controversial Vodafone retrospective tax case, which had soured both foreign and domestic investor sentiment.
DGGI alleges that "tax evasion is on account of import of services from head office by Indian branch offices."
As per the sources, the DGGI is currently conducting searches at the offices of prominent international airlines, including Etihad Airways, Emirates, Saudi Airlines, Qatar Airways, Air Arabia, Oman Air, and Kuwait Airways.
"The search operation started on October 18 at Delhi NCR offices of these airlines," sources added.
Under India's Goods and Services Tax (GST), the establishment of a company in India and its counterpart outside the country are treated as distinct legal entities. This means that transactions between a foreign airline's head office and its Indian branch office must adhere to GST regulations.
According to Schedule 1 of the Central Goods and Services Tax (CGST) Act, even if there is a supply without consideration within a company's head office and branch office, it is deemed as a supply for tax purposes.
Sources have disclosed that "Airlines were booking expenditure such as lease rental, crew charges, fuel charges, etc., to their head office and were not charging the same to the Indian office."
“The import of services are subject to tax under reverse charge when there is an actual receipt of import service and in many cases only for administrative convenience, the expenses are booked either at head office or branch or vice versa,” said Abhishek A Rastogi, founder of Rastogi Chambers, who had argued against the taxability of such transactions for the foreign banks.
“The business establishment could also get into the shoes of a pure agent and there could be instances when there is no mark up. Accordingly, the facts would determine whether such expenses would be subject to import taxes,” added Rastogi.
Abhishek Jain, Indirect Tax Head & Partner, KPMG says, "Taxability and valuation of Intra entity cross charges has been a vexed issue under GST with ambiguity continuing on whether there is an actual provision of service/supply to trigger GST, potential arguments on NIL valuation, etc. While the recent Circular on similar related party/ distinct persons did provide clarity, these airlines would need to evaluate coverage under the said Circular and other potential legal arguments and judicial pronouncements to justify their position."
(Edited by : Anand Singha)
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