NEW DELHI: As the 54th GST Council has granted exemption to the foreign airlines, various sectors facing tax notices on import of services are urging the government for clarity on the issue.
This exemption, specifically tailored for airline industry, reflects the preferential treatment the industry receives in other countries. However, experts say there is still a lack of clarity regarding the overall taxability of such services, leaving many industries in a state of uncertainty as they navigate the implications of this decision.
The Directorate General of Goods and Services Tax Intelligence (DGGI) had recently sent GST notices to Infosys, foreign shipping companies and foreign airlines for unpaid taxes on import of services by Indian branches from their foreign head offices.
Revenue Secretary Sanjay Malhotra during the presser addressed a media query regarding the confusion surrounding the law on related-party transactions. He referred to a circular dated June 26, 2024, stating that it provides clarity on this issue.
As per the circular, for related-party transactions involving goods and services (excluding exempted items), the valuation can be determined by the parties involved. This matter has already been resolved, as per him.
“Yes there are some other issues. It’s an ongoing exercise. As and when the law committee examines and if there is a need, we shall issue further clarifications when required,” he said.
“If it is clear that circular can take care of such situations, then the validity of the notices being issued after the circular to other industries like IT itself becomes questionable. The specific circular for airlines will spark doubts as to whether such exemption is warranted in similar cases (other than airlines) of import of services.
Neither the circular, nor the above exemption has dealt with the transactions wherein the consideration is involved between the parties/ distinct persons and it is not the case of Schedule 1 supply. The said aspect needs more clarity, failing which, the disputes raised by the authorities will warrant Court intervention,” argued Shivam Mehta, executive partner, Lakshmikumaran and Sridharan Attorneys.
Meanwhile, Vivek Jalan, partner at Tax Connect Advisory, said, “The revenue secretary has clarified that circulars have been issued that clarify that on all related-party transactions (even other than the foreign airlines), where the recipient is eligible for full input tax credit (ITC), GST may not apply if no invoice is issued by the supplier.”
Relief for airlines reflects preferential treatment
Exemption for airline industry reflects preferential treatment the industry gets in other countries. Experts say there is a lack of clarity on taxability of such services, leaving many industries in a state of uncertainty as they navigate implications of this decision. DGGI had sent GST notices to Infosys, foreign shipping firms and foreign airlines for unpaid taxes on import of services by Indian branches from foreign head offices.