New Delhi: The Directorate General of GST Intelligence (DGGI) summoned ten foreign airlines operating in India over alleged tax evasion on the import of services, according to Reuters quoting a report by CNBC-TV18. The agency sought clarification over payment of crew salaries and staff expenses at the offices of international airlines, according to sources.
DGGI, the investigative arm under the GST regime, alleged that these foreign airlines headquartered abroad have branch offices in India that are permitted by RBI to remit forex related to passenger sales and cargo sales. However, other air services are offered by the head office abroad which include rental, maintenance of aircraft, crew salary, said the CNBC report.
Which airlines have been summoned?
These services coming from abroad were liable to GST under the reverse charge mechanism, which these airlines are alleged to not have paid. These airlines include - British Airways, Lufthansa (German Airlines), Singapore Airlines, Etihad Airways, Thai Airways, Qatar Airways, Saudi Arabia Airlines, Emirates, Oman Airlines and Air Arabia, according to sources. These investigations have been carried out by DGGI Meerut and Mumbai zones, they added.
"Tax evasion is on account of import of services from head office by Indian branch offices," said sources last year, as per a previous report, indicating that the Indian offices of these foreign airlines were not complying with GST rules. The 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 have sought more time to respond to the summons.
What did experts say?
"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," said Abhishek A Rastogi, founder of Rastogi Chambers, who is arguing on the import of such services for different sectors before writ courts.
"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," he added. Rastogi said there are various costs which could be for over one jurisdiction and the allocation of such expenses would be challenging. It would also be difficult to determine the value of the import of services on an actual basis.
"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 unfavourable targeting," said Rajat Mohan, executive director at MOORE Singhi.
(with inputs from Reuters)
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