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

In a major crackdown to curb Goods and Services Tax (GST) leakage by foreign airlines operating in India, the Directorate General of GST Intelligence (DGGI) is understood to have issued summons to the Indian offices of these airlines.

According to sources, “DGGI has summoned Indian offices of all foreign airlines for alleged tax evasion on account of import of services from head office by Indian branch offices. And detailed clarifications have been sought, and DGGI is in talks with all foreign airlines.”

DGGI, the investigative arm under the GST regime, alleges that 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, etc. Thus, these services coming from abroad were liable to GST under the reverse charge mechanism, which these airlines have not paid.

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.

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.

The Advocate said, 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,” he added.