The Central Board of Indirect Taxes and Customs (CBIC) has recently announced a major relief for foreign airlines operating in India. These airlines are now exempt from paying Goods and Services Tax (GST) on services imported from their offshore branches. This move follows a recommendation by the GST Council on September 9, 2024. It is expected to provide significant financial relief to foreign airline companies that have faced these taxes for a long time.
Relief for Future Transactions but Retrospective Impact Unclear
The exemption applies to services imported by foreign airlines from their offshore branches. However, there are still questions about whether the benefit will be retrospective. During its September meeting, the GST Council recommended the regularization of past transactions on an “’as is where is’ basis.” This has created confusion about whether past tax liabilities could also be waived, leaving foreign airline companies uncertain.
Sanjay Chhabria, Indirect Tax Lead at Nexdigm, explained, “Concerns have emerged regarding the applicability of the exemption, as the language of the notification suggests that the relief may only apply to future transactions, which contradicts earlier statements about retrospective application.” Industry sources estimate that foreign airline companies face a tax liability of about Rs 40,000 crores. Clarification on the retrospective application could significantly impact their financial situation.
Conditional Exemption with Bilateral Requirements
The GST exemption for foreign airlines comes with certain conditions. Foreign airlines must obtain certification from the Ministry of Civil Aviation (MoCA), declaring them as designated carriers under existing bilateral agreements. Additionally, Indian carriers must receive equivalent tax benefits in the foreign airline’s home country.
Currently, the process for obtaining MoCA certification is not clearly outlined, leading to operational uncertainties for airlines. Experts point out that, until the certification process is defined, airlines may continue to face challenges in claiming this exemption.
Rectification for Wrongful ITC Availment
In a separate but related notification, CBIC introduced provisions for rectifying past orders related to wrongful availment of Input Tax Credit (ITC) under GST. Taxpayers now have a six-month window to correct errors related to compliance issues for the period up to FY21 and claim the rightful ITC.
To use this rectification opportunity, taxpayers must submit an electronic application through the GST portal within six months from the date of the notification. They also need to provide supporting documents related to their previous transactions.
Sandeep Sehgal, Partner-Tax at AKM Global, said that this move will ease the financial burden on industries that faced tax demands due to ITC issues. “The six-month window for rectification provides a lifeline for businesses to align their tax claims and will help in reducing disputes with tax authorities,” he noted.
Impact on the Industry
The GST exemption and the rectification provision are significant steps by the CBIC aimed at reducing tax disputes and easing the financial pressures faced by businesses. For the aviation sector, particularly foreign airlines, the GST exemption is a welcome relief. However, its full impact will depend on the clarity around retrospective application and the implementation of certification requirements.
For Indian taxpayers who wrongfully availed ITC, the rectification opportunity is a critical chance to reconcile their financial records and avoid future disputes with tax authorities. As the regulatory landscape evolves, businesses should closely monitor updates from CBIC and the Ministry of Civil Aviation to make the most of these opportunities.