DGGI searches offices of Etihad, Emirates and other foreign airlines

The DGGI alleges that "tax evasion is on account of import of services from head office by Indian branch offices."

Teams of the Directorate General of GST Intelligence (DGGI) reportedly searched India offices of Etihad, Emirates and other Gulf air carriers for alleged tax evasion on "account of import of services from head office by Indian branch offices".

Offices of Saudi Airlines, Qatar Airways, Air Arabia, Oman Air and Kuwait Airways were searched, a CNBC-TV18 report said on October 18. Moneycontrol could not independently verify the information.

"The search operation started on October 18 at Delhi NCR offices of these airlines," the report quoted a source as saying.

The search operation comes on the back of Goods and Services Tax (GST) notices that were sent to the online gaming and casino industry that have brought back the ghost of the controversial Vodafone retrospective tax case, the CNBC-TV18 report said.

For GST purposes, the Indian entity and its head office are treated as separate bodies for legal reasons, which means transactions between the two come under the purview of the tax regime.

Also Read: Retrospective tax notices: Online gaming firms should approach govt, GST Council over 28% tax, say experts

Schedule 1 of the Central Goods and Services Tax (CGST) Act says that 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.

"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 report quoted sources as saying.

Expert views

“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,” Abhishek A Rastogi, founder of Rastogi Chambers,  was quoted as saying.

“The business establishment could also get into the shoes of a pure agent and there could be instances when there is no markup. Accordingly, the facts would determine whether such expenses would be subject to import taxes,” said Rastogi, who has argued against the taxability of such transactions for foreign banks.

Also Read: Do not want tax notices to kill online gaming industry: Govt officials

Abhishek Jain, Indirect Tax Head & Partner, KPMG said taxability and valuation of intra-entity cross charges was a vexed issue under GST. There was ambiguity 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," Jain said.