Directorate General of Goods and Services Tax Intelligence (DGGI) has sent show cause notices to 10 foreign airline operating companies in India, including Emirates, Lufthansa and British Airways, over an alleged non-payment of taxes amounting to ₹10,000 crore.

The Finance Ministry's law enforcement agency, Directorate General of Goods and Services Tax Intelligence (DGGI) has sent show cause notices to 10 foreign airline operating companies over an alleged non-payment of taxes amounting to ₹10,000 crore, The Economic Times reported quoting anonymous officials aware of the development.

Emirates, Lufthansa, British Airways, Singapore Airlines, and Oman Air are a few of the prominent members on the show cause notice list. The legal show cause notices were sent over the last three days, which covered the unpaid tax dues on the import of services by the company's Indian branches from the head office, according to the official quoted in the ET report.

According to the news report, another official said the airline operators are not covered under the June 26 circular, which values the supply or import of services by a related person where the person receiving the service is eligible to pay full input tax credit on it.

Airline companies deal with exempt and non-exempt services, making them ineligible under the circular. DGGI has made a separate list of exempt and non-exempt services from airlines, as per the report.

"Of the 10, only four airlines provided the list, and the rest failed to furnish any explanation," the official told ET. According to the report, the tax notices are for the period between July 2017 and March 2024.

Lufthansa responded to ET's queries, stating that the company has provided all the requested data to DGGI, is assessing the topic closely, and is willing to collaborate with the local authorities, according to the report.

According to a senior official quoted in the report, the foreign headquarters of these airlines were providing services like aircraft maintenance, payments for staff and crew, and rentals. DGGI said that these services are offered from one entity to another; hence, they will come under the G.S.T liability, which the companies have not paid, as per the report.

Debate on the tax applicability:

In August 2023, an investigation was launched, which gathered executives from the Indian offices of these airline operating companies in December 2023 and January 2024, asking for explanations regarding the list of services offered and the tax exemption list.

According to the airlines, the place of service was the head office and the branch office, for which airlines could only pay G.S.T on items taxable in India. They also approached the respective country embassies, who flagged the issues to the Ministry of Finance, as per ET's report in June.

The issue was referred to the fitment committee under the GST Council. The council approved the June 26 circular, as per the report, giving clarity on the valuation of the "supply of import of services" for a person related.

Industry experts said the circular does not cover airline issues.

"The circular falls short of addressing the concerns of foreign shipping lines and airlines," said Saurabh Agarwal, tax partner at Ernst and Young (EY). "Given their unique business models, involving a mix of taxable and exempt supplies, some companies in the sector may not qualify for this relief," he said.