Airlines seek exemption from IGST, customs duty on aircraft parts imported after servicing
New Delhi: Domestic airlines have written separate letters to the Goods and Services Tax (GST) Council and the aviation ministry seeking exemption from customs duty as well as integrated goods and services tax (IGST) on parts of aircraft imported after servicing.
In the letters, the Federation of Indian Airlines (FIA) mentioned parts including engines, tyres and cooling fans. IndiGo, GoAir, Jet Airways and SpiceJet are members of FIA. Mint has seen copies of the letters.
Till 30 June, airlines were exempt from taxes on import. The new tax regime levies duty on import of these parts up to 28%. The airlines said it would be a huge financial burden for them as they cannot claim an input tax credit for the same. The move, said analysts, will not only impact the financials of the existing full service and low cost carriers but also be a setback for those participating in government’s regional connectivity scheme (RCS) that seeks to connect under-served regions in world’s fastest growing aviation market.
In a three-page letter dated 10 August to Hasmukh Adhia, secretary, department of revenue, the airline lobby sought clarification on GST. “During the life of the part of an aircraft, especially engines, there are several instances when the same is required to be sent overseas for repairs and servicing. The applicant (FIA) humbly seeks a clarification regarding the nature of IGST paid on such repair costs,” Ujwal Dey, president, FIA wrote in the letter. According to FIA, the levy of IGST “should be a mirror of tax levied domestically.” The Council treats repairs done within the country as services, it said.
Otherwise, FIA in the letter to Adhia said, “it would lead to a dichotomous situation with a goods tax levied on services.”
The airline lobby reiterated its plea in a 25 August letter to civil aviation secretary R.N. Choubey. In the letter, FIA requested that repairs be taxed at a uniform rate of 5% ad valorem on all aircraft parts including engines across all chapters and credit of such taxes paid be allowed. It said denial of benefits of basic customs duty on incremental repair upon re-import of parts of aircraft “is in total contrast to the stated legal position and resulting in great financial hardship.”
K.G. Vishwanath, partner and director at Trinity Aviation Consultants Pte Ltd, said if all engines and parts are placed under GST, it would put airlines in a tight spot as unlike any other industry, airlines don’t have a set-off mechanism.
If there are 400-plus aircraft in India with two engines on each, there are close to 800 engines. Typically, every engine has to go to workshop once every seven to eight years. If around 100 engines go for repairs every year and the total cost of repairing them is Rs40 crore, it will be Rs4,000 crore of engine repair cost. If a GST of 18% is levied on the engines, the cost of one line item alone would be Rs728 crore, explained Vishwanath.
It will be a big blow to RCS scheme, he pointed out. “If this is going to prevail, the cost of offering affordable flying will go out of the window and will dissuade airlines from participating in the RCS routes and the whole idea of connecting India through RCS will remain a pipe dream,” he said.
To be sure, airlines have expressed concerns on the GST impact in the past as well. After the implementation of GST on 1 July, the customs and excise department had sought a 5% levy on the total cost of aircraft and another 5% GST on lease rentals. Subsequently, the government through a notification on 14 July clarified that aircraft, aircraft engines and parts procured on lease would not face double taxation in the new regime and were exempt from tax.