Mumbai: A service tax audit report on Jet Airways (India) Ltd, the country’s second largest carrier by passengers flown, says that the airline owes about Rs260 crore, including interest, to the service tax department for the five fiscal years between 2003-04 and 2007-08, two officials of the department said. The service tax agency carried out an audit of the Mumbai-based carrier in March. Such audits are conducted by the department to improve compliance with service tax norms and to detect any instances of tax evasion.
“Jet Airways has received a show cause notice from the service tax department demanding service tax on various foreign exchange related expenses, which is based on import of services rules,” a Jet Airways spokesperson said in an email response to a Mint questionnaire.
The service tax department has asked it to pay the service tax of Rs247.47 crore for the period 2005-06 to 2007-08 along with the interest. Ahmed Raza Khan/Mint
“This matter has been referred to our lawyers and they are in the process of drafting an appropriate response. We have sought time till September 2009 to submit our response,” the spokesperson added. “After due consultations and consideration of various case laws, we are confident that a substantial portion of this demand would be set aside (or not be applicable) and liabilities if at all any, would be very negligible.”
A show-cause notice is not an indictment, but only seeks an explanation from a company, typically within a month.
The audit report was reviewed by Mint. It will be acted upon by various divisions of the service tax department, depending on the jurisdiction.
Jet Airways’ executive director Saroj K. Datta said he “is not aware about any such report”. The two service department officials didn’t want to be named. “This is the first ever audit of Jet Airways,” one of them said.
According to the audit report, the airline has not paid service tax on import of services for the past three years. The service tax department has asked it to “pay the service tax of Rs247.47 crore for the period 2005-06 to 2007-08 along with the interest”.
The audit report has also listed a service tax liability of about Rs11 crore under several categories of service such as collection of excess baggage charges, air cargo service and non-scheduled flights for transportation of passengers embarking on an international journey, among others, over the past five years.
Jet Airways has also not paid interest on late payment of service tax on several occasions.
“During the course of the audit, it was observed that the assessee had delayed the payment of service tax on many occasions. In some cases, they have paid the interest on delayed payment, whereas, in other cases they have not paid the interest on delayed payment. These delayed payments includes payments through Cenvat (Central value-added tax) account also,” the report said.
According to the report, Jet Airways has violated Cenvat credit norms. Airline operators pay service tax to vendors for services such as maintenance of aircraft. To avoid double taxation, the government permits airline firms to avail what is known as Cenvat credit.
Airlines operators are entitled to claim Cenvat credit for service tax incurred for procuring goods and services that are extended to customers, who are charged for it.
Under service tax regulations, a service provider who does not maintain separate accounts for taxable and non-taxable services can get only 20% of the Cenvat credit, but those who maintain separate accounts can get 100% credit.
The audit report said Jet Airways had wrongly availed Cenvat credit for three fiscal years between 2005 and 2007.
“While scrutinizing (a) few input service invoices, which were made available to the audit after several request, it was observed that the input service credit taken and utilized…do not have proximity or nexus with output services,” the report said.
With corporate traffic slowing and ticket yields coming under pressure, Jet Airways last week reported a Rs225.31 crore loss for the quarter ended June, against a net profit of Rs143.38 crore for the corresponding period last fiscal.
Sales in the latest quarter slumped by 26.35% to Rs2,085.04 crore, from Rs2,830.82 crore in the June quarter a year ago.
On Wednesday, Jet Airways shares rose 1.57% on the Bombay Stock Exchange to close at Rs253.10. The benchmark index, the Sensex, fell 1.03% to 15,173.46 points.