Air India has secured relief from the Service Tax Appellate Tribunal in Mumbai, which has set aside the department's Rs 211 crore tax claim.
The national carrier had moved the Tribunal against the service tax commissioner's order demanding Rs 211 crore in unpaid dues and an equal amount in penalty plus interest.
The department had slapped tax demand last September accusing the national carrier of not paying service tax on cargo handling services it rendered to foreign airlines between 2002-2007. However, in its last week order, the tribunal upheld Air India's contention that it was not liable to pay the sum.
The airline has been in default with regards to service tax payments and last year the department had frozen its account for non payment. Hence, the tribunal's directions come in as a relief for Air India.
Piyush Chhajed, Air India's counsel, submitted that the department had erred in making the claim, pointing out that prior to 2011 service tax was payable on a "cash basis" that is on income actually earned by an entity where as per Companies Act income statements are prepared on an "accrual basis." He argued that the department had relied on accrual figures while making the claim and contended that airline had discharged its liability in full.
Also the tribunal accepted the airline's plea that it had rendered services for foreign airlines and and prior to March 2005 amount received in convertible foreign exchange was exempt from service tax and the same should have been excluded in the tax demand.
"We are of the view that the matter has to go back to the adjudicating authority (service tax commissioner) for consideration afresh by keeping in mind the fact that while balance sheet figures are on accrual basis the liability to discharge service tax is on cash basis. The reconciliation statement provided by the appellant (Air India) shall be examined in detail and if needed relevant records will be called...,'' the two member bench of appellate tribunal noted.
