Tax leviable on entire air journey

EXIM MATTERS

The Central Board of Excise and Customs has clarified several issues relating to levy of service tax on international travel by any class, other than economy class.

Service tax is levied by aircraft operators on services rendered to any passenger in India embarking on an international journey, in any class other than economy class, with effect from May 1, 2006, under Section 65(105)(zzzo), read with Section 66 of the Finance Act 1994.

The Explanation to the above clause says that economy class in an aircraft for scheduled air transport of passengers means the class attracting the lowest standard fare where there is more than one class of travel, while in an aircraft meant for non-scheduled air transport of passengers, no class of travel shall be treated as economy class.

Many airlines protested against the levy on the ground that the levy makes the international travel by business class more expensive and that the passengers will be encouraged to book their tickets abroad. As it is, service tax is leviable on the services provided by the ticket booking agents who also pay tax on the commission they earn from the airline companies.

The CBEC now says that for a journey starting from India with stopover at intermediate airports, say Mumbai-Dubai-New York, the stopover is immaterial and tax should be paid on the entire fare. Similarly, says the CBEC, if a passenger starts a journey abroad and ends it abroad with a stopover in India, say Dubai-Mumbai-Singapore, then no service tax would be levied, even if the passenger disembarks at say Mumbai and embarks on another plane.

Outward bound passengers perhaps would be better off buying two tickets "� one for the Mumbai-Dubai journey and another for the Dubai-New York journey.

Service tax would be levied even for the domestic leg of the journey, says the CBEC. So, if a passenger undertakes a Bangalore-Mumbai-Frankfurt journey, there would be no relief from tax on the fare relating to Bangalore-Mumbai leg of the journey. This might encourage passengers to insist that the airlines issue separate tickets for the domestic leg of the journey and the international travel part.

In case the passenger buys a return ticket i.e. a round trip ticket, say Mumbai-London-Mumbai, the tax would be levied on the total value of the ticket and not on half the value of the ticket, says the CBEC. This clarification may not stand up at the courts as the law mandates tax only on services rendered to a passenger embarking in India for international journey. Again, the passengers might prefer to buy separate tickets for return journey and avoid tax.

The CBEC should clarify that its logic will equally apply to passengers disembarking in India with return tickets already purchased abroad.

Finally, the CBEC says that the place where ticket is purchased is of no consequence. So long as the service provided by the aircraft operator is in relation to international journey by any class, other than economy class, tax is leviable. The service provider will have to collect service tax from the buyer of the ticket and pay the tax to the government.

tncr@sify.com