A recent ruling by the Goods and Services Tax Appellate Tribunal (GSTAT) has provided clarity on the mechanism for airlines to recover Goods and Services Tax (GST) paid on tickets for flights that were later cancelled. The decision, delivered by the tribunal’s Ernakulam bench on October 16, centres on a dispute involving Singapore Airlines and the Commissioner of CGST and Central Excise, Kochi, concerning tax liabilities during the pandemic era.
The dispute originated from flight cancellations occurring between October 2019 and March 2021. Singapore Airlines had reimbursed passengers the full ticket fare, which included the GST component. However, the airline encountered difficulties when attempting to adjust the corresponding credit notes against its output tax liability through standard GST return filings. Because the airline's tax returns did not permit a negative balance for the period in question, it was unable to make the necessary adjustments to account for the cancelled transactions.
Following these complications, the airline sought a refund from tax authorities, categorising the request as an excess payment of tax. Initially, these claims were rejected by the authorities, who raised concerns regarding documentation, the timing of the issued credit notes, and the verification of the link between the cancelled bookings and the funds returned to customers. This rejection led the airline to file an appeal before the GSTAT.
In its judgement, the tribunal found that Singapore Airlines had produced sufficient evidence to establish that the refunds were paid directly to passengers. By returning the full fare, including the tax component, the airline successfully demonstrated that it was entitled to recover the GST it had previously collected from passengers and subsequently paid to the government. Relying on both the GST framework and a clarification issued by the Central Board of Indirect Taxes and Customs in April 2020, the tribunal set aside the earlier rejection of the claims.
The Ernakulam bench of the GSTAT directed the tax authorities to process the eight refund claims, which totalled Rs 45,92,528, within a period of two weeks, along with any applicable interest. The ruling highlights the distinction between two separate processes: the refund of ticket prices from airlines to passengers, and the subsequent recovery of tax from the government by the airline. The tribunal clarified that its decision primarily concerns the latter, ensuring airlines are not unfairly burdened by tax liabilities on transactions that were effectively cancelled.
For passengers, the ruling does not imply that they are entitled to an additional refund or a double payment of GST. The GSTAT’s decision does not establish a blanket entitlement for fresh payments from the government for all cancelled flights. Instead, it underscores the necessity for passengers to remain focused on the refund amount and its breakdown as provided by the airline under the existing refund rules and conditions established by the Directorate General of Civil Aviation.
Ultimately, the ruling serves as a vital legal precedent for airlines seeking to recover tax on cancelled services where traditional adjustment methods, such as credit notes, are insufficient. By affirming that airlines can recover GST from the government once they have fulfilled their obligations to passengers, the tribunal has provided a clearer path for resolving complex tax disputes that arose from the extraordinary circumstances of the pandemic.
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