MUMBAI: In a recent ruling, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad bench, classified aircraft charter as an air transport of passenger service, rather than a supply of tangible goods service.
CESTAT’s decision was based on several factors, including the registration of the taxpayer with the Directorate General of Civil Aviation (DGCA) as an aircraft operator. According to Rule 3(9) of the Aircraft Rules, 1937, “air transport service” is defined as the paid service of transporting people or goods by air, whether by a single flight or a series of flights. This definition aligns with the
Civil Aviation Requirements
(CAR), which also provides a similar definition for both scheduled and non-scheduled services.
Under CAR, carriage of passengers by a non-scheduled operator’s permit holder can be performed on a per-seat basis or by chartering the whole aircraft on a per-flight basis, or both. CESTAT noted that charter operations are a sub-category of
non-scheduled aircraft operations
and do not cease to be aircraft operations simply because the entire aircraft is chartered from the aircraft operator. Therefore, the activity cannot be categorized as the supply of aircraft by the operator to the charterer.
In a charter operation, no ticket is required to be sold to the individual passenger, and the charter may be for a single journey or for multiple journeys over a period of time. CESTAT’s ruling classified this service under air transport of passenger service.
According to EY-India, this ruling is significant under the Goods and Services Tax (GST) regime, as the rate of tax and place of supply differ for both service categories under GST. Additionally, the ruling is expected to have a positive impact on the eligibility of input tax credit for recipients of charter services, as there have been past instances where Revenue denied input tax credit on charter services on the grounds that credit is not available on aircraft rental services.