The Hindu Business Line : CBEC clarifies on air travel service tax

The Finance Ministry has declined to provide any relief to the aviation industry on the levy of service tax on first and business class international air travel.

The Central Board of Excise and Customs (CBEC) has said that international airlines will have to collect service tax on the total value of the ticket from business and first class passengers travelling from India to their final destination even if they are travelling through an intermediate city.

"If a passenger flies on the Mumbai-Dubai-London-New York sector in first or business class, the service tax will be levied on total value of the ticket," a senior Government official said.

Budget proposal

While presenting the Union Budget for 2006-07, the Finance Minister, Mr P. Chidambaram, included international air travel in first and business class into the service tax net.

The Board of Airline Representatives (BAR), the apex body of international airlines here, sought several clarifications on the implementation of the service tax, including whether the tax would be applied on the entire cost of the air ticket or on part of the journey.

Clarifying the Government's position, an official notification issued on Tuesday states that in case the international journey also includes travel on a domestic sector as part of the journey then also the service tax would be levied on the entire value of the ticket.

The CBEC has argued that the service tax is payable even when the ticket is issued abroad for an international journey commencing from India as the place where the ticket has been purchased is of no relevance or consequence to determine the tax payable.

The CBEC, however, has clarified that service tax would not be levied in one case — if the journey begins outside India and is completed outside the country although the passenger may transit through India.