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AI, Kingfisher A/Cs frozen over service tax non-payment
December, 09th 2011

First, it was the oil companies and the airports. Now even government departments have run out of patience with Air India and Kingfisher Airlines. The service tax commissioner's office here has frozen bank accounts of both the airlines for not depositing tax of Rs 220 crore they had collected from passengers and clients.

Ten accounts of Air India in State Bank of India, Bank of India and UCO Bank and 11 accounts of Kingfisher in Axis Bank were frozen earlier in the week, commissioner (Mumbai) S K Solanki said.

Instructions have been given to banks to credit balance amounts in these accounts to service tax department. "Let them (airlines) give a firm commitment and we will take a call on de-freezing the accounts,'' he said.
This is the third instance of the service tax commissioner freezing Air India accounts since August, while Kingfisher's accounts were frozen once in November. Airlines collect service tax on domestic and international tickets. Initially, the tax was applicable only on business class travel, but this year government extended it to economy class travel, too. Air India, since it is the custodian of cargo services at several airports, also collects the charge on some cargo services such as warehousing and demurrage.

Solanki said the airlines had not paid the service tax from April to August. He said Air India's dues are Rs 150 crore, including the service tax due from Haj flights. Kingfisher's dues are Rs 70 crore.

"The airlines have collected the tax from passengers, but have not deposited it with us,'' he said.

"We initiated action against Air India in August. We froze their accounts after which they paid Rs 15 crore. In September, they did not pay so we froze the accounts again. The airline said it will pay the dues in instalments. Since it did not pay, we froze their account. In mid-November we froze Kingfisher's accounts and recovered Rs 5 crore. The airline said it will pay in instalments beginning November 30, but since they did not pay, we froze their accounts,'' Solanki said. Organisations can pay service tax through electronic credit or demand draft. Solanki said the frozen accounts were those whose information was submitted by airlines at the time of registration.

"We gave them a reasonable time and a notice that we will freeze their accounts before initiating action,'' he said. "The accounts did not have substantial amounts.''

A senior Air India official said, "We are making interim payments and based on that they will issue de-freezing orders in respect of certain accounts. There is a cash flow problem. The commitments have been to various vendors and tax authorities on the assumption that the government will clear its dues. However, Air India is still to receive full amounts for VIP flights and Egypt and Libya charters,'' an another official said. Kingfisher spokesperson said no comments.

International Air Transport Association in its latest estimate has predicted that airlines in Asia-Pacific will post losses of $1.1 billion, of total industry loss of $8.3 billion next year. The industry body has also urged the central government to reduce taxes on fuel, which is increasing losses of airlines.

Air India posted losses of Rs 7,000 crore in 2010-11. Kingfisher made Rs 469 crore in the second quarter of 2011-12. The airlines have not recorded profits in the last few years. Kingfisher is in advanced talks with investors for an equity infusion of Rs 1,000 crore ($200 million) as it tries to revive the airline. The airline chairman Vijay Mallya has said he has been approached by investors.

Last week Mumbai International Airport Ltd warned it would put Kingfisher on cash-and-carry in case it does not clear dues of Rs 90 crore. Delhi airport, too, had warned of similar action earlier in the year. Twice this year, Hindustan Petroleum Corporation briefly suspended fuel supply to Kingfisher over unpaid dues.

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