Foreign Airlines are under service tax scanner for evading service tax on taxable services provided by them. British Airways has already been booked by the Service Tax Department for allegedly evading service tax of around Rs 100 Crore.

On being grilled by the super sleuths of Service Tax Department; British Airways is said to have already paid service tax of around Rs 100 Crore which was not paid by it on taxable service provided by it in India. The Airlines also faces the Penalty proceedings from service tax department and the mandatory penalty under service tax regulations is equal to the amount of service tax involved. 

Non-Economy class international journey has been subjected to service tax vide the Finance Act 1994 as amended vide Finance Act 2006 with effect from 1st May 2006.

taxable service under the Finance Act 1994 as amended means any service provided or to be provided,-

(zzzo) to any passenger, by an aircraft operator, in relation to scheduled or non-scheduled air transport of such passenger embarking in India for international journey, in any class other than economy class.

Explanation 1.For the purposes of this sub-clause, economy class in an aircraft meant for scheduled air transport of passengers means,

(i) where there is more than one class of travel, the class attracting the lowest standard fare; or

(ii) where there is only one class of travel, that class. 

Explanation 2.For the purposes of this sub-clause, in an aircraft meant for non-scheduled air transport of passengers, no class of travel shall be treated as economy class;

(56a) international journey, in relation to a passenger, means his journey from any customs airport on board any aircraft to a place outside India;

(77c) passenger means any person boarding, at any customs airport, an aircraft for performing an international journey, but does not include

(i) a person who has arrived at such customs airport from a place outside India and is in transit through India, provided that he does not pass through immigration and does not leave customs area and continues his journey to a place outside India; and

(ii) a person employed or engaged by the aircraft operator  in any capacity on board the aircraft.