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Coca Cola, Lufthansa slapped notices for evading service tax
June, 04th 2008

Soft drink major Coca Cola India, German airline Lufthansa, construction company Era Infra Engineering and six other companies have been slapped notices by the tax authorities, demanding service tax of Rs 77 crore.

Within hours of the notice being posted on the official website of the Delhi government, Lufthansa, which was given notice for Rs 6.16 crore service tax, denied tax evasion charges.

Era Infra also did not accept the tax liability of Rs 35 crore, notice of which was sent by the Anti Evasion Wing of the Commissionerate of Service Tax.

According to the service tax commissionerate, Lufthansa had not paid service tax on the full fare received in the category, "passengers embarking by air in India for international journey in a class other than economy class." The alleged tax evasion relates to a period from May 2006 to September, 2007.

An official handling the case said evasion generally takes place when an airline only pays service tax on the basic fare and not the entire amount received.

In a statement, Lufthansa clarified that it was a unanimous decision of the Board of Airlines Representatives in India (BAR) and all airlines not to pay service tax on fuel and congestion surcharges (YQ+YR).

This matter from the very inception of this provision was brought to the notice of Finance Ministry and many representations were made by BAR India, the statement said.

Finance Ministry later issued a letter confirming that YQ+YR also attract service tax following which BAR (I) decided to collect the service tax from September 15, 2007 on YQ+YR.

Lufthansa said it was among the first few airlines to have voluntarily deposited the tax for the entire period from May 1, 2006 to September 14, 2007. This is cost to the company as this money was never collected from the passengers and collection of this money from passengers is not possible, Lufthansa said.

On the demand for Rs 35 crore on construction company Era Infra Engineering Ltd by the wing, the department said the company was wrongly availing benefit of abatement as it had not included the value of free supplies material.

The alleged tax evasion is for a period between 2004-07.

Era Infra in a statement said the company has not accepted this liability on the ground that "Free Issue Material" is not a part of its contract amount and Era Infra has not received any amount on account of this material from the client.

Era Infra has also filed a petition in the Delhi High Court on this issue and the court has given stay in its favour, the statement claimed.

Coca Cola is alleged to have evaded Rs 8.55 crore for a period between April, 2003 and April, 2007.

The cola company was issued a demand notice on non-payment of service tax on the "out of pocket expenses," the service tax commissionerate said.

Out of pocket expenses include expenses over and above the contract amount, which is not inclusive of reimbursements for labour and machinery supplied while providing consultancy or other services.

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