Cirular No 155/6/2012 ST on Clarification regarding some airlines collecting differential service tax; dt 9 April 2012.

Clarification on Point of Taxation Rules - Regarding some airlines collecting differential service tax on tickets issued before 1^st April 2012 for journey after 1^st April 2012

1.     In case of online ticketing and counter sales by the airlines, the payment  for the ticket is received before the issuance of the ticket.

The service tax shall be charged @10% subject to applicable exemptions plus cesses in case of tickets issued before 1^st April 2012 when the payment is received before 1^st April 2012.

2.     In case of sales through agents (IATA or otherwise including online sales and sales through GSA) the payment is received by the agent and remitted to airlines after some time. 

When the relationship between the airlines and such agents is that of principal and agent in terms of the Indian Contract Act 1872, the payment to the agent is considered as payment to the principal. Accordingly as per Rule 4(b)(ii), the point of taxation shall be the date of receipt of payment or date of issuance of invoice, whichever is earlier.

Thus the service tax shall be charged @10% subject to applicable exemptions plus cesses in case of tickets issued before 1^st April 2012 when the payment is received before 1^st April 2012 by the agent.

3.     However, to the extent airlines have already collected extra amount as service tax and do not refund the same to the customers, such amount will be required to be paid to the credit of the Central Government under Section 73A of the Finance Act 1994 (as amended).