Airlines Eligible for GST Refunds on Cancelled Flight Tickets Refund Process for Cancelled Flight Tickets
The GST Appellate Tribunal has ruled that airlines can claim refunds of Goods and Services Tax (GST) paid on cancelled flight tickets, provided they have refunded both the fare and the tax to passengers and can substantiate these refunds with documentation. This decision arose from a case involving Singapore Airlines Ltd and the Kochi Commissioner of CGST & CE, where the tribunal found sufficient evidence that refunds had been issued directly to passengers without passing on the tax burden.
The tribunal directed the revenue department to process Singapore Airlines’ refund claim within two weeks, including interest. The ruling pertains to eight GST refund claims totaling Rs 45.92 lakh for the period from October 2019 to March 2021. During the Covid-19 pandemic, Singapore Airlines cancelled flights and refunded fares, including GST, but faced challenges in adjusting the corresponding credit notes against its output tax liability. The GST Joint Commissioner initially rejected the refund claims, prompting the airline to appeal to the tribunal, which set aside the earlier decision on October 16.
Tribunal cites evidence of refunds to passengers
The tribunal confirmed that Singapore Airlines is eligible for a GST refund, as it had returned the entire fare, including GST, following flight cancellations in line with a Supreme Court order. The tribunal stated, “The appellant airline is eligible for the refund of GST collected from the passengers and paid by them to the GST department, but subsequently refunded the entire amount of fare, including GST, to the passengers.” It also noted that the airline provided sufficient evidence that refunds for cancelled tickets reached the respective passengers directly, with no tax burden passed on.
The issue of whether a business has transferred the tax burden to another party is critical to the principle of unjust enrichment, which can influence eligibility for tax refunds.
Experts stress importance of documentation
Rahul Shekhar, partner for indirect tax at Nangia Global, described the ruling as a positive development, emphasizing that GST should not become a cost when a transaction is cancelled and the tax collected has been fully returned to customers. He stated that the decision highlights the necessity for tax authorities to evaluate supporting documents comprehensively rather than dismissing legitimate refund claims on technicalities.
Shekhar also pointed out that taxpayers must maintain thorough documentation to meet the unjust enrichment criteria. Rajat Mohan, managing partner at AMRG Global, noted that the tribunal allowed the refund as an excess payment of tax in a scenario where the business had repaid customers but had no remaining outward tax liability to adjust against the credit notes. He emphasized that evidence was crucial, stating that passenger-level records linking invoices, credit notes, and refunds demonstrated no tax was retained, thus negating unjust enrichment. Taxpayers lacking this documentation, particularly for agent-sold tickets, should not expect similar outcomes.
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