CESTAT classifies charter of aircraft as air transport of passenger service

This Tax Alert summarizes a recent ruling of Customs, Excise and Service Tax Appellate Tribunal, Ahmedabad (CESTAT)[1]. The issue involved was whether aircraft charter is classifiable as air transport of passenger service or supply of tangible goods service.

CESTAT observed that:

• The taxpayer is registered with Directorate General of Civil Aviation (DGCA) as an aircraft operator. A service can be classified as transport of passenger by air service in cases where such service is provided by an aircraft operator.
  
• Rule 3(9) of the Aircraft Rules, 1937 defines "air transport service" as paid service of transporting people or goods by air, whether by a single flight or a series of flights.
  
• The Civil Aviation Requirements (CAR) also provides a similar definition of ‘Air transport service’ both for scheduled and non-scheduled services.
  
• As per CAR, carriage of passengers by a non-scheduled operator’s permit holder may be performed on per seat basis or by way of chartering the whole aircraft on per flight basis, or both. A non-scheduled operator can run revenue charter flights for its group companies provided it is for remuneration.
  
• Charter operation is a sub-category of non-scheduled aircraft operations. Such operations do not cease to be aircraft operations only because the entire aircraft is chartered from the aircraft operator. Thus, the activity cannot be categorized as supply of aircraft by the operator to the charterer.
  
• In case of charter operation, no ticket is required to be sold to the individual passenger. The charter may be for single journey or for multiple journeys over a period of time. 
  

Accordingly, CESTAT held that the service is classifiable under air transport of passenger service.

Comments

• This ruling may also have a bearing under GST regime since rate of tax and place of supply differs for both the service categories under GST.
  
• In the past, Revenue had denied input tax credit on charter services on the ground that credit is not available on aircraft rental services. Hence, the decision is likely to have a positive impact on the credit eligibility in the hands of recipient. 

[1] 2024-VIL-237-CESTAT-AHM-ST