Law ministry blocks proposal to exempt sales tax on ATF for A-I

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New Delhi, February 10:: The civil aviation ministry’s proposal to exempt sales tax on aviation turbine fuel for Air India (A-I) has been blocked by the law ministry.

It is understood that the law ministry does not want aviation turbine fuel (ATF) to be declared as deemed export. The civil aviation ministry had proposed that ATF used by A-I be declared as ‘deemed export’ so that the flag carrier would not have to pay sales tax on it.

The proposal is being considered to provide a level-playing field to A-I as foreign airlines are already exempt from paying sales tax on ATF uplifted from the country. It has already been cleared by the ministry of civil aviation and was sent to the other ministries for their comments.

Domestic carriers, including Indian Airlines, Jet Airways and Sahara Air have been seeking a similar benefit from the government as the sales tax and other levies, vary from 20 per cent to 30 per cent over the price of fuel, depending on the state government.

These airlines have argued that the high levy of domestic duties is not at par with the revenue earning potential of various sectors serviced by them. It is understood that the government is, however, not in favour of granting the benefit to domestic carriers.

Indian Airlines has asked for a similar relief pointing out that ATF uplifted for international operations should be exempted from sales tax as all foreign airlines do not have to make such a payment. This would lead to a saving of around Rs 32 crore per annum for Indian Airlines.

The IA proposal, among others, is part of the budgetary demands made by the ministry. Sources said that the ministry had also sought removal of withholding tax on interest payments on foreign currency loans, and of the three per cent customs duty on import/lease of aircraft.

The civil aviation ministry has proposed to the finance ministry that sales tax on ATF used by domestic airlines be capped at a uniform levy of 4 per cent by categorising it as “declared goods” under the Central Sales Tax Act.