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Informist, Monday, Aug. 11, 2025

 

NEW DELHI – The Supreme Court on Monday upheld a goods and services tax commissioner's order to drop the recovery of INR 40.13 million service tax against SpiceJet Ltd. and allow a central value-added tax credit of INR 215.48 million to the airline. Rejecting a plea by the Central Goods and Services Tax department, the Supreme Court pulled up the authority for filing an appeal against an order passed by its own commissioner.

 

"How can you file an appeal against your own commissioner's order? The CESTAT (Customs Excise & Service Tax Appellate Tribunal) has also dismissed your appeal. Dismissed", said the bench of Justices J.B. Pardiwala and R. Mahadevan.

 

SpiceJet was engaged in the business of transport of passengers by air, which was earlier exempt from service tax. Accordingly, airline respondent adopted rule 6(3A) of the CENVAT Credit Rules, 2004 for availing CENVAT credit in proportion to the dutiable services it was providing. According to rule 6(3A), SpiceJet was required to reverse the CENVAT credit every month as per the ratio of dutiable and exempted services provided in the previous financial year, and then by Jun. 30 of the following year, re-computation of CENVAT credit was required to be done as per the ratio of current financial year. It was after this that the differential amount, if any, was determined and adjusted.

 

However, with effect from 2010, transport of passengers by air was made chargeable to tax for the first time, making the primary service provided by SpiceJet taxable. Hence, from July 2010 onwards, SpiceJet reversed CENVAT credit on the actual basis by adopting the ratio of dutiable and exempted services available for each month. 

 

During an audit of records of the SpiceJet conducted in 2012, the tax department noticed that for the months from July 2010 to March 2011, the airline had not reversed CENVAT credit taken by adopting the ratio for the previous financial year, resulting in excess availment of CENVAT credit amounting to INR 215.48 million. Further, the tax department observed that SpiceJet had received payment of INR 389.59 million towards excess baggage charges from passengers, for which service tax amounting to INR 40.13 million was required to be paid in terms of section Finance Act, 1994, but such tax had not been paid by the airline. The tax department said that with effect from 2004, the services provided by an aircraft operator, in relation to transport of goods by aircraft, came within the ambit of service tax.

 

Accordingly, the tax department issued a show-cause notice in 2014 to SpiceJet proposing the demand of CENVAT credit and service tax, by invocation of the extended period of limitation contemplated under section 73(1) of the Finance Act with interest and penalty. However, in 2016, the commissioner of tax department adjudicated the show-cause notice and dropped the entire demand proposed therein, reasoning that an extended period of limitation cannot be invoked in the case. Challenging the order, the tax department moved the appellate tribunal, which upheld the commissioner's order.

 

At 1258 IST, shares of SpiceJet were trading down 2.9% at INR 31.81 on BSE.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Surya Tripathi

Edited by Deepshikha Bhardwaj 

 

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