Service Tax on Charter Flights: What the Reliance Case Means
The focus keyphrase “service tax on charter flights” is back in the spotlight as the Supreme Court takes up the Reliance Transport & Travels case. This has big implications for corporate travel, especially when companies hire chartered aircraft for transporting executives. Let’s break down what’s at stake, and what Indian businesses should watch out for.
Why Is the Supreme Court Involved?
The matter dates back to the pre-GST service tax regime, governed by the Finance Act, 1994. The central issue:
Are chartered flights arranged by a company for executive travel liable for service tax under “supply of tangible goods service”?
The Directorate General of Central Excise Intelligence (DGCEI) had issued a demand to Reliance Transport & Travels Ltd., a group company of Reliance Industries, alleging tax evasion of over ₹21 crore for not paying service tax on chartered aircraft hired for Reliance executives between 2006–2011.
While the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) had earlier ruled in Reliance’s favour, the Centre has now challenged this before the Supreme Court.
What Is the Tax Argument About?
Under the Finance Act, 1994, service tax applied to the following categories:
| Taxable Category | Relevant for This Case? |
|---|---|
| Air travel agent services | ❌ (Not applicable) |
| Renting of aircraft | ✅ (If control is retained by operator) |
| Supply of tangible goods service | ✅ (If operator retains possession & control) |
The government’s argument:
- Even if Reliance didn’t own or operate the aircraft, the hiring of chartered flights with crew qualifies as a “service”, and service tax should be paid accordingly.
- The service falls under “supply of tangible goods with operator” — which became taxable from May 16, 2008 via Notification No. 18/2008-ST.
Key Legal References
- Section 65(105)(zzzzj) – defines taxable service related to supply of tangible goods.
- CBEC Circular No. 334/1/2008-TRU – clarified that hiring goods with the operator (i.e., aircraft with crew) is taxable.
- Notification No. 18/2008-ST dated 10.05.2008 – introduced tax on supply of tangible goods.
- Reliance’s defense: It merely reimbursed costs; it did not “consume” the service as a commercial entity.
Expert View: What Should Businesses Do?
Charter services may look like reimbursements on paper, but taxability depends on control and possession. If your company books flights with crew, fuel, and pilot arranged, tax liability arises unless proven otherwise.
Tip: Always verify whether you’re paying for “transport service” or “renting of transport equipment with operator.” The tax outcome differs.
Impact for Corporates and the Aviation Sector
- If SC upholds taxability, companies may face retrospective tax demands, especially where services were availed between 2008–2017.
- Could trigger scrutiny of luxury travel expenses, particularly those structured via group companies or reimbursements.
- GST law today continues to tax similar services under SAC 9966/9967 — so documentation and classification remain key.
Practical Action Points
- Review past charter agreements – Who had operational control? Was crew included?
- Classify correctly under GST – Use HSN/SAC and verify rate (currently 18%).
- Ensure contracts clearly state service type – Avoid vague terms like “arrangement” or “reimbursement”.
- Keep invoices & payment trails aligned – Especially if a group company is making bookings.
Related Blog
👉 GST on Business Class Air Travel: What You Must Know
FAQs
Q1. Is service tax still applicable after GST?
No. Service tax was subsumed under GST from July 1, 2017. But legacy disputes like this are still under litigation.
Q2. How is GST on chartered flights handled today?
Chartered flights fall under SAC 9966. If it’s “transport of passengers,” GST @5% or 12% may apply. If it’s renting with operator, 18% applies.
Q3. Can reimbursements be taxed?
Yes, if there’s an underlying service and the reimbursement is not a pure agent transaction. GST/Service tax may still apply.
Summary
Service tax on charter flights is under Supreme Court review in the Reliance case. Outcome may affect corporate air travel taxation and past liabilities.
Conclusion
The Supreme Court’s verdict in the Reliance case could reset how tax authorities view executive charter travel. For now, the key is clarity in contracts and correct classification. If your business avails such services, this is the right time to revisit your travel and reimbursement structures.