7 Kingfisher & 6 Air India bank accounts frozen

The airlines defaulted on paying service tax, Rs 70 crore and Rs 100 crore respectively, even though they collected it from customers

The so-named emperors of the Indian skies have fallen on more of the cold hard times, as the service tax department has frozen the bank accounts of both Air India and Kingfisher Airlines. While the loss-making national carrier owes the department approximately Rs 100 crore, Vijay Mallya's airline owes approximately Rs 70 crore. This effectively means that while both the companies collected the service tax on the air tickets they sold from their customers, they did not deposit it with the department.

Sushil Solanki, commissioner, service tax, Mumbai confirmed the action and said, "We have initiated action against both the airline companies for non-payment of service tax under section 87 of the Finance Act 1994 (see box) and have frozen 6 bank accounts of Air India and 7 Kingfisher accounts in the last five days. Also specific instructions have been given to the respective banks to ensure that no withdrawal transactions are allowed in any of the two airlines' accounts, until after getting a clearance from the department."

'They had the time'
According to Solanki, the action was taken after giving sufficient time and intimation to both the carriers for making the payment within a stipulated time period, but they failed nonetheless.

Interestingly, Kingfisher's account has been frozen twice in the last month alone. Solanki said that the airlines' bank accounts were first frozen for two days in the first week of November, 2011 and it was only after getting an assurance from Kingfisher officials that they would deposit the due amount in three installments that the service tax department lifted its order.

"As per the agreed terms between Kingfisher and the service tax department, the airline was to deposit a sum of Rs 10 crore before November 30, as part of the first installment, and the balance was to be cleared in two equal installments in the following two months (December and January 2012). But Kingfisher failed to deposit the first installment and hence the department initiated the action by freezing the bank accounts," said Solanki.

Fliers taxed
In response to the query if their action could paralyse the day-to-day functioning of the two airlines, Solanki said, "The airline companies have already charged service tax to the customers on both their domestic and international sectors. As per our records, Kingfisher owes us the sum for the period between April and September and Air India owe us for the period between April and August, this year. Usually, airlines charge Rs 155 per ticket on their domestic sector towards service tax and Rs 773 on international journeys in economy class."

This is not the first time such an action has been taken by the department. "Even earlier, we froze bank accounts of some security and courier companies for non-payment of service tax," said another senior officer from the department.

Rulebook says
Section 87 of Finance Act 1994 states: Where any amount payable by a person to the credit of the Central Government under any of the provisions of this Chapter or of the rules made thereunder is not paid, the Central Excise Officer shall proceed to recover the amount by one or more of the modes as mentioned in the said section.

The other side
Attempts to contact Air India Chief Managing Director Rohit Nandan did not yield any result.
Union Civil Aviation Minister Vayalar Ravi told MiD DAY, "I am not aware of this. So far, I haven't got any report. I will ask my secretary to get the details tomorrow (Thursday)."

An email sent to Kingfisher Airlines spokesperson remained unanswered at the time of going to press. When contacted, A K Ravi Nedungadi, president and CFO, UB Group, also a director in Kingfisher Airlines said, "I do not want to comment."

The service tax department is a major revenue generator for the Union Finance Ministry. Last year, it had collected approximate Rs 75,000 crore from all across the country, wherein the major contributor to the central exchequer was from Mumbai service tax commissioner-1 (island city) who had collected last year Rs 19,000 crore. The target for this fiscal for the country is Rs 90,000 crore and for Mumbai-1, it is Rs 25,000 crore for island city and Rs 6000 crore for Commissioner -2 (suburbs).

Rs 100 crore
is what Air India owes the service tax department

Rs 70 crore
is what Kingfisher Airlines owes the department

Rs 75,000 cr
revenue generated from service tax last year all across the country

Rs 19,000 cr
was collected from the Mumbai-1, or the island city, in service tax

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