GST Appellate Tribunal allows airlines tax refunds on cancelled tickets if money returned

Airlines can claim a full Goods and Services Tax refund on cancelled flight tickets provided they show documentary evidence that both the fare and the tax were returned to passengers, the GST Appellate Tribunal has ruled.

The decision by the tribunal's Ernakulam bench sets aside an earlier rejection by the GST Joint Commissioner and orders the revenue department to process Singapore Airlines' refund claims within two weeks, alongside statutory interest.

What the tribunal decided

The ruling settles a dispute over eight refund claims filed by Singapore Airlines totalling Rs 45,92,528 for flight cancellations between October 2019 and March 2021. When flights were grounded during the Covid-19 pandemic, the airline returned all fares and taxes directly to passengers in line with Supreme Court directives.

Because flight operations were suspended, the airline had no outward tax liability left against which to offset the corresponding credit notes. Tax authorities had initially rejected the refund applications on the ground that the credit notes could not be adjusted.

Setting aside that order on 16 October, the tribunal held that the airline provided clear passenger-level evidence showing the full tax and fare were refunded, satisfying the legal test that tax incidence was not passed on to anyone else.

Why documentation matters

The tribunal emphasized that passenger-level records linking invoices, credit notes, and settlement data proved no tax was retained by the carrier. Under tax law, a refund cannot be granted if the tax burden was passed on to another party, a principle known as unjust enrichment.

Tax experts noted that the decision brings clarity and protects businesses from bearing tax as an unintended operational cost when transactions are cancelled. Rahul Shekhar, partner for indirect tax at Nangia Global, said the ruling shows tax authorities should evaluate supporting documents collectively rather than rejecting genuine claims on narrow technical grounds.

Rajat Mohan, managing partner at AMRG Global, said airlines and businesses must maintain complete documentation trails from booking to refund, particularly for tickets sold through third-party agents, to satisfy tax authorities that no tax was retained.