Cancelled Flight Fares Refunded to Passengers Qualify for GST Refund: GSTAT Ernakulam

When an airline cancels flights and returns the full fare, including GST, to passengers, it has already paid that GST to the government. But what if it cannot adjust the credit notes against later tax liability? The GST Appellate Tribunal (GSTAT), Ernakulam Bench, answered this in Singapore Airlines Ltd v. Commissioner of CGST & CE and allowed the airline’s refund claims.

Facts of the case

Singapore Airlines, an international airline registered in Kerala (Kochi branch), collected and paid GST on tickets sold in India. During the COVID-19 pandemic, flights from India dropped sharply and many passengers cancelled their bookings. Refunds soon exceeded fresh sales.

The airline refunded the full fares, including GST, and issued credit notes against each ticket. It reported them in GSTR-1, but could not fully adjust them in GSTR-3B. There was too little outward supply, and GSTR-3B does not accept negative values. Since the credit notes could not be absorbed, the airline filed eight refund applications under “Excess payment of tax” using Form GST RFD-01.

Why the refunds were rejected earlier

The refund officer rejected the claims for lack of proof of excess payment and of actual reimbursement to passengers. The Joint Commissioner (Appeals) upheld the rejection and added three reasons:

• the unadjusted credit notes were time-barred under Section 34(2)
• credit notes were issued to travel agents, so a one-to-one link with passengers was not possible
• the claim did not qualify as “excess payment of tax”

Arguments before the Tribunal

The Revenue said the invoices, credit notes and Billing Settlement Plan (BSP) statements did not prove that the tax component reached the end passengers. It pointed to Section 54(4) of the CGST Act, which requires evidence that the tax incidence was not passed on. It asked for dismissal or a remand for verification.

The airline explained how the system works. Most tickets are sold through IATA-accredited agents, and BSP settles payments between airlines and agents weekly. A refund can only go through the agent who sold the ticket, using the original payment mode. The airline also said every credit note, tax invoice and refund voucher carries the passenger’s name and ticket number.

What the Tribunal held

1. Documents were linked by ticket number and passenger name.
The Tribunal compared a sample refund voucher, tax invoice and credit note for one ticket. Each carried the same ticket number and passenger name, and the refund voucher also showed the original payment mode. The Tribunal said these documents had been before both lower authorities, who failed to examine them properly.

2. No unjust enrichment.
The entire amount, including GST, went back to passengers and the airline kept nothing. The Tribunal also noted the Supreme Court’s directions in Pravasi Legal Cell v. Union of India on refunds for flights affected by the lockdown.

3. The claim was properly filed as excess payment of tax.
Circular No. 137/07/2020-GST clarifies that where there is no output liability against which a credit note can be adjusted, the person may claim a refund under “Excess payment of tax” through Form GST RFD-01. The Tribunal said the Joint Commissioner did not apply this circular properly.

4. The ITC reversal objection failed.
The tickets were issued to individual passengers, so these were B2C supplies with no input tax credit to reverse. The proviso to Section 34(2) requiring recipient reversal was inserted with effect from 1 October 2025. It therefore did not apply to 2019–2021. The earlier proviso only barred reduction of liability where the tax incidence had been passed on, and the airline filed a declaration that it had not. One agent, Balmer Lawrie, was a B2B recipient, but the Tribunal noted that the law places the ITC reversal duty on the recipient, and the Revenue showed no contrary evidence.

5. No pending passenger claims.
The airline also filed an undertaking that no passenger had reported a pending refund.

Final order

The Tribunal set aside the common appellate order and allowed all eight appeals with consequential relief. It directed the department to process the refunds within two weeks and pay them with applicable interest from the date of the original refund application until actual payment.

Key takeaways

• For airlines and travel businesses: Keep ticket-wise records that link the invoice, credit note and refund voucher, and keep BSP statements and refund proof. File RFD-01 under “Excess payment of tax” when credit notes cannot be adjusted.
• For other service providers: The reasoning can help any business that refunds customers in full but has no outward liability left to adjust the credit notes against.
• For tax officers: Documents on record must be examined before a claim is rejected for want of evidence.

This article is for general information only and is not legal or tax advice. Please consult a qualified professional for your specific situation.