The Finance Ministry has exempted domestic airlines running international flights from 11 per cent basic excise duty on ATF or jet fuel bought from oil marketing companies.
In a notification, the ministry said that ATF supplied as fuel to domestic carriers on international routes would continue to be exempted from basic excise duty from July 1.
Confusion arose on the leviability of the excise duty on domestic airlines for their foreign flights after the government on July 1 slapped a Rs 6 per litre special additional excise duty (SAED) or duty on the export of jet fuel.
Oil companies were of the view that with the levy of export duty, domestic carriers would be liable to pay 11 per cent basic excise duty for the Aviation Turbine Fuel (ATF) they purchase for running overseas flights.
The Finance Ministry's clarification that excise duty would not be applicable on domestic carriers for foreign flights brings them back at par with foreign airlines for which the fuel is exempt from duty as per the Chicago convention.
KPMG Tax Partner Abhishek Jain said "the potential levy of excise duty on ATF supplies to a foreign going aircraft has proactively been exempted by the Government, with no excise duty (basic or special) being applicable on such supplies.
"This alignment to the taxability as existent pre-imposition of excise duty on exports is a much welcome move for the airline industry, specifically in the backdrop of increasing ATF costs," Jain added.