Tax department freezes Kingfisher, Air India bank accounts

Mumbai: Financially embattled carriers, state-owned Air India and private rival Kingfisher Airlines, both suffered further blows to their prestige and credibility after their bank accounts were frozen by the service tax department for defaulting on payments. While Air India owes the department approximately Rs100 crore, the Vijay Mallya owned Kingfisher owes approximately Rs70 crore.

Both carriers have collected service tax on air tickets sold to customers but have omitted to deposit the amount with the department, using it to finance their operations instead.

The freezing of accounts was confirmed by Sushil Solanki, commissioner, service tax, Mumbai, who 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 six bank accounts of Air India and seven 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."

According to Solanki, the action was sufficient time and intimation to both the carriers had been provided. Both failed to respond within the notice period.

Interestingly, for serial defaulter Kingfisher this is the second such action initiated against them since November this year. The airlines' bank accounts were first frozen for two days in the first week of November 2011 and only after receiving an assurance from Kingfisher that it would deposit the dues in three instalments were operations of the accounts restored.

"As per the agreed terms between Kingfisher and the service tax department, the airline was to deposit a sum of Rs10 crore before 30 November, as part of the first instalment, and the balance was to be cleared in two equal instalments in the following two months (December and January 2012). But Kingfisher failed to deposit the first instalment and hence the department initiated the action by freezing the bank accounts," said Solanki.

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 Rs155 per ticket on their domestic sector towards service tax and Rs773 on international journeys in economy class."