Cancelled flight ticket? GSTAT says airlines can refund GST to passengers and claim it back from the government

The Goods and Services Tax Appellate Tribunal (GSTAT), Ernakulam Bench, in a recent judgement has allowed refunds of GST collected on air tickets which were subsequently cancelled. This judgement came in the background of several appeals filed by an airline after it said that it had collected GST on airline tickets on passenger’s behalf but since the tickets were subsequently cancelled the airline had to refund the ticket fare and GST so collected but by the time the GST was refunded the airline had already deposited the collected GST with the government. This is why the airline wanted a refund of GST so paid to the government since the passengers already got back their paid GST on the air ticket.

The GST department did not accept this refund request because as per them the airline could not adequately demonstrate that the GST component had actually been refunded to passengers. The GST department also argued that most tickets were sold through IATA-registered travel agents so it is difficult to establish a direct connection between the travel agent, passenger, cancelled ticket and refund. The GST department also argued that the refund claim is time barred under the law.

On October 16, 2026 GSTAT, Ernakulam bench ruled in the airline’s favour and ordered the GST department to pay the refund with applicable interest from the date of the original refund applications until the actual payment.

When an airline refunds money for cancelled flight tickets, they have to refund the GST collected from consumers?

Jitendra Patel, Indirect Tax Partner, N A Shah Associates LLP said to ET Wealth Online: When a consumer cancels a flight and the airline refunds the ticket amount, the corresponding GST component is also required to be refunded and accounted for through issuance of a credit note under Section 34 of the CGST Act, 2017 by airlines.

However, if the prescribed time limit expires, the airline loses the statutory benefit of reducing its output tax liability through the credit note mechanism. Consequently, Patel says that even if the airline refunds the ticket amount, including GST, to the consumer, it may not be able to recover or adjust the corresponding GST already deposited with the Government due to the expiry of the time limit prescribed under Section 34(2) of the CGST Act, 2017. This could result in the GST component becoming an additional cost to the airline.

In such circumstances, airlines may be commercially reluctant to refund the GST component to consumers, particularly where they are unable to recover the corresponding tax from the Government. This could potentially lead to disputes between airlines and consumer regarding the refund of the GST component.

However, now with this judgement, airlines get more clarity on the GST treatment of cancelled flight tickets and this reduces the potential financial burden on airlines arising from unadjusted GST paid on such tickets.

Patel says: "Consequently, airlines may not reluctant to refund the GST component to consumers, as they may be able to recover the corresponding tax either through adjustment against their GST liability or by filing a refund claim with the Government, wherever legally permissible."

Chartered Accountant Siddharth Surana said to ET Wealth Online that this case relates to GST refunds where the time limit for issuing credit notes and adjusting output tax liability has expired. Under GST law, once this time limit lapses, the seller cannot adjust the GST liability, and any differences must ordinarily be settled commercially between the buyer and seller.

In the case of Singapore Airlines, the airline had refunded the entire ticket fare, including GST, to its customers and maintained documentary evidence of these refunds. However, since the statutory time limit for adjusting GST had expired, the airline sought a refund of the GST already paid to the Government. This claim was initially rejected by the tax authorities and the first appellate authority.

The GST Appellate Tribunal ruled in favour of Singapore Airlines, holding that the airline was entitled to a refund of GST already paid, despite the expiry of the time limit for adjusting output tax liability, since it had refunded the full amount, including GST, to its customers and could substantiate the same with documentary evidence.

How this GST ruling can have an indirect effect on Indian passengers?

Surana says that this GSTAT judgment provides significant financial relief to the airline, as the GST amount would otherwise have become an additional cost, potentially being passed on to customers through higher fares over time.

Surana says: “This is important in the context that India would like to be positioned as a tourism friendly destination and having foreign airlines operating in India with ease of business and lower impact on tourism is crucial to our tourism as it would incentivise foreign airlines to operate in India and provide competitive fares & cancellation terms to their customers.”

According to Surana, this GSTAT ruling is a welcome development for the aviation industry, as it provides relief in cases where airlines have refunded the full fare, including GST, to passengers but are unable to adjust their output tax liability due to statutory time limits. Subject to appropriate documentation and the applicability of the ruling, airlines may now have a stronger basis to claim refunds of such GST amounts.

Surana says: “Importantly, the ruling could also encourage airlines to adopt more customer-friendly refund practices in cases of flight cancellations, by reducing the financial burden and cash flow concerns associated with GST already deposited with the Government.”

Summary of GSTAT order

The dispute relates to the period between October 2019 and March 2021, when flight cancellations during the pandemic resulted in a large number of passengers seeking refunds. The Airline refunded the entire ticket amount, including GST, to passengers and issued corresponding credit notes. However, the airline could not adjust these credit notes against its output tax liability as there were insufficient outward supplies during the period.

Since the GST return system did not permit reporting a negative tax liability, the airline carried forward the unadjusted credit notes.

The Airline argued before GSTAT that ticket sales and refunds were largely processed through the International Air Transport Association's (IATA) Billing Settlement Plan (BSP). The airline submitted sample air tickets, tax invoices, refund vouchers, credit notes and corresponding BSP settlement records to establish the transactions.

The GST tribunal examined these documents and found that the ticket number and passenger's name provided a clear link between the original tax invoice, refund voucher and credit note.

GSTAT also observed that the lower authorities had failed to properly appreciate the documentary evidence already submitted by the airline. The GSTAT noted that refunds were processed through the original mode of payment and credited to the accounts from which passengers had made their bookings.

GSTAT said: “We find that the appellant has correctly followed the procedure by claiming the present refund claims. Ld AR has mentioned in his submission that since there was insufficient output tax liability against which credit note can be adjusted, they (the appellant) filed the refund application which is in accordance with instruction issued in Circular No.137/07/2020-GST dated April 13, 2020, but the JC (Appeals) has not applied the Circular in letter and spirit.”

GSTAT also rejected the objection relating to input tax credit reversal, noting that the transactions were predominantly business-to-consumer (B2C) supplies like passengers in this case. Moreover, the new amendment related to reversal of input tax credit (ITC) was applicable from October 1, 2025 and not retrospectively.

Thus GSTAT allowed the airline’s refund claim with interest.