Supply of 40 Airbus aircraft to Defence Ministry taxable; AAR says Gujarat GST registration required

Airbus will need to take GST registration in Gujarat for supply of aircrafts to Defence Ministry, Gujarat AAR has said. The Tata group company is assembling aircraft on behalf of Airbus in its plant at Vadodara. “The applicant (Project Office) is liable to pay GST in India on the supplies of forty aircrafts made to the Ministry of Defence, Government of India pursuant to the platform contract,” AAR said in a ruling pronounced on September 11.

The entire process of manufacture (by Indian Aircraft Contractor or IAC) and subsequent supply of 40 aircrafts to the MoD, ex-works (outward supply), by the applicant, is being carried out in the State of Gujarat. Further, the present threshold limit/exemption limit for goods in states (other than special category states) is Rs.20 lakhs.

However, “the transaction value of the aircrafts to be supplied to the MoD in the state of Gujarat is much higher than the threshold limit of Rs. 20 lakhs i.e. Rs. Rs 1914.5 crore.” Hence, the project office needs to be registered in the State from where supply is to be made.

Commenting on the ruling, Amit Maheshwari, Managing Partner at AKM Global said, “What makes this ruling interesting is that the AAR has looked at the transaction from the standpoint of the actual contractual flow, rather than simply asking who manufactured the aircraft.” The fact that title passed to Airbus at Vadodara and the aircraft were thereafter supplied to the Ministry of Defence from the same location became important in determining the GST liability.

This could have wider relevance for businesses operating through contract-manufacturing arrangements, where the manufacturer and the entity making the final supply are not necessarily the same, he added. Moreover, the Government being the recipient does not, by itself, mean that the supply is exempt.

“The absence of a specific exemption for aircraft meant that the supply remained taxable, with the AAR consequently placing the requirement to obtain a separate GST registration in Gujarat, given that the taxable supply was being made from the State,” Maheswari said.

Spain based Airbus Defence and Space (having a project office namely Airbus Group India Private Limited at Gurugram) was awarded a contract in 2021 for the supply 56 C-295MW aircrafts along with associated equipment. Out of these first 16 aircrafts will be delivered at Airbus Defence and Space S.A.

facilities in Spain, in flyaway condition. Remaining 40 aircrafts will be manufactured in India by an appointed Indian Aircraft Contractor (IAC) in India. Accordingly, Tata Advanced Systems Ltd. (TASL) was appointed as the IAC (Indian Aircraft Contractor to the Government of India) for the manufacture and supply of the forty aircrafts (i.e.

make in India component). These will be supplied to Airbus, who then supply to Defence Ministry. Production technology shall be transferred by Airbus Defence and Space S.A. to IAC, for manufacture of the forty aircrafts (make in India) The deliveries of the make in India aircrafts (forty in number) shall commence from 60 months of signing of the Aircraft Contract and be completed within 119 months as per the delivery schedule.

The assembly line has been set up in Vadodara. Airbus is in the process of setting up an office in state of Gujarat as a Project Office. Accordingly, it approached the AAR to find of requires to get registration in Gujarat for payment of GST.