Tax authorities have asked British Airways to pay Rs 133 crore (Rs 1.33 billion), an amount equal to service tax the department says is due from the airline for the period 2006-07.
"We have imposed a penalty of Rs 133.23 crore (Rs 1.33 billion) along with a fine of Rs 200 per day as they (airline) have not paid service tax on the tickets sold in 2006-07 but collected the tax from the passengers," officials of the Central Board of Excise and Customs said.
A BA spokesperson maintained that the airline 'has not evaded any taxes.'
The revenue department had in July served service tax notice on the airline for payment of balance out of the Rs 143.5 crore (Rs 1.43 billion) liability on tickets sales in India between May 2006 and November 2007, but BA did not pay the amount.
The BA spokesperson said: "There was an interim dialogue with the authorities concerned due to some uncertainty on the parameters for taxation. British Airways has not been fined or penalised for evasion of any service tax."
According to the order of the Service Tax Commissioner, the penalty was imposed on the airline under section 78 of the Service Tax Act on the ground that 'they had suppressed the value of taxable services and thereby evaded payment of service tax.'
However, the CBEC officials said the airline has paid about Rs 117 crore (Rs 1.17 billion), including interest, out of the Rs 143.5 crore (Rs 1.43 billion) service tax demand raised by the authorities.
They said the tax evasion was found following a dispute between the Income Tax Department and the airline over payment of tax on engineering and ground services.
In this regard, the Commissioner Income Tax Appeal has already upheld the Department's decision to impose a penalty of about Rs 4 crore (Rs 40 million) on the company in September 2007.
British Airways had then filed an appeal in Income Tax Tribunal against this order.