GST Applies to Supply of 40 C-295 Aircraft to Ministry of Defence: Gujarat AAR Ruling on Airbus Defence and Space SA

Background and Context

The Gujarat Authority for Advance Ruling (AAR) recently addressed a significant question concerning the applicability of GST on the supply of aircraft manufactured in India under a defence procurement contract. The applicant, Airbus Defence and Space SA, Spain, operating through its Project Office in India, sought clarity on two interrelated questions: first, whether it was liable to discharge GST on the supply of forty C-295 aircraft to the Ministry of Defence (MoD), Government of India; and second, whether it was obligated to obtain GST registration in the State of Gujarat for this purpose. The Authority answered both questions in the affirmative.

The Contractual Framework

The Aircraft Contract with Ministry of Defence

Airbus Defence and Space SA was awarded the Aircraft Contract dated 24.09.2021 by the Ministry of Defence for the procurement of fifty-six C-295MW aircraft along with associated equipment. The contract was structured in two distinct segments:

  1. Sixteen aircraft were to be manufactured and delivered ex-works from Airbus's own facilities in Spain, in flyaway condition.
  2. Forty aircraft were to be manufactured within India by an appointed Indian Aircraft Contractor (IAC) and delivered ex-works at the IAC's facility located in India.

Additional obligations undertaken by the applicant under the Aircraft Contract included:

  • Provision of warranty for all defects and failures for a period of 960 flying hours or two years, whichever was earlier, from the date of acceptance (Article 15.2.1)
  • Product support for supplies, assemblies, sub-assemblies, fitment items and consumables for a period of 25 years inclusive of the warranty period (Article 30.1)
  • Transfer of production technology to the IAC for manufacture of the forty aircraft (Article 36.1)
  • Sole responsibility for performance, quality and delivery of the forty aircraft manufactured by the IAC (Article 35.3)
  • Training of Indian Air Force personnel (Article 31)
  • Delivery of the Make-in-India aircraft commencing from 60 months of the signing of the Aircraft Contract and completion within 119 months as per the delivery schedule (Article 36.5)

The total consideration under the Aircraft Contract comprised Euro 1,403.66 Mn., USD 695.74 Mn. and INR 19,415.00 Mn.

All taxes, duties, levies and charges payable for delivery of supplies under the contract were to be paid by the respective parties in their own countries, as per Article 18.1 of the Aircraft Contract.

The IAC Contract with TASL

Correspondingly, Airbus Defence and Space SA entered into the IAC Contract dated 29.10.2021 with Tata Advanced Systems Ltd. (TASL), which had been appointed as the Indian Aircraft Contractor by the Government of India. The salient features of the IAC Contract were as follows:

  • TASL was responsible for the manufacture, supply and continued airworthiness support for the forty aircraft under the India C-295 programme
  • Aircraft were to be delivered ex-works at TASL's delivery centre facilities in India
  • Title and risk of the aircraft would transfer to Airbus Defence and Space SA upon signature of the Acceptance Certificate
  • The contract price was exclusive of taxes — all taxes, duties, levies and charges were to be borne by the respective parties in their countries
  • The total consideration under the IAC Contract comprised Euro 57.92 Mn., USD 67.86 Mn. and INR 19,415.00 Mn.