New Delhi: The Supreme Court on Tuesday agreed to hear a plea by the tax department seeking to impose higher service tax on charter flight services used by Reliance Industries executives through its subsidiary, Reliance Commercial Dealers Ltd (RCDL).
RCDL operates charter flights for RIL’s nominees, transporting passengers on demand based on the company’s requirements.
A bench of justices Manoj Misra and Ujjal Bhuyan issued notices to the Reliance subsidiary and observed that it will decide the larger legal issue of classification of such services.
The court directed both parties to file written submissions within two weeks.
“This is an important issue to consider and decide as it involves a pure question of law regarding interpretations and classification. Issue notice. After considering the above, we deem it appropriate to require the learned counsel for the parties to submit written submissions along with the relevant provisions of the statute, and also the agreements under which the service supply was rendered,” Misra said.
The tax department argued that RCDL is effectively renting aircraft to Reliance, which should attract higher taxes like equipment rentals. RCDL contends it is simply flying passengers on charter flights, which should be taxed like normal air transport services at lower rates.
If the Supreme Court rules in favour of the tax department, corporate charter services could become significantly more expensive, with companies facing retrospective tax demands and higher ongoing costs, making private jet use for executives costlier.
What do the rules say?
Under DGCA rules, non-scheduled air transport services (passenger) involve transporting passengers, mail, or goods without a fixed timetable, operating on a charter or on-demand basis. Operators hold a non-scheduled operator’s permit (NSOP), allowing them to fly whenever customers require, either by selling seats individually or chartering the entire aircraft.
Currently, passenger transport services are taxed at lower rates like normal airlines (e.g. 5% under GST for economy class), while aircraft rentals or leasing (STGU) attract higher taxes (up to 18% under GST) as they are treated like renting equipment.
The Commissioner of Service Tax, Mumbai approached the Supreme Court against a 2 May order of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), which had favoured Reliance and quashed tax demands of around ₹42 crore covering FY 2008-09 to FY 2010-11.
The issue arose after RCDL, in 2008, signed agreements with RIL to provide domestic and international air transport services for its executives, personnel, and nominees, giving RIL a ‘right of first refusal’ to use certain aircraft. RCDL operated under an NSOP issued by DGCA for such passenger services.
However, based on intelligence inputs, the tax department alleged that RCDL was essentially hiring out aircraft on a time basis without paying applicable service tax under the ‘supply of tangible goods for use’ (STGU) category. This led to three show cause notices issued between 2009 and 2011.
In March 2016, the commissioner upheld these tax demands, prompting RCDL to appeal to CESTAT Mumbai.
RCDL argued its agreements were for passenger transport, not aircraft rental, and that it paid service tax under passenger services until June 2010 when domestic flights became taxable.
The company highlighted that it bore all operational costs, charges were based on actual flying hours, and no bills were raised if flights were cancelled due to regulatory or weather issues, proving it was not a rental arrangement.
The tax department, however, insisted that RCDL was effectively providing aircraft to RIL as goods for use, pointing to the ‘right of first refusal’ clause as evidence of a rental arrangement. It also noted no individual passenger tickets were issued, unlike normal air transport services.
In its 2 May order, CESTAT ruled in favour of RCDL, stating it held the correct permits to operate as a passenger transport provider and that RIL never took possession or operational control of the aircraft.
The tribunal concluded RCDL’s services were rightly classified under ‘transport of passengers by air’ under a section of the Finance Act, 1994, not as STGU. Section 65(105)(zzzo) of the Finance Act, 1994 taxes charter flights as passenger transport services.
The tribunal noted STGU tax applies only when goods are supplied for use without giving possession or control to the user, which was not the case here.
Setting aside the commissioner’s 2016 order, CESTAT quashed the tax demands, interest, and penalties in full.
Aggrieved, the tax department has now moved the Supreme Court, which will decide whether such corporate charter flights should be taxed as aircraft rentals or passenger transport – a ruling that could have significant implications for corporate aviation.
An emailed query to Reliance Industries remained unanswered till press time.
RCDL, the air charter arm of Reliance Industries, operates a fleet of around six business jets, with an average aircraft age of 6.4 years, according to aviation data site Planespotters.net.
According to Airports Authority of India data, general aviation aircraft movements rose sharply in early 2025 – up 43.3% in January (26,890 flights) and 13.9% in February (27,360 flights). Between April 2024 and February 2025, charter flight movements grew 19.7% to 253,000 flights.
A Denzev research report noted there were 1,156 active business jets in the Asia-Pacific by end-2024, up 1.2% year-on-year, as the region’s business aviation recovered from the pandemic. India had the largest private jet fleet in South Asia and the third largest in Asia-Pacific, with over 151 registered private jets in 2023.
Leading Indian charter providers include Poonawalla Aviation, Taj Air, JetSetGo, Hype Luxury, BookMyCharters, and Club One Air, offering luxury private flying options.
The cost of owning a private jet ranges from around ₹16 crore for light jets like the Cirrus Vision to over ₹550 crore for long-range jets like the Gulfstream G650.