Global aviation body IATA today termed the service tax on air travel in India as "illegal" and said the "disconnect" between various ministries on aviation issues was "embarrassing" India in global fora.

Maintaining that there were differences between the ministries of finance and civil aviation on policy issues like FDI in aviation, the International Air Transport Association asked the government and related agencies to evolve a coordinated policy approach to prevent the interests of the sector from being compromised.

Citing the levying of service tax on air tickets by the government, IATA chief Giovanni Bisignani said finance ministry's move was "illegal" and embarrassing for India which was a leading member of the International Civil Aviation Organisation and a signatory to the Chicago convention.

Addressing a CII conference in New Delhi, he said "the disconnect between finance ministry and the civil aviation ministry has put India in an embarrassing position. It is not following the rules that it helped to create".

Bisignani also said the government collected USD 34 million in aviation fuel sales tax between 1994 and 2001.

"Eight years after a parliamentary act made it illegal, and despite the efforts of (Civil Aviation) minister Praful Patel, the finance ministry has not complied and airlines are still waiting for the cash".

While India helped formulate global standards for advance information on passengers to improve security, its Bureau of Immigration "developed its own standards and processes", he said giving yet another example of the "disconnect" between the ministries of civil aviation, home (immigration) and finance (customs).

Describing India as an important player in aviation industry, shaping global policies and standards, Bisignani said Civil Aviation Ministry's foresight to reduce the costs of doing business was being compromised by other ministries adding costs, reducing competitiveness.

This, he said, was "making Indian Government less influential in the global community".

Questioning the "unique" restrictions on FDI in airlines, he said the commerce ministry was following "very old world approach to foreign direct investment in aviation" and "the insular approach cuts India off from global expertise and global trends".

"India allows 100 per cent FDI in mass rapid transport systems, ports and harbors, hotels and tourism ... But it restricts foreign ownership of airlines to 49 per cent.

"Does it make sense that a foreign airline could make a 100 per cent investment in a greenfield airport project but cannot invest even one rupee in an Indian airline," he said, adding "success of India's airlines should not be compromised by an investment policy that isolates it from the world".

Kingfisher Airlines chief Vijay Mallya, who chaired the CII meet, also supported the IATA director general and CEO saying there was "a need for a holistic view" for sustainable growth of the aviation sector in India.

He said there was no comprehensive civil aviation policy. "Though a policy was framed 18 months ago, a Group of Ministers on the issue has not met. There is very little the industry can do", Mallya said in reply to questions.

Expressing concerns over delay in environmental clearance for the Navi Mumbai airport, Bisignani said "It is time for all parties to urgently work together. Agree on a site and get on with it... democracy cannot be an excuse for bureaucratic logjams that delay critical infrastructure developments".

India was a big market of 42 million domestic and 34 million international passengers and still has "enormous potential for growth". Indian carriers' investment on fleet could cost up to USD 140 billion over the next 20 years.

Besides this, he said, private Indian carriers were now reporting profits, or at least shrinking losses, while Air India's situation was also improving.

He, however, said that Indian carriers would still lose an estimated USD 400 million this year as compared to USD 1.7 billion last year, but had a whopping USD 13 billion debt.

"I am concerned about their USD 13 billion debt. In a market as rich in potential as India, this precarious financial situation indicates that structural weaknesses must be addressed. This is not a call for bail-outs," he added.

He termed setting up of the Civil Aviation Safety Advisory Council (CASAC) as an important step in the backdrop of the Mangalore aircrash and said IATA would contribute its global expertise to this initiative.

He asked CASAC to make audit programs like IATA's Operational Safety Audit (IOSA) mandatory for all Indian carriers.

Talking about the environmental concerns, Bisignani said that IATA along with the Airports Authority of India, has implemented new procedures this year, that will annually save 333,000 tonnes of carbon dioxide.