Delhi High Court: Customs Duty exemption is not available when Aircraft is imported for Private Purposes

Delhi High Court: Customs Duty exemption is not available when Aircraft is imported for Private Purposes

The Delhi High Court observed that in case aircraft was imported for private purposes and does not provide non-scheduled passenger or charter services, then the condition for custom duty exemption was not available to the assessee.

The bench of Justices Vibhu Bakhru and Amit Mahajan of the Delhi High Court were hearing an appeal filed by the East India Hotels Ltd (Appellant) challenging the impugned order passed by the Commissioner of Customs, Central Excise and Central GST (Respondent).

The CESTAT had dismissed the appellants appeal and did not accept that the appellant had complied with the conditions for exemption as set out in the Customs Notification No.21/2002-CUS, as amended by Customs Notification 61/2007-CUS (hereafter 'the Notification'). The CESTAT held that the aircraft imported by the appellant was used for private purposes and not for providing non-scheduled (passenger) services or nonscheduled (charter) services. Thus, the Condition No. 104 of the Notification was violated.

According to Condition No. 104 of the Notification, importers of aircraft are required to furnish an undertaking to the Deputy Commissioner of Customs or Assistant Commissioner of Customs, committing that the aircraft shall be used only for providing non-scheduled passenger services or non-scheduled charter services. If the importer fails to comply with the condition to use the aircraft, the importer would be required to pay an amount equivalent to the duty payable on the aircraft.

It was undisputed before the Court that the aircraft was used by the Chairman and the officials of the appellant, who frequently travelled to various destinations. Admittedly, the flights operated by the appellant were non-revenue flights. According to the appellant, such non-revenue flights – that is, flights operated without generating revenue – were also covered under the broad definition of non-scheduled (passenger) services.

The key question to be addressed before the Court was whether non-revenue flights, operated by a company for transporting its officials, would fall within the scope of providing non-scheduled (passenger) services or nonscheduled (charter) services within the meaning of those terms under the Notification. In terms of explanation (b) to Condition No. 104 of the Notification, the term non-scheduled (passenger) services are defined to mean air transport service other than 'scheduled (passenger) air transport service' as defined in Rule 3(49) of the Aircraft Rules, 1937 (hereinafter 'the Aircraft Rules').

The Court observed, "a plain reading of Rule 3(9) of the Air Craft Rules, indicates that the term 'air transport service' is defined in wide terms and would cover transport by air of humans, animals, mails or any other things, animate or inanimate. However, it is necessary that the said service be provided for 'remuneration'. The said definition also clarifies that the service may be for any kind of remuneration. However, for a service to fall within the meaning of 'air transport service' as defined in Rule 3(9) of the Aircraft Rules, it is essential that the same is provided for some kind of remuneration. Clearly, flight service for no remuneration at all would not qualify to be considered as air transport service within the meaning of sub-rule (9) of Rule 3 of the Aircraft Rules."

The Court remarked, the appellant had used the aircraft for its own use without any remuneration whatsoever, either from the passengers transported by it or from any other person. In the circumstances, it would be difficult to accept that the appellant has used the aircraft for providing 'air transport service' within the meaning of Rule 3(9) of the Aircraft Rules.

According to the Court, the contention that it would not be open for the Customs Authorities to question the use of the aircraft as the Director General of Civil Aviation (DGCA) has not raised any allegation that the appellant has violated the terms of its permit, was unmerited. The Customs Authorities are required to examine whether the conditions for availing exemption under the Notification are satisfied, held the Court. In terms of the Notification, the appellant has also furnished an undertaking as required under clause (ii) of Condition No.104 of the Notification. This undertaking has been furnished to the Customs Authorities and the Court was unable to accept that the Authorities are not entitled to examine whether the said undertaking has been complied with.

"The Customs Authorities are not required to examine whether the conditions of the permit Non-scheduled air transport services operators (passenger or charter) issued by DGCA have been violated and if so, the consequences of such violation under the Aircraft Act or the Aircraft Rules, as that question would be required to be examined only by the DGCA. But that does not mean that they are disabled in any manner in examining whether the conditions for availing the benefit under the Notification are satisfied," opined the bench.

The Court concluded that "whilst the appellant in that case had used the aircraft for transporting senior officials of the related entity and their family members, it had done so for remuneration. Thus, the appellant had complied with the requirement of providing 'air transport service' within the meaning of Rule 3(9) of the Aircraft Rules. Indisputably, the air transport service provided by Reliance Transport were not covered under the definition of scheduled air transport service as defined under Rule 3(49) of the Aircraft Rules and thus, were covered within the definition of non-scheduled (passenger) services within the meaning of clause (b) of Explanation II of Condition no.104 of the Notification."

Although the Court did not agree with the view of learned Tribunal that it was necessary for the appellant to publish the tariff for use of the aircraft and make available the services to public, it concurred that the conditions of exemption under the Notification has not been complied with as the appellant has not used the aircraft for rendering any 'air transport service' within the meaning of Rule 3(9) of the Aircraft Rules and disposed the appeal.