2011 (6) TMI 731 - AT - Customs

Benefit of N/N. 21/2002-Cus., dated 1-3-2002 and 6/2006-C.E. - import of aircraft - exemption from customs duty and CVD - denial on the ground that The aircraft was used substantially by the promoter companies of the appellant-company, such use of aircraft was for private purpose and that aircraft imported for private use was liable to duty - whether the aircraft is being used not in conformity with condition 104 of N/N. 21/2002-Cus. but is being used as a private aircraft when it is hired by the two companies holding shares of the appellant-company? Held that - The fact that many persons availed of the services of the company is evidence that such audience were aware of the services being offered by the appellant-company. During the initial stage of any new business of providing service, such ventures can succeed only if there is an assured market for the service in question to reach break-even levels. Since the promoter companies were requiring the services of chartered aircrafts, they thought of setting up a company for providing such service and bringing in money and commitment by way of assured market. This cannot lead to a conclusion that the parent companies were not different from the appellant-company and the use of the aircraft by the parent company was private use of the aircraft. So we are not in agreement with the argument that the appellant-company was a colourable device contrived just to claim the customs exemption. We are unable to see any subterfuge in the matter either. There is also the fact that the Directorate General of Civil Aviation was being kept informed through periodic reports about the use to which the aircraft was being put to. The Ministry of Civil Aviation which was part of the decision making process for granting the exemption, did not find the above company to be not satisfying the conditions prescribed by them for import of the aircraft for Non-Scheduled (Charter) Services. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Confiscation of the aircraft under Section 111(d) and (o) of the Customs Act, 1962.
2. Demand of customs duty based on the alleged private use of the aircraft.
3. Imposition of penalties under Section 112 of the Customs Act, 1962.
4. Compliance with the conditions of exemption notifications No. 21/2002-Cus. and No. 6/2006-C.E.

Issue-wise Detailed Analysis:

1. Confiscation of the Aircraft:
The adjudicating authority confiscated the aircraft under Section 111(d) and (o) of the Customs Act, 1962, with an option to redeem it upon payment of Rs. 4 crores as a redemption fine. The Tribunal found that the aircraft was imported with the necessary permissions and undertakings required by the exemption notification. The Tribunal noted that the aircraft was used for charter services, including to unrelated parties, and thus did not violate the conditions of the exemption notification. Therefore, the confiscation under Section 111(d) and (o) was not justified.

2. Demand of Customs Duty:
The customs duty demand of Rs. 6,01,82,205/- was confirmed based on the allegation that the aircraft was used for private purposes by the promoter companies, thus violating the exemption conditions. The Tribunal observed that the aircraft was used for charter services, including to unrelated parties, and the tariff was published on the company's website. The Tribunal concluded that the use of the aircraft by the promoter companies did not amount to private use and did not violate the exemption conditions. Consequently, the demand for customs duty was not upheld.

3. Imposition of Penalties:
Penalties of Rs. 3 crores on the appellant company and Rs. 10 lakhs on its director were imposed under Section 112 of the Customs Act, 1962. The Tribunal found that the appellants had complied with the conditions of the exemption notification and that there was no evidence of mala fide intent or subterfuge. As the conditions of the exemption were met, the imposition of penalties was not warranted.

4. Compliance with Exemption Conditions:
The exemption notifications required the aircraft to be used for non-scheduled (passenger) services or non-scheduled (charter) services, with a published tariff and registration with the appropriate authority. The Tribunal found that the appellants had a published tariff on their website, provided charter services to unrelated parties, and complied with the conditions of the exemption notification. The Tribunal emphasized that the conditions of the exemption notification should be interpreted based on the words used, without adding any extra conditions. The Tribunal concluded that the appellants had complied with the exemption conditions, and there was no basis for denying the exemption or confiscating the aircraft.

Conclusion:
The Tribunal allowed the appeals, setting aside the confiscation of the aircraft, the demand for customs duty, and the penalties imposed. The Tribunal held that the appellants had complied with the conditions of the exemption notification and were entitled to the exemptions claimed. The order was pronounced in the open court on 3-6-2011.

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