2020 (3) TMI 922 - AT - Customs

Entitlement for continuation of exemption from duties of customs - import of aircraft against undertaking to be compliant with the condition of operating non-scheduled (passenger) service even though the equipment was deployed on charter hire - HELD THAT - Though we concur with the Learned Authorised Representative that import of aircraft by corporate entities for their own use is not the intent of the exemption notification, we are not entirely convinced that peripheral circumstances such as the absence of published tariff, non-issue of tickets and carriage of employees of associated companies, can be construed as intention for own use. The respondent herein is a person recognised in law as distinct from the associated companies and we perceive no restriction in the notification on carriage of employees of importer, employees of connected undertakings or any other person as travelling public; there is no allegation of free passage to anyone or that the respondent herein was made to bear the cost of such travel. That alone would be amenable to the conclusion of the aircraft having been imported for own use. Both scheduled and non-scheduled air transport services are clearly not intended for own use but to contend that the aircraft have been so used merely owing to evaluation of usage through the prism of revenue maximising would have consequences for all airlines and other air services operating in the country. It is the conditions of the exemption notification, and not a purported intent, that should be complied with and it is those conditions alone that can be tested for compliance. Our independent findings on merit are not controverted by the grounds of appeal or oral submissions, either on fact or by case law, and stand reinforced. The harmonious construct of the finding on obligation of performance, the lack of acceptability of the sole decision relied upon by Revenue, the consistent stand adopted by the Tribunal in all other decisions, the renewal of the permit to operate as non-scheduled passenger service by the competent statutory authority and the clarifications issued by that authority, in general as well as to the Commissioner of Customs, leaves us with no option but to dismiss the appeal of Revenue. Appeal dismissed.

Issues Involved:
1. Entitlement for continuation of exemption from duties of customs for imported aircraft.
2. Compliance with the condition of operating ‘non-scheduled (passenger) service’.
3. Alleged operation of aircraft as ‘private aircraft’ and eligibility for exemption.
4. Jurisdiction of customs authorities in ascertaining the utilization and deployment of aircraft.
5. Interpretation of exemption notifications and conditions therein.
6. Relevance and applicability of precedent decisions.

Issue-wise Detailed Analysis:

1. Entitlement for Continuation of Exemption from Duties of Customs for Imported Aircraft:
The core issue revolves around whether the exemption from customs duties on imported aircraft, granted under Notification No. 21/2002-Cus. and Notification No. 6/2006-C.E., can continue when the aircraft is used for charter hire and predominantly by group companies. The original authority concluded that the use of aircraft for transporting employees of group companies did not violate the conditions for exemption, as the aircraft were not reduced to ‘private aircraft’ under the Aircraft Rules, 1937.

2. Compliance with the Condition of Operating ‘Non-scheduled (Passenger) Service’:
The adjudicating authority examined various regulations, including the Aircraft Rules, 1937, and Civil Aviation Requirements (CAR), to determine that charter operations by the respondent were permissible under the ‘non-scheduled (passenger) service’ category. The authority found no breach of the conditions for continued eligibility for exemption. The appeal by Revenue contends that the original authority overlooked the principle of strict construction of exemption notifications, arguing that ‘non-scheduled (passenger) service’ and ‘non-scheduled (charter) service’ are mutually exclusive.

3. Alleged Operation of Aircraft as ‘Private Aircraft’ and Eligibility for Exemption:
The customs authorities alleged that the aircraft were operated as ‘private aircraft,’ which are ineligible for exemption. The original authority, however, found no evidence of the aircraft being used without remuneration, a key characteristic of ‘private aircraft.’ The adjudicating authority concluded that the aircraft were used for remunerative purposes and thus did not qualify as ‘private aircraft,’ maintaining their eligibility for exemption.

4. Jurisdiction of Customs Authorities in Ascertaining the Utilization and Deployment of Aircraft:
The customs authorities’ jurisdiction to determine the nature of air transport operations was challenged. The adjudicating authority emphasized that the regulatory framework under the Aircraft Rules, 1937, and the oversight by the Directorate General of Civil Aviation (DGCA) are critical in such matters. The authority found that customs authorities could not independently adjudicate the nature of aircraft operations without reference to the regulatory mechanisms established by the DGCA.

5. Interpretation of Exemption Notifications and Conditions Therein:
The exemption notification’s conditions were pivotal in the dispute. The adjudicating authority interpreted the notification to allow for the operation of charter flights under the ‘non-scheduled (passenger) service’ category. The appeal by Revenue argued for a strict interpretation, suggesting that the conditions should be mutually exclusive. However, the adjudicating authority found that the notification’s language did not preclude the flexibility of operating charter services under the same permit.

6. Relevance and Applicability of Precedent Decisions:
The adjudicating authority considered various precedent decisions, including those in Commissioner of Customs, New Delhi v. Sameer Gehlot and Global Vectra Helicorp Ltd. v. Commissioner of Customs (Import), Mumbai. The authority found that these decisions supported the respondent’s position and dismissed the Revenue’s reliance on the decision in King Rotors & Air Charter P. Ltd. v. Commissioner of Customs (ACC & Import), Mumbai, which was deemed not to constitute a binding precedent due to its distinguishable facts and findings.

Conclusion:
The adjudicating authority dismissed the appeal by Revenue, upholding the original order that granted exemption from customs duties for the imported aircraft. The authority found no breach of the conditions for exemption and emphasized the regulatory oversight by the DGCA. The decision was based on a comprehensive analysis of the Aircraft Rules, 1937, Civil Aviation Requirements, and relevant precedent decisions, concluding that the respondent was entitled to the continuation of the exemption.

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