2024 (4) TMI 445 - AT - Customs

Exemption under Sl. No. 303 of Notification No.12/2012-CE dated 17.03.2012 - import of flight simulators and avionics for M/s. Hindustan Aeronautics Limited (HAL), Bangalore and others - It is alleged that the appellant had wrongly claimed the benefit of the Notification claiming them as parts that are intended for servicing, repair or maintenance of aircrafts, thus evading duty of Countervailing Duty (CVD), Special Additional Duty (SAD) and Education cess. HELD THAT - The benefit of the Notification is available only for the parts of the aircraft which are intended for servicing, repair or maintenance of the aircraft. The question to be decided is whether the imported prototype form part of the aircraft and whether they are intended for the said purpose mentioned in the Notification. The appellant themselves vide their letter dated 07.01.2013 have stated that the first prototype (engineering unit) imported by them is identical in terms of its functions and applications when compared to the other 2 prototypes imported by them but the only difference between the first unit and the other units is that the first unit is tested on the ground in the designers lab to verify that all functionalities, weight and power consumption, as required by the customers are incorporated - Admittedly, the first prototype unit imported by the appellant is only for testing the worthiness of the aircraft for the required upgradation and does not form part of the aircraft. Therefore, the Commissioner was right in disallowing the benefit of the Notification since admittedly; it does not form part of the aircraft. With regard to the other two imports, the technical write-up states that it is meant for upgrading the Engine and Flight Instrument System (EFIS) for DARIN III upgrade programme for Jaguar Aircraft. The set equipment is meant for replacement of the conventional Electro-mechanical instruments/sensors of DARIN Jaguar aircraft. The Commissioner in the impugned order states that the appellant has declared them as prototypes while the first one is not fitted to the aircraft and the other 2 are claimed to have been fitted for upgradation of the aircraft. This plea is rejected on the ground that the notice themselves refer to the goods in all the 3 imports as prototypes. As indicated earlier, prototypes by definition and by general understanding are for testing and evaluation and not for commercial use. Whether these imports which are intended for replacement/upgradation of the aircraft are eligible for the benefit of the Notification which is intended for servicing, maintenance or repair? - HELD THAT - Since the benefit is being extended to the parts of aircrafts owned by Government of India, these terms must be understood in terms of their usage and practice. Therefore, in order to understand its true meaning under the said Notification, reference must be made to the Aircraft Rules, 1937 - contention of the Revenue is that these goods are meant for replacement and upgradation, which cannot be considered as an activity of servicing, repairing or maintenance and therefore, the appellant is not eligible for the benefit of the Notification No. 12/2012-Cus., dated 17-3-2012, is devoid of merit. The Flight Clearance Certificate for Engine dated 30.05.2013 issued by the Ministry of Defence states that the EFIS replaces the engine fuel hydraulic pressure standby flight instruments in the jaguar cockpit. These electro mechanical instruments are replaced with LCD display of EFIS. The EFIS system provides engine parameters, fuel parameters, hydraulic parameters and flight parameters. This establishes the fact that it forms the part of the aircraft - the benefit of the Notification is denied to the first prototype cleared vide Bill of Entry No.7362578 dated 11.07.2012 and the benefit of the Notification to the other two imports which are meant for upgradation of the aircraft is allowed. Appeal allowed in part.

Summary

Issues Involved:
1. Eligibility for exemption u/s Notification No. 12/2012-CE for imported prototypes.
2. Definition and applicability of terms such as "prototype," "part," "repair," "maintenance," and "replacement."
3. Legitimacy of penalties imposed when duty and interest are paid before the issue of the show-cause notice.

Summary:

Issue 1: Eligibility for Exemption u/s Notification No. 12/2012-CE
M/s. Halbit Avionics Pvt. Ltd. imported prototypes and claimed exemption under Sl. No. 303 of Notification No. 12/2012-CE dated 17.03.2012, applicable to parts of aircrafts intended for servicing, repair, or maintenance. The Commissioner denied the benefit, stating the goods were prototypes and not parts intended for aircraft servicing, repair, or maintenance.

Issue 2: Definition and Applicability of Terms
The appellant argued that the imported prototypes were integral parts for upgrading the Engine and Flight Instrument System (EFIS) for Jaguar Aircraft, thus qualifying for the exemption. They cited various definitions and case laws to support that "repair" and "maintenance" include replacement and upgradation. The Tribunal noted that the first prototype was used for ground testing and did not form part of the aircraft, thus not qualifying for the exemption. However, the second and third prototypes were used in the aircraft for evaluation and testing, thus qualifying as parts for replacement and upgradation.

Issue 3: Legitimacy of Penalties
The appellant paid the differential duty and interest before the show-cause notice was issued. They argued that no penalty should be levied as per Sec. 11A(1)(b) and 11A(2) of the CEA, 1944, and Sec. 28(1)(b) and 28(2) of the CA, 1962. The Tribunal agreed, citing relevant case laws, and found no mala fide intention on the appellant's part.

Conclusion:
The Tribunal denied the benefit of the Notification for the first prototype but allowed it for the second and third prototypes. The penalties imposed were not sustained since the duty and interest were paid prior to the show-cause notice. The appeal was partially allowed.