2022 (9) TMI 1270 - AT - Customs

Invocation of bank grantee furnished at the time of provisional release of the aircraft - use of aircraft imported by the appellant with benefit of exemption from customs duty under serial 347B of notification no. 21/2002-Cus dated 01.03.2002, as amended by notification no. 61 of 2017 dated 03.05.2007 - providing passenger air transport service to its group company by carrying personnel of the group company for remuneration - whether amounts to violation of Condition No.104 of the said exemption notification or not - whether such use are in accordance with the permit for nonscheduled (passenger) services granted by Director General of Civil Aviation (DGCA). HELD THAT - Aircrafts and helicopters are classified under Customs Tariff Heading 88 of the First Schedule to the Customs Tariff Act, 1975. The tariff rate of duty till 28.02.2007 on the import of aircraft was 3% / 12.5%. Subsequently, pursuant to the proposal made in the Finance Bill 2007, exemption notification no. 20/2009 dated 01.03.2007 was issued inserting Entry 346B and Condition No. 101 in the earlier exemption notification dated 01.03.2002, whereby, the effective rate of duty on import of aircraft for scheduled air transport service was made nil . No exemption was, however, granted to non-scheduled air transport service and private category aircraft. However, with the issuance of the exemption notification dated 03.05.2007, the effective rate of duty on the import of aircraft for non-scheduled air transport service was made nil . The exemption notification dated 03.05.2007 inserted Condition No. 104 which requires at the stage of import, an approval from MCA to import the aircraft for non-scheduled (passenger) service and an undertaking by the importer to the Customs authority that the aircraft would be used only for non-scheduled (passenger) services and that the operator would pay on demand, in the event of his failure to use the aircraft for the specified purpose, an amount equal to the duty payable on the said aircraft but for the exemption under the notification. The use of the aircraft has been in accordance with the scope of non-scheduled (passenger) services and there is no violation of the undertaking to use the aircraft for non-scheduled (passenger) services. It is not possible to sustain the impugned order dated 31.08.2010 passed by the Commissioner in so far as it concerns the appellant - the penalty imposed upon Sudhir Nayak cannot also be sustained - appeal allowed.

Issues Involved:
1. Whether the use of aircraft imported by the appellant for providing passenger air transport service to its group company constitutes a violation of Condition No. 104 of the exemption notification.
2. Whether Customs can contend that such use is not in accordance with the permit for non-scheduled (passenger) services granted by the DGCA.
3. Whether the appellant's use of the aircraft amounts to private/personal use.
4. Whether the appellant was required to issue passenger tickets as a non-scheduled operator.
5. Whether the Customs authorities have the jurisdiction to decide the violation of the exemption notification.

Detailed Analysis:

1. Violation of Condition No. 104:
The appellant imported an aircraft with the benefit of exemption from customs duty under notification no. 21/2002-Cus, which requires the aircraft to be used for non-scheduled (passenger) services. The Commissioner of Customs held that the appellant violated this condition by chartering the aircraft to a group company, which was deemed private use. However, the Tribunal's Larger Bench in VRL Logistics Ltd. clarified that chartering is permissible under non-scheduled (passenger) services, and the appellant's use of the aircraft for transporting personnel of a group company for remuneration does not constitute private use.

2. Compliance with DGCA Permit:
The DGCA had granted and renewed the permit for the appellant to operate non-scheduled (passenger) services. The Tribunal emphasized that the DGCA is the competent authority to monitor compliance with the conditions of the permit. Since the DGCA did not find any violation and continued to renew the permit, the Customs authorities cannot independently determine a breach of the permit conditions.

3. Private/Personal Use:
The Commissioner argued that carrying personnel of a group company amounts to private use. The Tribunal, referencing the Larger Bench decision, stated that as long as the aircraft is used for air transport services for remuneration, it does not constitute private use. The definition of public transport aircraft includes any aircraft used for the carriage of persons for remuneration, irrespective of whether the passengers are from a group company.

4. Issuance of Passenger Tickets:
The Commissioner noted that the appellant did not issue passenger tickets, which was required for non-scheduled operators. The Tribunal, however, found that there is no stipulation in the relevant definitions or Civil Aviation Requirements (CAR) that mandates the issuance of passenger tickets for non-scheduled (passenger) services. The Policy Guidelines for Starting Scheduled/Non-Scheduled Air Transport Services explicitly state that non-scheduled operators are not required to publish time schedules or issue tickets.

5. Jurisdiction of Customs Authorities:
The Tribunal held that the Customs authorities can demand duty only if the DGCA finds a violation of the permit conditions. The DGCA is the authority responsible for monitoring compliance with the conditions of the exemption notification. The Tribunal cited Supreme Court precedents to support the view that only the statutory authority that issues the permit can monitor compliance and initiate action in case of non-compliance.

Conclusion:
The Tribunal set aside the impugned order dated 31.08.2010 passed by the Commissioner of Customs, which had denied the exemption, demanded duty, and imposed penalties. The Tribunal allowed the appeals, stating that the appellant's use of the aircraft was in compliance with the conditions of the exemption notification and the DGCA permit. The penalty imposed on Sudhir Nayak was also set aside.

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