2023 (4) TMI 514 - HC - Customs

Exemption from duty - import of helicopters - Actual user condition - To be used for non-scheduled air transport (passenger) service - Compliance of Condition No.104 of the Exemption Notification No.21/202-Cus dated 01.03.2002 as amended by Notification No.61/07-Cus dated 03.05.2007 - Confiscation alongwith interest and penalty - whether the respondent had violated the Condition No.104 of the Exemption Notification? - HELD THAT - It is relevant to note that neither ground has been raised in the present appeal nor any specific question is projected regarding the Tribunal s finding that the Adjudicating Authority had travelled beyond the scope of the show cause notice. The demands raised in respect of helicopters having Registration Nos.VT-AZU and VT-AZV was on the basis that the respondent had transferred the NSOP to its group company. The Tribunal found that there was no such allegation in the show cause notice and the order passed by the Adjudicating Authority was liable to be set aside. There is no challenge to the said conclusion in this appeal. In the present case, there is no dispute that the respondent had used the helicopters for air transport services as defined in sub-rule (9) of Rule 3 of the Aircraft Rules, 1937 (Aircraft Rules). Thus, the condition that the helicopters were used for non-scheduled (passenger) services/ non-scheduled (charter) services was satisfied - It is clear from a plain reading of Condition No.104 of the Exemption Notification that the exemption from custom duties would be available in respect of an aircraft used for providing non-scheduled (passenger) services or non-scheduled (charter) services. Accordingly, if the aircraft is used for either of the aforesaid purposes, the Condition No.104 of the Exemption Notification would be satisfied. In East India Hotels Ltd. 2023 (2) TMI 47 - DELHI HIGH COURT , this Court had noted that the term air transport service is defined in wide terms and would cover transport by air of humans, animals, mails or any other thing, animate or inanimate. 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. Although, the requirements of Condition No.104 of the Exemption Notification are unambiguous but the explanation inserted by way of amendment of Condition No.104 of the Exemption Notification amply clarifies that the exemption condition would be satisfied if the aircraft imported is used for non-scheduled (passenger) services or non-scheduled (charter) services. The impugned order, to the extent that it holds that Customs Authorities can take action on the basis of the undertaking submitted by the importer only when the DGCA holds that the conditions of the permit issued by them have been violated, is set aside - Appeal allowed in part.

Summary

Issues Involved:
1. Compliance with Condition No.104 of Exemption Notification No.21/202-Cus dated 01.03.2002.
2. Allegations of misuse of imported helicopters for purposes other than non-scheduled (passenger) services.
3. Adjudicating Authority's jurisdiction to examine compliance with exemption conditions.
4. Interpretation of "non-scheduled (passenger) services" and "non-scheduled (charter) services."

Summary:

Issue 1: Compliance with Condition No.104 of the Exemption Notification
The principal controversy involved the compliance of Condition No.104 of the Exemption Notification No.21/202-Cus dated 01.03.2002. The Tribunal found in favor of the respondent, holding that the helicopters were used for passenger services for remuneration, thus compliant with Condition No.104. The Tribunal also noted that the Adjudicating Authority had traveled beyond the allegations in the show cause notice by introducing new grounds not originally stated.

Issue 2: Allegations of Misuse of Imported Helicopters
The Commissioner of Customs issued a show cause notice alleging that the helicopters were not used for non-scheduled (passenger) services as required. The Adjudicating Authority confirmed the demand of Rs. 21,21,95,030/- along with penalties but dropped the demand for one helicopter. The Tribunal accepted the respondent's contention that the Adjudicating Authority's findings were beyond the scope of the show cause notice, setting aside the demand and penalties.

Issue 3: Adjudicating Authority's Jurisdiction
The Tribunal's decision that Customs Authorities can only act based on DGCA's determination of permit violations was challenged. The High Court referred to its earlier decision in East India Hotels Ltd., holding that Customs Authorities can independently examine compliance with exemption conditions without being bound by DGCA's decisions. Thus, the Tribunal's finding on this point was set aside.

Issue 4: Interpretation of Service Types
The Tribunal held that the terms "non-scheduled (passenger) services" and "non-scheduled (charter) services" are inclusive, meaning compliance with either satisfies Condition No.104. The High Court agreed, noting that the expression "air transport service" includes various forms of transport for remuneration. The Court also referenced an amendment clarifying that using an aircraft for either service type does not violate exemption conditions.

Conclusion:
The High Court partly allowed the appeal, setting aside the Tribunal's finding that Customs Authorities need DGCA's decision to act but upheld the Tribunal's interpretation of service types and compliance with Condition No.104.