Aircraft Flown Commercially Without DGCA Approval Cannot Claim Customs Duty Exemption: CESTAT Delhi

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi has held that an aircraft imported duty-free for non-scheduled charter services cannot retain the exemption when it is commercially operated without the DGCA approval required under the exemption.

A bench comprising Officiating President Dr. Rachna Gupta and Technicla Member P.V. Subba Rao was dealing with appeals filed by Mega Corporation Ltd., its Managing Director Kunal Lalani, and CEO Anil Kumar Soni.

Mega Corporation imported an aircraft in 2007, claiming a full customs duty exemption under Notification No. 21/2002-Cus, subject to condition 104. The condition required the aircraft to be used only for non-scheduled passenger or charter services.

The aircraft was imported within the validity of the approval for its import, but the company's permit to operate non-scheduled charter services expired on September 23, 2007. It subsequently began commercial operations on December 29, 2007 and operated the aircraft for more than 100 hours without a valid permit.

The tribunal explained that condition 104 specifically required non-scheduled charter services to be provided by an operator registered with and approved by the Directorate General of Civil Aviation (DGCA). It observed:

“A perusal of condition no. 104 would show that it requires that the aircraft should be used only for NSOP (passenger) or NSOP(charter) services, as the case may be. In this case, the NSOP (charter) services are relevant. These, for the purpose of the condition of the notification have been explained as 'non-scheduled (charter) services' mean services provided by a non-scheduled (charter) air transport operator' for charter or hire of an aircraft to any person, with published tariff, and who is registered with and approved by Directorate General of Civil Aviation for such purposes, and who conforms to the civil aviation requirement under the provision of rule 133A of the Aircraft Rules, 1937.", it ruled.

"Clearly, approval of DGCA is essential for the flight to be considered as NSOP (charter) services under the condition of the notification. The charter flights conducted without such approval cannot be considered as NSOP(charter) services. Therefore, the commercial flights of over 100 hours conducted by the importer without approval of the DGCA cannot be considered as NSOP(charter) services.” it added.

The company argued that Customs could not demand duty for the alleged violation because compliance with aviation permissions was a matter for the DGCA and Ministry of Civil Aviation (MCA).

The tribunal rejected the argument. It held that deciding whether an exemption is available forms part of the Customs assessment process.

It added that while the authority issuing a licence or permit would determine its scope and validity where such a document exists, no licence or permit authorising NSOP(charter) services existed for the relevant period in this case.

The tribunal also found that the aircraft had not been operated commercially because of an unavoidable necessity such as repairs or refuelling. It held that the importer had consciously operated it commercially for more than 100 hours without DGCA or MCA authorisation.

On the company's limitation argument, the tribunal held that the normal limitation under Section 28 of the Customs Act did not apply because the duty had been recovered under Section 125(2) following the post-import violation of the exemption condition.

The tribunal held that the violation made the aircraft liable to confiscation under Section 111(o). It upheld the ₹2.5 crore redemption fine and the ₹30 lakh penalty imposed on Mega Corporation.

It, however, granted the company limited relief on the duty calculation, directing that the actual transportation and transit insurance costs be used instead of notional amounts while recomputing the duty.

The ₹10 lakh penalties imposed on Lalani and Soni under Section 112 were also upheld. Their appeals were dismissed, while Mega Corporation's appeal was partly allowed only for the limited purpose of recomputing the duty.

For Appellants: Advocates Kishore Kunal and Runjhun Pare

For Department: Shiv Shankar, Authorised Representative