Using Corporate Helicopter For Private Flights Breaches Customs Exemption: CESTAT New Delhi

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the private and non-revenue use of a helicopter imported by a corporate entity defeats the basis of the customs duty exemption granted for non-scheduled passenger or charter services.

A Bench comprising President Justice Dilip Gupta and Technical Member Hemambika R. Priya examined a batch of cross-appeals filed by Indian Metal and Ferro Alloys Limited (IMFA) and the Customs Department against an order passed by the Commissioner of Customs (Preventive), New Delhi.

IMFA had imported the helicopter in October 2007, and had claimed exemption under Notification No. 21/2002-Cus, as amended by Notification No. 61/2007-Cus, which provides customs duty exemption for aircraft imported for non-scheduled passenger or charter services, subject to the condition that the aircraft is used only for the specified services.

Specifically, the IMFA had invoked Serial No. 347B read with Condition No. 104. Under this Condition, the importer must furnish an undertaking at the time of import agreeing to use the aircraft solely for such non-scheduled services and to pay duty if the condition is not complied with.

The Customs authority however found that, excluding test and ferry flights, nearly 80% of the flying hours were used for private travel of company officials without any remuneration, while only about 20% of usage related to charter operations. Therefore, it issued a show-cause notice proposing recovery of duty, confiscation of the helicopter, and penalties.

The CESAT rejected the IMFA's appeal, holding that the substance of the undertaking clearly related to Condition No. 104 governing non-scheduled passenger services.

The Bench reiterated that flights undertaken without any remuneration do not qualify as “air transport services” under the Aircraft Rules, 1937, and therefore cannot satisfy the exemption conditions. It also upheld confiscation of the helicopter and confirmed recovery of duty based on the undertaking furnished at the time of import.

The Bench observed:

".......it is seen from the aircraft log book details that leaving aside test/ferry flights, about 80% of the hours flown by the Helicopter were used by the appellant for private purpose without any remuneration earned from such flights. Only 20% of the flight hours were used for charter purpose, but the remaining 80% of the hours flown by the Helicopter were used by the appellant for private purposes without any remuneration earned from such flights. There is, therefore, no substantial compliance of Condition No.104 of the Exemption Notification. The appellant has, therefore, clearly violated the terms of the Exemption Notification."

However, the Bench set aside the penalties imposed on IMFA's Vice-Chairman and Senior Manager, noting that mere violation of exemption conditions, without proof of knowledge or intentional abetment, was insufficient to attract personal penalties under Section 112 of the Customs Act.

"Mere violation of the Exemption Notification would not result in imposition of penalties upon them. Thus, penalties under section 112 of the Customs Act could not have been imposed upon Baijayan Panda, Vice-Chairman of the appellant and Rajeev Lala, Senior Manager (Corporate affairs) of the appellant," the Bench stated.

The Tribunal also dismissed the Department's appeal seeking enhancement of penalties and disposed of the matter.

For Appellant: Advocates, Tushar Jarwal, Vikrant Maheshwari and Daliya Singh

For Respondent: Special Counsel P.R.V. Ramanan, Authorised Representatives, Rakesh Kumar and Girijesh