CESTAT Delhi Quashes Tax Demand Against IndiGo Holds Aircraft Generators Attract 18% IGST, Not 28%

The New Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has quashed tax demands and penalties against InterGlobe Aviation over the classification of aircraft generators imported for use in IndiGo aircraft.

It held that generators used with turboprop and turbofan gas turbine engines cannot be classified as equipment used with spark-ignition or compression-ignition internal combustion engines, meaning they attract 18% IGST under the classification claimed by InterGlobe rather than 28% IGST under the tariff entry invoked by customs.

“The goods are also not covered under CTH 8511 as this covers generators of a kind used in conjunction with sparkignition or compression ignition IC engines. The goods, as noticed above, are used in conjunction with turboprop/turbofan engines which are gas turbine engines and are different from spark-ignition or compression ignition IC engines,” the tribunal said.

A bench of President Justice Dilip Gupta and Technical Member P.V. Subba Rao was hearing appeals filed by InterGlobe Aviation and customs broker C.G. Logistics. The appeals challenged orders passed by the Principal Commissioner of Customs, Air Cargo Complex (Import), New Delhi.

The dispute concerned the classification of integrated drive generators and starter generators imported by InterGlobe for repair and maintenance of aircraft. The customs department claimed the goods should be classified under a tariff entry attracting 28% IGST instead of the 18% IGST paid by the airline.

Customs argued that turboprop and turbofan engines are a type of internal combustion engine. It said generators used with them would therefore fall under the tariff entry covering electrical starting equipment and generators used with such engines.

It also argued that starter generators are dual-purpose units. According to customs, they specifically fell under the tariff classification for starter motors and dual-purpose starter-generators.

InterGlobe argued that the imported goods were electric generators used with gas turbine engines. It said these are distinct from spark-ignition or compression-ignition internal combustion engines.

The tribunal noted that integrated drive generators are AC generators supplying power to aircraft systems. These include lighting, air conditioning, and other onboard equipment.

It said starter generators are DC generators. They first help start aircraft engines and later generate power for onboard systems.

Explaining the distinction, the tribunal said, “They are broadly classified into two types, namely reciprocating engines and gas turbine engines. In reciprocating engines, the function of intake, compression, combustion and exhaust all take place in the same combustion chamber. In gas turbine engines the function of intake, compression, combustion and exhaust take place separately. Gas turbine engines are of two types namely turboprop engines and turbofan engines"

The tribunal held that the tariff entry relied upon by customs applies only to generators used with spark-ignition or compression-ignition internal combustion engines. It said the entry does not cover generators used with aircraft gas turbine engines.

“The fact that a separate tariff heading is created for all gas turbines under CTH 8411 establishes that gas turbines engines are different from spark-ignition and compression ignition combustion engines which are covered under CTH 8407 and CTH 8408, respectively,” the tribunal added.

The tribunal also set aside penalties imposed on InterGlobe and C.G. Logistics. It held that the customs broker had merely acted on the basis of documents and instructions supplied by the importer.

The tribunal consequently set aside the impugned orders and allowed all three appeals.

For Appellant: Advocates B.L. Narasimhan, Anjali Singh and Kruti Parashar

For Respondent: Nikhil Mohan Goyal, Authorized Representative