Notional freight cannot be added to remnant aircraft fuel valuation where no separate freight element exists; penalty also fails.

Remnant aviation turbine fuel left in an aircraft tank after an international flight was held not to attract notional freight under Rule 10(2), because it was not transported as cargo and no separate freight element was shown for fuel remaining in the propulsion system; the appellant's valuation based on the purchase price of identical fuel was upheld. Penalty under Section 112 of the Customs Act, 1962 was also found unsustainable, as the record showed regular filing of flight-wise particulars and reconciliation of fuel quantities, with no suppression or wilful misstatement and no precise statutory limb identified. The impugned order was set aside and the appeal was allowed.

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Issues: (i) Whether notional freight could be added under Rule 10(2) while valuing remnant aviation turbine fuel left in the aircraft tank on return from an international flight. (ii) Whether penalty under Section 112 of the Customs Act, 1962 was sustainable.

Issue (i): Whether notional freight could be added under Rule 10(2) while valuing remnant aviation turbine fuel left in the aircraft tank on return from an international flight.

Analysis: The remnant fuel was not transported as cargo or goods in the ordinary sense, but remained part of the aircraft's propulsion system. The customs duty liability on the fuel was not disputed, but the dispute concerned only valuation. The notional addition of freight presupposed a freight component being attributable to the imported item. On the facts, no separate freight element was shown to exist for fuel left in the tank of an operating aircraft. The valuation adopted by the appellant already reflected the purchase price of identical fuel used for international operations, and further loading by 20% as notional freight was unwarranted.

Conclusion: The addition of notional freight under Rule 10(2) was not justified and the valuation adopted by the appellant was upheld.

Issue (ii): Whether penalty under Section 112 of the Customs Act, 1962 was sustainable.

Analysis: The appellant had been regularly filing flight-wise particulars and reconciling fuel quantities with duty payment through advance deposit adjustments. The record did not show suppression, wilful misstatement, or any sustainable basis for alleging evasion beyond the rejected valuation adjustment. Since the foundation for the demand itself failed, the penalty could not stand. The order also did not specify the precise limb of Section 112 invoked.

Conclusion: The penalty under Section 112 was unsustainable.

Final Conclusion: The impugned order was set aside and the appeal was allowed, with the demand and penalty both failing on merits.

Ratio Decidendi: Remnant fuel in an aircraft tank, being part of the aircraft's propulsion and not freighted cargo, does not attract a notional freight addition in valuation; where the underlying demand fails on that basis, penalty cannot be sustained.

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