Non-scheduled passenger aircraft exemption upheld where carriage for remuneration stayed within aviation-law definitions and permit compliance remained unbreached.

An exemption for imported aircraft applied the aviation-law meaning of non-scheduled (passenger) services, so carriage of persons for remuneration to a group company remained within that category unless the statutory elements of a scheduled service were met. Charter operations and the absence of passenger tickets did not change that character, and the exemption benefit was therefore retained on this issue. Customs also could not treat the undertaking as breached and demand duty, confiscation, or penalty where the DGCA had granted and renewed the non-scheduled operator permit and had not found a permit violation. The duty demand, redemption fine, confiscation, and penalty were set aside.

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Issues: (i) whether use of an imported aircraft to provide passenger air transport service to a group company on payment of remuneration amounted to use only for non-scheduled (passenger) services under the exemption notification, including whether charter operations and absence of passenger tickets altered that position; and (ii) whether Customs could demand duty and sustain confiscation and penalty on the ground of breach of the undertaking when the DGCA had granted and renewed the non-scheduled operator permit without holding the use to be in violation of the permit.

Issue (i): whether use of an imported aircraft to provide passenger air transport service to a group company on payment of remuneration amounted to use only for non-scheduled (passenger) services under the exemption notification, including whether charter operations and absence of passenger tickets altered that position.

Analysis: The exemption notification adopted the meaning of non-scheduled (passenger) services from the Aircraft Rules. Air transport service is carriage by air of persons for remuneration, and scheduled air transport service is only that service which operates between the same places, according to a published timetable or a recognizably systematic series, with each flight open to the public. A service satisfying the first definition but not the second remains non-scheduled (passenger) service. The arrangement with the group company was for carriage of persons for remuneration, and chartering did not take it outside the definition. The absence of passenger tickets also did not destroy the character of the service, since the relevant legal regime did not impose such a requirement for non-scheduled passenger operations. The use was therefore within the scope of non-scheduled (passenger) services.

Conclusion: The aircraft was used in accordance with the exemption condition, and the appellant did not lose the benefit of the notification on this ground.

Issue (ii): whether Customs could demand duty and sustain confiscation and penalty on the ground of breach of the undertaking when the DGCA had granted and renewed the non-scheduled operator permit without holding the use to be in violation of the permit.

Analysis: The undertaking under the exemption notification was linked to compliance with the approval and permit regime administered under civil aviation law. The competent civil aviation authority was the proper authority to monitor whether the aircraft was being used consistently with the permit conditions. Customs could invoke the undertaking only after the DGCA or the competent aviation authority found a violation. Since the DGCA had not found any breach and had renewed the permit from time to time, there was no basis for Customs to treat the undertaking as violated. The findings of private use, mandatory ticket issuance, and impermissible chartering were unsustainable.

Conclusion: Customs had no basis to demand duty on the footing of breach of the undertaking, and the confiscation and penalty also could not stand.

Final Conclusion: The impugned order was set aside, and both appeals succeeded with the result that the duty demand, confiscation, redemption fine, and penalty did not survive.

Ratio Decidendi: Where an exemption notification for imported aircraft incorporates aviation-law definitions of non-scheduled passenger services, carriage of persons for remuneration remains within that category unless the statutory ingredients of scheduled service are met; and the customs authorities may act on an undertaking tied to permit conditions only after the competent civil aviation authority finds a breach.

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