2023 (1) TMI 948 - AT - Customs

Customs Tribunal Overturns Order, Emphasizes Need for DGCA Violation Before Imposing Duties

The Tribunal set aside the Commissioner's order confiscating the imported aircraft and confirming customs duty, as well as imposing penalties on company ... Confiscation of imported aircraft - non-scheduled operator permit (charter) issued by the Directorate General of Civil Aviation [DGCA] - levy of customs duty and penalty under section 112 of the Customs Act - HELD THAT:- Aircrafts and helicopters are classified under Customs Tariff Heading 88 of the First Schedule to the Customs Tariff Act, 1975. The tariff rate of duty till 28.02.2007 on the import of aircraft was 3%/12.5%. Subsequently, pursuant to the proposal made in the Finance Bill 2007, exemption notification no. 20/2009 dated 01.03.2007 was issued inserting Entry 346B and Condition No. 101 in the earlier exemption notification dated 01.03.2002, whereby, the effective rate of duty on import of aircraft for scheduled air transport service was made ‘nil’. No exemption was, however, granted to nonscheduled air transport service and private category aircraft. However, with the issuance of the exemption notification dated 03.05.2007, the effective rate of duty on the import of aircraft for non-scheduled air transport service was made ‘nil’. The exemption notification dated 03.05.2007 inserted Condition No. 104 which requires at the stage of import, an approval from MCA to import the aircraft for non-scheduled (charter) service and an undertaking by the importer to the customs authority that the aircraft would be used only for non-scheduled (charter) services and that the operator would pay on demand, in the event of his failure to use the aircraft for the specified purpose, an amount equal to the duty payable on the said aircraft but for the exemption under the notification. The customs authority cannot demand duty in the absence of proceedings initiated by DGCA. In the present case, proceedings have not been initiated by DGCA against the appellant and in fact the permits have been renewed time to time - the impugned order also holds that non-revenue flights undertaken by the aircraft carrying Chairman and other employees are private flights and though such flights may be permissible under the Civil Aviation Law but the same cannot be interpreted to be also permissible under the exemption notification. Thus a demand can be made under the Undertaking only when DGCA finds that the use of the aircraft is not in accordance with the permit granted by the DGCA. In the present case, DGCA has not initiated any proceedings against the appellant and in fact has renewed the permit from time to time - Once it is held that the demand could not have been confirmed, the penalties imposed upon the Chairman/Managing Director and the Vice President of the appellant cannot also be sustained. Appeal allowed. Issues Involved:1. Confiscation of imported aircraft under Section 111(o) of the Customs Act, 1962.2. Confirmation of customs duty based on the undertaking provided at the time of importation.3. Imposition of penalties under Section 112 of the Customs Act, 1962.Detailed Analysis:1. Confiscation of Imported Aircraft:The appellant imported an aircraft under a non-scheduled operator permit (charter) issued by the Directorate General of Civil Aviation (DGCA) and claimed customs duty exemption under Notification No. 61 of 2017, which amended the earlier Exemption Notification No. 21 of 2002. The aircraft was confiscated by the Commissioner of Customs (Preventive) under Section 111(o) of the Customs Act, 1962, with an option to redeem it. The Commissioner held that the appellant had violated Condition No. 104 of the exemption notification, which required the aircraft to be used only for non-scheduled (charter) services. The appellant argued that the aircraft could not be used for charter services during the period from May 2007 to October 2007 due to the delay in endorsement by the DGCA and was used for non-revenue flights by the company's officials. The Tribunal found that the customs authority cannot demand duty in the absence of proceedings initiated by the DGCA and that the DGCA had renewed the permits from time to time without any objections.2. Confirmation of Customs Duty:The Commissioner confirmed the customs duty based on the undertaking provided by the appellant at the time of importation, stating that the aircraft would be used only for non-scheduled (charter) services. The appellant contended that the customs authority could take action based on the undertaking only when the DGCA found a violation of the conditions. The Tribunal referred to the Larger Bench decision in VRL Logistics Ltd. vs. Commissioner of Customs, Ahmedabad, which held that the customs authority could act on the undertaking only if the DGCA found a violation. Since no such proceedings were initiated by the DGCA, the Tribunal concluded that the demand for customs duty could not be confirmed based on the undertaking alone.3. Imposition of Penalties:Penalties were imposed on the Chairman and Managing Director, and the Senior Vice President of the appellant under Section 112 of the Customs Act, 1962, for their involvement in the alleged violation. The Tribunal found that the penalties could not be sustained since the demand for customs duty itself could not be confirmed. The Tribunal emphasized that the use of the aircraft by the Chairman/Managing Director for non-revenue purposes did not make it a private aircraft, as the aircraft was primarily used for revenue purposes and there was no restriction under Aircraft Rules and Regulations or the exemption notification on such use.Conclusion:The Tribunal set aside the impugned order dated 20.11.2009 passed by the Commissioner, thereby allowing Customs Appeal No. 60 of 2010, Customs Appeal No. 61 of 2010, and Customs Appeal No. 62 of 2010 with consequential benefits. The Tribunal held that the customs authority could not demand duty or impose penalties without a finding of violation by the DGCA.