Customs exemption linked to aviation approval cannot be denied without a prior DGCA breach finding.

Customs relief under an exemption notification linked to civil aviation approval cannot be denied merely because the aircraft was used for flights by the Chairman, Managing Director or employees. Where the exemption depended on DGCA and civil aviation approval and an undertaking to use the aircraft only for specified non-scheduled services, customs authorities had to rely on a prior finding of breach by the competent aviation authority. In the absence of any DGCA finding that permit conditions were violated, customs could not independently treat the use as a breach or confirm demand. Accordingly, the customs duty demand, confiscation under Section 111(o) and penalties under Section 112 of the Customs Act were held unsustainable.

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Issues: Whether the customs duty demand, confiscation and penalties were sustainable on the ground that the imported aircraft was used in breach of Condition No. 104 of the exemption notification.

Analysis: The exemption operated under Section 25(1) of the Customs Act, 1962 subject to an approval by the civil aviation authorities and an undertaking that the aircraft would be used only for the specified non-scheduled services. The governing test was whether there was a violation of the permit or approval granted by the DGCA and the Civil Aviation authorities. In the absence of any finding or proceedings by the DGCA that the importer had breached the permit conditions, customs could not independently treat the non-revenue use by the Chairman, Managing Director or employees as decisive of violation. The use of the aircraft for such flights did not by itself convert the aircraft into a private aircraft, and the duty could not be confirmed merely on the basis of the undertaking without the jurisdictional aviation authority first finding non-compliance.

Conclusion: The demand of duty, confiscation under Section 111(o) of the Customs Act, 1962 and penalties under Section 112 of the Customs Act, 1962 were not sustainable.

Ratio Decidendi: Where an exemption notification conditions customs relief on aviation approval and an undertaking linked to that approval, customs authorities can enforce the undertaking only after the competent civil aviation authority has found breach of the governing permit conditions.

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