Customs may independently test exemption compliance; approved use of aircraft for non-scheduled passenger or charter services

Customs authorities may independently examine whether an importer has complied with exemption-notification conditions, because Condition No. 104 was not made dependent on a prior adverse finding by the aviation regulator; on that basis, Revenue's objection was accepted. At the same time, where the notification permitted aircraft import for either non-scheduled passenger services or non-scheduled charter services, use of the same aircraft for those specified services did not, by itself, breach the condition; the later amendment reinforced that cross-use was not a violation. The Delhi HC therefore sustained only the Customs-authority issue and rejected Revenue's challenge on aircraft use.

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Issues: (i) Whether the Customs authorities can independently examine compliance with the conditions of an exemption notification without awaiting a finding by the DGCA; (ii) Whether use of imported aircraft for non-scheduled (passenger) services and non-scheduled (charter) services satisfied Condition No.104 of the exemption notification.

Issue (i): Whether the Customs authorities can independently examine compliance with the conditions of an exemption notification without awaiting a finding by the DGCA.

Analysis: Condition No.104 required the importer to furnish an undertaking that the aircraft would be used only for the specified non-scheduled services and that duty would be paid on failure to do so. The exemption condition was not made dependent on a prior cancellation or adverse determination by the aviation regulator. The Customs authorities were therefore entitled to examine for themselves whether the exemption conditions were fulfilled and whether there had been a breach of the undertaking.

Conclusion: The issue is answered in favour of Revenue. The Customs authorities may independently examine whether the exemption conditions have been violated.

Issue (ii): Whether use of imported aircraft for non-scheduled (passenger) services and non-scheduled (charter) services satisfied Condition No.104 of the exemption notification.

Analysis: Condition No.104 expressly permitted import of aircraft for providing either non-scheduled (passenger) services or non-scheduled (charter) services. The expression "air transport service" under Rule 3(9) of the Aircraft Rules, 1937 is broad and contemplates transport by air for remuneration. The regulatory framework also recognised that a non-scheduled operator may use the same aircraft for passenger carriage by seat or by charter, and the later amendment to the exemption condition clarified that cross-use between passenger and charter services would not constitute a violation.

Conclusion: The issue is answered against Revenue and in favour of the assessee. Use of the aircraft for the specified non-scheduled passenger or charter services did not, by itself, amount to a violation of Condition No.104.

Final Conclusion: The appeal succeeds only on the question of the Customs authorities' power to independently test compliance with the exemption conditions, while the remaining questions are decided against Revenue. The impugned order is set aside to that limited extent and the appeal is otherwise sustained only in part.

Ratio Decidendi: Customs authorities can independently determine whether an importer has complied with the conditions of an exemption notification, and where the notification permits use of an aircraft for either non-scheduled passenger services or non-scheduled charter services, such use does not constitute a violation of the exemption condition.

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