Charter use of imported aircraft satisfied exemption conditions; interest on refunded redemption fine was denied absent statutory authority.

A non-scheduled (passenger) operator was held capable of complying with the customs exemption condition by using imported aircraft for charter operations, because the aircraft rules broadly treated air transport service as carriage by air for remuneration and the notification did not bar charter use. Carriage of group-company personnel, absence of ticket issuance, or one non-remunerative familiarisation flight did not by itself establish breach; the alleged misuse-based confiscation, duty demand and penalty therefore could not stand. On refund of redemption fine, interest was denied because no statutory provision authorised it, while the bank guarantees furnished for the underlying adjudication order were directed to be discharged.

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Issues: (i) Whether a non-scheduled (passenger) permit holder could use imported aircraft for charter operations and whether carriage of group-company personnel, ticketless travel, or one non-remunerative flight violated Condition No. 104 of the exemption notification; and (ii) whether interest was payable on refund of redemption fine, and whether the bank guarantees furnished by the importer were liable to be discharged.

Issue (i): Whether a non-scheduled (passenger) permit holder could use imported aircraft for charter operations and whether carriage of group-company personnel, ticketless travel, or one non-remunerative flight violated Condition No. 104 of the exemption notification.

Analysis: Condition No. 104 required import approval by the competent civil aviation authority and an undertaking that the aircraft would be used for non-scheduled (passenger) services or non-scheduled (charter) services. The expression "air transport service" in the Aircraft Rules was construed broadly to include carriage by air for remuneration, whether by individual seats or by charter, and the notification did not impose a restriction that a non-scheduled (passenger) operator could not conduct charter operations. The regulatory materials and prior binding decisions recognized that a non-scheduled operator could carry out charter operations, including for group companies, and that issuance of passenger tickets was not a condition of compliance. On the facts, a single non-remunerative flight for crew familiarisation did not establish breach of the condition when the overall use was for remunerative operations.

Conclusion: The issue was decided in favour of the assessee. The exemption condition was held to be satisfied and confiscation, duty demand, interest and penalty based on alleged misuse could not stand.

Issue (ii): Whether interest was payable on refund of redemption fine, and whether the bank guarantees furnished by the importer were liable to be discharged.

Analysis: The Tribunal applied the settled position that, in the absence of a specific statutory provision, interest is not payable on refund of redemption fine paid pursuant to an adjudication order later set aside. Reliance on equitable considerations was rejected for granting such interest. Since the underlying adjudication order was set aside, the bank guarantees furnished in relation to that order were no longer sustainable and had to be discharged.

Conclusion: The issue was decided partly in favour of the assessee and partly against the assessee. Refund of the redemption fine was allowed, but interest on that refund was denied, while the bank guarantees were directed to be discharged.

Final Conclusion: The impugned confiscation and demand order was set aside to the extent of the substantive duty and penalty action, the redemption fine was ordered to be refunded, interest on that refund was declined, and the bank guarantees were released.

Ratio Decidendi: A non-scheduled (passenger) operator may satisfy the customs exemption condition by using the imported aircraft for remunerative charter operations, and absence of ticket issuance or isolated non-remunerative use does not by itself establish breach; however, interest on refund of redemption fine is not payable unless a statute expressly provides for it.

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