2026 (2) TMI 136 - AT - Customs

Import exemption for helicopter use and undertaking breach leads to confiscation; penalties on officers overturned for lack of mens rea.

Breach of an import undertaking under Condition No.104 of the exemption notification was found where the imported helicopter was used largely for private, ... Confiscation u/s 111(d) and 111(o) - Recovery of duty by recourse to an undertaking given at import - Post-import condition breach - Condition No.104 / Serial No.347B of the exemption notification - use for non-scheduled (passenger) or non-scheduled (charter) services - Meaning of 'air transport service' requiring remuneration for non-scheduled services - Penalty u/s 112 and abetment u/s 112(a) - mens rea/knowledge requirement - Inapplicability of Section 28 for post-importation condition violations - HELD THAT:- A perusal of the show cause notice indicates that reference has also been made to the undertaking given by the appellant under Condition No. 104 of the Exemption Notification. It is true that the show cause notice refers to demand of duty under section 28 of the Customs Act, but if the entire show cause notice is read as a whole, it is clear that reference has been made to the undertaking. It is not disputed that in terms of the undertaking given by the appellant, the duty amount could have been recovered by taking recourse to the undertaking. The contention advanced by the learned counsel for the appellant, therefore, cannot be accepted. It is clear from the undertaking given by the appellant that it refers to the Bill of Entry for import of the Helicopter by the appellant for non-scheduled air transport services (passenger) as per the licence dated 13.10.2005. It is apparent that it is by mistake that at Serial Number 3 of the undertaking the appellant mentioned that it shall pay on demand the tariff as per Serial Number 347A of the Exemption Notification. It is clear from the undertaking that the appellant had intended to give the undertaking under Serial Number 347B of the Exemption Notification with Condition No. 104 and not 347A of the Exemption Notification with Condition No. 103. Serial No. 103 of the Exemption Notification is in connection with the aircraft imported by the Aero Club of India recognized as a National Sports Federation by Ministry of Youth Affairs or a Flying Training Institute approved by the competent authority in the MCA. The appellant does not satisfy either of the two conditions. In the present case, it is seen from the aircraft log book details that leaving aside test/ferry flights, about 80% of the hours flown by the Helicopter were used by the appellant for private purpose without any remuneration earned from such flights. Only 20% of the flight hours were used for charter purpose, but the reaming 80% of the hours flown by the Helicopter were used by the appellant for private purposes without any remuneration earned from such flights. There is, therefore, no substantial compliance of Condition No.104 of the Exemption Notification. The appellant has, therefore, clearly violated the terms of the Exemption Notification. The Helicopter has been confiscated as the undertaking given by the appellant has been violated. There is no error in this finding recorded by the Commissioner as the appellant has violated Condition No. 104 of the Exemption Notification. Whether penalties could be imposed upon Baijayan Panda, Vice-Chairman of the appellant, and Rajeev Lala, Senior Manager (Corporate affairs), of the appellant. - Penalty has been imposed upon Rajeev Lala for the reason that he gave an undertaking before the customs and the imported aircraft violated the provision of the Exemption Notification and was not used for the specified purposes for which the undertaking was given. Penalty has been imposed upon Bansidhar Panda as he was using the aircraft for personal use which would be in violation of the Exemption Notification. The impugned order does not state that the aforesaid two persons were aware of the fact that use of the Helicopter without payment of remuneration would lead to violation of the Exemption Notification. Mere violation of the Exemption Notification would not result in imposition of penalties upon them. Thus, penalties under section 112 of the Customs Act could not have been imposed upon Baijayan Panda, Vice-Chairman of the appellant and Rajeev Lala, Senior Manager (Corporate affairs) of the appellant. It has been found that penalties could not have been imposed under section 112 of the Customs Act. Thus, there is no question of any enhancement in the penalties. The appeal filed by the department would, therefore, have to be dismissed. Issues: (i) Whether duty and confiscation could be sustained on the basis of the undertaking given at the time of importation for breach of the post-import conditions of the exemption notification; (ii) Whether penalties under Section 112 of the Customs Act could be validly imposed upon the company officials named in the order.Issue (i): Whether duty could be confirmed and the aircraft confiscated on account of breach of Condition No.104 of the exemption notification relying upon the undertaking furnished at import.Analysis: The exemption notification grants conditional nil rate subject to specified post-import conditions and an undertaking to pay duty on breach. The undertaking given at importation enables recovery of duty when the specified use is not complied with. Factual material (aircraft logbook) showed predominant non-revenue/private use inconsistent with Condition No.104. Prior authority establishes that non-revenue flights without remuneration do not constitute 'air transport service' for the condition. Where the post-import condition is breached, duty is recoverable on the basis of the undertaking and the aircraft may be liable to confiscation under the relevant provisions.Conclusion: Duty confirmation and confiscation of the aircraft are upheld in favour of the revenue.Issue (ii): Whether penalties under Section 112 could be imposed on the company officials for acts leading to confiscation.Analysis: Section 112 penalises acts or abetment that render goods liable to confiscation; statutory and precedent authorities require knowledge or mens rea for treating persons as abettors beyond mere facilitation. The impugned order does not record requisite knowledge or mens rea attributing awareness that non-remunerated use would violate the notification to the officials. Mere violation of the notification, without evidence of culpable knowledge/abetment, is insufficient to sustain penalties under Section 112.Conclusion: Penalties under Section 112 imposed on the named officials are not sustainable and are set aside (in favour of the appellants as to penalties).Final Conclusion: The breach of conditional exemption justified confirmation of duty and confiscation of the aircraft, while imposition of penalties on the named officials was not supported by findings of culpable knowledge or abetment; the result is mixed, upholding recovery and confiscation but setting aside individual penalties.Ratio Decidendi: Where an importer breaches post-import conditions of a conditional customs exemption, duty is recoverable and goods may be confiscated on the basis of the undertaking given at importation; however, imposition of penalty under Section 112 requires evidence of knowledge or abetment and cannot be based on mere violation or facilitation without mens rea.