TaxTMI 
TaxTMI 
2008 (1) TMI 375
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.... LHT and its group companies. According to the averments in the application, the applicant proposes to start certain other business activities which are classified under four heads as follows : New Business 1 : Setting up an engine maintenance, repair and overhaul shop (for short 'Engine MRO Shop') in India for servicing the aircraft belonging to Indian airline companies operating scheduled air transport/air cargo services. New Business 2 : Setting up an Engine MRO Shop in India for servicing the aircraft belonging to foreign airline companies operating scheduled air transport service/air cargo service. New Business 3 : Importation of aircraft components by the applicant for subsequently providing them to pre-identified airline companies for a fee. This business is broadly described as 'Home Base Services'. Here also, the customer airlines operate the aircraft as scheduled air transport service or air cargo service. New Business 4 : Importation of aircraft components for setting up a regional pool in India for the purpose of providing the same to the airline companies operating scheduled air transport/air cargo services, for a fee. 1.1 As far as 3 and 4 businesses ar....
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....nto aircraft engine parts by those companies and their inspection. (vii) Repairing or overhauling of the aircraft engine parts and replacement of the parts that are beyond 'economical repair'. (viii) Reassembly of aircraft engine parts into aircraft engine modules by LHT or its group companies. (ix) Export of repaired aircraft engine modules by LHT (from outside India) to the applicant in India (x) Reassembly of repaired aircraft engine modules to full aircraft engine by the applicant at its workshop in India. (xi) Undertaking aircraft engine test-run as per the manufacturer's specification and in case the engine does not meet the specific requirements during the final testing, minor repairs will be carried out either by the applicant in India or by LHT outside India (xiii) Delivery of the aircraft engine to the airline company in India by the applicant. 2.2 The charges will be either on a Flat Rate (calculated on Engine Flight Hour basis) or Fixed Price basis or Time and Material basis. 2.3 The applicant refers to the aircraft maintenance manuals to drive home the point that there is an inextricable link between engine maintenance and aircraft maintenance and that aircraft m....
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.... to time. By this notification issued under sub-section (1) of section 25 of Customs Act, the Central Government exempted the imported goods of the description specified in column 3 of the Table and falling within the Chapter, Heading or sub-heading of the First Schedule to Customs Tariff Act as specified in the corresponding entry of the column 2 of the Table from so much of the duty of customs leviable thereon under the said First Schedule as is in excess of the amount calculated at the rate specified in the corresponding entry in column 4 of the said Table, subject to the conditions if any specified in column 6 of the Table. It also exempts additional duty payable under S. 3(1) of Customs Tariff Act in respect of certain goods specified therein, but, the goods in question do not enjoy any exemption under this notification. 3.1 The relevant entries and columns in the Table, as it stands today, are given below: Sl. No. Chapter or Heading No. or Sub-heading No. Description of goods Standard rate Addl. Duty rate Condition No. (1) (2) (3) (4) (5) (6) 346D. Any Chapter Parts (other than rubber tyres and tubes), of aircraft of....
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....ht into India for the purpose of a flight to or across India, and which is intended to be removed from India within six months from the date of entry. Explanation : - For the purposes of this entry. (a) "operator" means a person, organization or enterprise engaged in or offering to engage in aircraft operation; (b) "scheduled air transport service" means an air transport service undertaken between the same two or more places and operated according to a published time table or with flights so regular or frequent that they constitute a recognizably systematic series, each flight being open to use by members of the public; and (c) "scheduled air cargo service" means air transportation of cargo or mail on a scheduled basis according to a published time table or with flights so regular or frequent that they constitute a recognizably systematic series, not open to use by passengers. 3.4 It is in the light of these provisions in the notification that we have to examine the applicant's claim for exemption of basic customs duty in respect of the imported raw materials/consumables and parts utilised in the course of servicing or repairing of the aircraft or its engine. 4. B....
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.... liberally." (vide para 4) It was held therein that the applicant did not satisfy the first requirement and therefore the question of giving liberal construction did not arise. It may be relevant to mention that in that case, the Supreme Court, with a view to clear the ambiguity and to avoid "inequitable results " was inclined to hold that the expression "any factory" occurring in the notification meant any new factory. 4.3 In Commissioner of Customs (Imports), Mumbai v. Tullow India Operations Limited - 2005 (189) E.L.T. 401 the principle was re-stated as follows: "Whereas the eligibility clause in relation to the exemption notification is given strict meaning… in terms of its language, once an assessee satisfies the eligibility clause, the exemption clause therein may be construed liberally." The principle that ordinarily literal interpretation must be given effect to unless it gives rise to an anomaly or absurdity was also reiterated in that case. 4.4 Another principle to be kept in view is what was enunciated by the Supreme Court in Oblum Electrical Industries Pvt. Ltd. v. Collector of Customs, Bombay - 1997 (94) E.L.T. 449 at para 11. It was observed therein that....
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....lop". (ii) The New International Webster's Dictionary and Thesaurus of the English Language "Unprocessed material (animal, vegetable, or mineral) needed and used in manufacturing, as contrasted with finished products. (iii) The New Oxford American Dictionary : "The basic material from which a product is made." (iv) Words and Phrases (Permanent Edition, Vol. 36) : "The term "raw material" not necessarily meaning crude material in its natural state, but including products made from crude material, which have undergone manufacturing process and been converted into a distinct product, from which an entirely different one may be made by the application of additional scientific processes (City of Henderson v. George Delker Co., 235 S.W. 732)". (v) Mc Graw-Hill Dictionary of Scientific and Technical Terms: "Crude, unprocessed or partially processed material used as feedback for a processing operation; for example, crude petroleum, raw cotton, or steel scrap, also known as crude material". (vi) Chambers Dictionary of Science & Technology : "Starting point for manufacture of useful materials. Raw materials for polymers include oil, natural gas and liquid petroleum gas; for ce....
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.... Then, it was observed that "the expression 'raw material' is not a defined term. The meaning to be given to it is the ordinary and well-accepted connotation in the common parlance of those who deal with the matter". 5.5 The Supreme Court then addressed the question whether the ingredients which were burnt up or consumed in the chemical reactions qualify themselves as raw material for the end-product. The following pertinent observations were made to answer the above question: "One of the valid tests, in our opinion, could be that the ingredient should be so essential for the chemical processes culminating in the emergence of the desired end-product, that having regard to its importance in and indispensability for the process, it could be said that its very consumption on burning up is its quality and value as raw material. In such a case, the relevant test is not its presence in the end-product, but the dependence of the end-product for its essential presence at the delivery end of the process. The ingredient goes into the making of the end-product in the sense that without its absence the presence of the end-product, as such, is rendered impossible. This quality should....
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....g its ordinary and plain meaning; otherwise it is difficult to think of any raw material used in the course of servicing. Reliance is placed on the following observation of the Supreme Court in TELCO vs. State of Bihar - 1994 (74) E.L.T. 1993 (S.C.) = 1994 (6) SCC page 479 at 485. "The ordinary common sense understanding is that it (raw-material) is something from which another new or distinct commodity can be produced. When it is used in a taxing statute, it may have related meaning depending on the context in which it has been used." 5.10 We find it difficult to accept the contention of the applicant. No doubt, wide meaning can be given to the expression 'raw material', wherever the context so requires, even deviating from its ordinary sense, as has been done in the two cases referred to by the learned counsel. But, in the guise of giving wide or contextual meaning, it is impermissible to distort its meaning. Unless a particular word is capable of yielding the meaning which is sought to be given by the applicant, it is not possible to create or devise a meaning which does not exist. The basic nature and intrinsic character of raw material cannot be ignored. Consumables such....
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....rt service" and "scheduled air cargo service" shall have the meanings respectively assigned to them in condition 21 above. 6.2 The expression 'operator' is not used in Condition No. 22. Obviously, an inadvertent slip has surfaced in the Explanation. 6.3 Condition No. 21 defines the above two expressions as follows: Explanation: - for the purposes of this entry, (a) "operator" means a person, organization or enterprise engaged in or offering to engage in aircraft operation; (b) "scheduled air transport service" means an air transport service undertaken between the same two or more places and operated according to a published time table or with flights so regular or frequent that they constitute a recognizably systematic series, each flight being open to use by members of the public; and (c) "scheduled air cargo service" means air transportation of cargo or mail on a scheduled basis according to a published time table or with flights so regular or frequent that they constitute a recognizably systematic series, not open to use by passengers." 6.4 The Entry/S.No. 54-B of Central Excise Notfn. No. 6/2006 reads as follows : S. No. Chapter or heading or sub-head....
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....lling, purchasing or otherwise", in that case the question arose whether the nuts, bolts and washers of various descriptions were to be regarded as parts of automobile in which case they would fall under the residuary Tariff Item No. 68 of the Central Excise Act (as it then stood) or they should be classified under Tariff Item No. 52 which refers to nuts, bolts, threaded or tapped and screws of base metal or alloys thereof………." The Supreme Court referred to the finding of the Tribunal that no one uses these goods for general purposes and that these items were manufactured to cater to the requirements of automobile manufacturers. The Tribunal's observation that there was no evidence to the effect that they were in use as bolts and nuts as understood in ordinary or common parlance was also referred to. Then, the Supreme Court while reaffirming the test of commercial identity of goods, held that the goods in question did not fall under Entry 52. The Supreme Court referred to and analyzed the decision in Jaishri Engineering Co. vs. Collector of Central Excise - 1989 (40) E.L.T. page 214, at paragraph 16 of the judgement in the following words : "This Court considered the quest....
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....06-C.E. is sought to be resisted by the department on the ground that condition No. 22 thereof disentitles the applicant to avail of the nil duty relief provided in respect of parts of aircraft. According to the Revenue, it is only the Government of India, State Governments and Public Sector Undertakings specified in clause (i) and the operators of scheduled air transport or air cargo services mentioned in clause (ii) that can invoke the benefit but not a third party importer like the applicant. We find it difficult to accept the contention of the Revenue. It is fairly clear that the exemption contemplated by Sr. No. 54B read with Condition No. 22 is with reference to the end-use of the parts of aircraft. If the argument of the Commissioner and the departmental representative has to be accepted, we have to virtually ignore the opening part of the two clauses, i.e., "intended for servicing, repair or maintenance of aircraft". There is no language in Condition No. 22 which imports a requirement that the use for the said purposes should be by the operator of aircraft and none else. Even if the manufactured parts are to be used for those purposes by a service provider like the applican....
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.... relates to additional duty and the notifications relevant to basic and additional duty being almost similar, whatever conclusion is reached vis-a-vis Question No. 1(b), it would be equally applicable to basic duty on the articles covered by Question 1(b). Question 2(a) 7. This question relates to re-import of engine module which is in the nature of sub-assembly of engine for the purpose of offering repair and maintenance services to the Indian airline companies operating scheduled air transport/air cargo services. The applicant's claim for exemption (nil duty rate) is based on Sl. No./Entry No. 346-D of Notification No. 21/2002-Cus. The claim is sought to be denied by the Department on two grounds. Firstly, it is the contention of the Department that the basic customs duty exemption on aircraft parts is available under the said notification only to the specified categories of importers, the applicant, it is pointed out, is not one of such importers. In other words, it is submitted that the notification does not contemplate that the third party import has to be exempted from duty. This argument is sought to be developed by the Revenue on the following grounds : (a) If the ....
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....ne, the operator enters into a contract under which the applicant accomplishes that job. It is needless to say the obvious that the engine repair and overhaul is essential for the maintenance of aircraft. It directly contributes to the repair and maintenance of aircraft. It follows, therefore, that the applicant by undertaking the engine repairs at the instance of the aircraft operator, can be said to have imported the parts (engine modules) for the purpose of repair/maintenance of aircraft. In these circumstances there is no reason why the import made by the applicant should not fall within the scope of Condition No. 102. Condition No. 102 which is integral to the exemption provision neither expressly nor by necessary implication limits the exemption only to the imports directly made by the aircraft operators. Those importers who directly cater to the maintenance needs of the aircraft, can also claim the same relief. The interpretation sought to be placed by the Revenue would amount putting a gloss on the wording of Condition No. 102. The whole argument of Revenue on this aspect is built up on an unwarranted assumption that the relevant Condition itself specifies the eligible cate....
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....d to be furnished under the said Entry even if the importer himself is the user of aircraft. We may however clarify that even without a specific provision for furnishing such a certificate or declaration, the Department is not powerless to take such measures or precautions as may be considered necessary to ensure that the goods imported are not diverted for a different purpose. Such a power is implicit or incidental to the grant of duty exemption at the time of permitting importation. Express provision or no provision, it is legitimately open to the Department to exercise incidental powers to ensure that imported goods are properly utilized in accordance with the exemption notification. Such powers may include insistence on a declaration at the time of import, inspecting the records of the importer and if necessary, even to call for periodical reports of utilization and stock balance. A Customs officer vested with specific powers under Sections 107 and 108 etc. to ensure compliance of the provisions of the Act. 7.6 The learned Departmental Representative then submits that the word 'operating' occurring in clause (i) of Condition No. 102 should be construed in the light of the de....
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....to be fitted into the aircrafts of foreign airline enterprises. 9.2 In this business, the nature of activities carried out at the workshop are substantially the same as in the first business. However, this category of business involves the importation of the defective engines sent by the foreign airlines to the applicant. Another noteworthy difference is that unlike in New Business 1, where the airline company in India enters into a contract for engine maintenance or a contract for total technical support with the applicant, under the new business 2, such contracts are entered into between LHT/LHT group companies outside India and foreign airline companies. LHT would be using the services of the applicant as a sub-contractor for carrying out the engine repair and testing in India. It is stated in the course of arguments that the transactions between the applicant and LHT are on principal-to-principal basis. Under this business, the applicant would receive its fees from LHT and not from the foreign airline. 9.3 A summary of various work-steps involved in this type of business activity is given by the applicant as under: (i) Purchase and subsequent import into India of certa....
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....e owner, again, as per the instructions of LHT. 9.5 On these facts, can it be said that the applicant will be importing/reimporting the repaired engine modules for servicing, repair or maintenance of aircraft (of a particular description) within the meaning of Condition No. 102 of Notfn No. 21/2002-Cus? After giving our anxious consideration, we find the answer in the negative and the applicant's claim for exemption should fail. 9.6 We find it difficult to hold that the applicant imports the parts viz. repaired engine modules sent by LHT for servicing, repairing or maintenance of the aircraft belonging to the foreign airline company. The applicant has no privity of contract with the foreign airline enterprise which owns the aircraft. The applicant's contract is with LHT. The applicant acts on the instructions of LHT from the beginning to the end. The applicant has made it clear that it will be acting as a sub-contractor to LHT. Even the fees for the work done is received from LHT, not from the foreign airline Company. It is the applicant's principal viz. LHT which undertakes the job of servicing and maintenance of aircraft engines. LHT sends the damaged engine to the applican....
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....ing the aircraft, though the act of repairing the engine facilitates the maintenance of aircraft by the person incharge of such repair and maintenance outside India. We are of the view that the language of the crucial phrase in Condition No. 102 and collocation of the words employed therein would keep the applicant's import out of the ambit of Sl. No. 346-D read with Condition No.102(i). It is axiomatic that an exemption notification in a taxation statute should be strictly construed and the person who seeks the benefit of exemption should squarely fall within the four corners of the exemption provision. He must be able to demonstrate beyond doubt that he satisfies the eligibility conditions for claiming exemption. Even if two views are possible, the view in favour of the assessee cannot take precedence over the view against him, while construing a pre-condition in a fiscal exemption notification. 9.8 It is the contention of the applicant that the entire thrust of the notification is the ultimate end-use of imported parts, it is not person specific at all and the importer may be anybody - he could be the operator of aircraft, repairer or service provider or stockist. It is enoug....
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....rld would be scheduled air transport service as defined in the Explanation to Condition No. 101. It need not have Indian base or Indian operations at all, argues the counsel. We are unable to accept this contention. 9.10 Before discussing this point, we consider it appropriate to advert to the genesis of the expressions scheduled air transport and cargo services and the legislation governing the aircrafts in India. 9.11 The definitions contained in the two notifications, viz, 21/2002-Cus. and 6/2006-C.E. are practically borrowed from the Indian Aircraft Rules. The notifications in question were issued in consultation with the Civil Aviation Department of Government of India which administers the Aircraft Act & Rules. 9.12 'Scheduled Air Transport Service' is defined in Rule 2(49) of Aircraft Rules as follows : "Scheduled air transport service means an air transport service undertaken between the same two or more places and operated according to published time table or with flights so regular or frequent that they constitute a recognisably systematic series, each flight being open to use by members of the public;" 9.13 The definition in the said Notifications is verba....
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....r country having regard to the provisions of Air Craft Rules. The Aircraft Rules furnish the key to understand the width and amplitude of that expression occurring in the relevant Condition of the notification. It is reasonable to think that the 'scheduled air transport service' referred to in the notification is no different from what is contemplated by Aircraft Rules. The tenor of clause (i) and the collocation of the words employed therein also leads us to the interpretation that the parts must have been imported to service or repair an aircraft in India. The words "imported for servicing etc. of aircraft" indicate that the aircraft in respect of which servicing and repairs have to be carried out is in the country of import. Parts imported for repairing the engine sent by foreign airlines to the applicant in India cannot in our view get the benefit of exemption. 9.19 As far as foreign aircrafts are concerned, limited benefit is given under the second part of Condition No. 102 attached to Sl. No. 346-D of the notification. The parts brought into India for repairing or maintenance of an aircraft not registered in India and brought into India for the purpose of flight to or acro....
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....ning depending on the context in which in has been used. Then, the Court having observed that the word "raw materials, has no fixed meaning and may vary with the use to which it is put," stated thus : "For instance, batteries, tyre and tubes or by themselves finished products. They on their own cannot be considered to be raw material. But, when it is used for manufacture of a vehicle, then it becomes raw material for it as it is essential and necessary for producing the good in which it has been used......They retain their identity in the end- product. But that could not exclude it from being treated as raw-material". The ratio of the decision in Ballarpur Industries was clarified thus: "It was held that an item to satisfy the test of raw-material must be such as should coalesce with the requirement that its utilization is in the manufacturing process." "an ingredient which retain its identity as end-product was as much raw material as that which was consumed in manufacture." 10.1 Much reliance was placed in that case on the bracketed expression "inputs" which, it was pointed out, was deliberately used in order to broaden the meaning of 'raw material'. 10.2 We do ....
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....nce to Question 3(a) will equally hold good for negativing the applicant's claim for exemption from additional Customs Duty in the light of the Central Excise Notfn. No. 6/2006. The language of the relevant Entry and Condition in this notification is identical to the Customs Notfn. No. 21/2002, the only difference being the phrase "imported for" is used in Condition No. 102 of Customs Notification whereas the phrase "intended for" is used in Condition No. 22 of Central Excise Notification. This difference does not in any way advance the case of the applicant as substantially both convey the same idea of purpose of import and the intended end-use of the imported/manufactured parts of aircraft. It is relevant to mention here that in the case of State of Haryana v. Dalmia Dadri Cement Ltd. - 2004(178) E.L.T. 13, the expression "for use" was construed to mean "intended for use". 12. New Business No. 3 - Question No.4 (a) and (b) Importation of aircraft components for subsequent provision of these to aircrafts of pre-identified airlines in India (known as 'Home Base' services) operating scheduled air transport and air cargo services. 12.1 The applicant states that the key objec....
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....licant for the said purpose would be exempt from payment of additional Customs duty under Entry 54B of Notification No.6/2006-C.E. dated March 1, 2006 as amended? 13. Question No. 4 (a) : It seems to us that the applicant will not forgo the eligibility for exemption under Condition No. 102 of Entry 346-D, notwithstanding the view taken by us with reference to New Business No. 2. Though on the first impression, the reasons given for denying the benefit of exemption for New Business No. 2 might hold good for New Business No. 3 also, we would like to point out that there is a subtle but real distinction between the two. In our considered view, as regards Business No. 3, the applicant satisfies the relevant conditions prescribed for earning the exemption under Notfn No. 21/2002. 13.1 The applicant enters into contracts with the airline customers in India who operate s.a.t.s./s.a.c.s. for creating a 'home base' facility by which an access is provided to the airline operator for drawing the spare parts stocked therein and installing them into the aircraft in lieu of unserviceable or defective parts. These spare parts/components are integrally connected with the maintenance of ai....
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....New Business 4 - Question Nos. 5(a) to (f) and 6 (a) and (b) : Setting up a regional pool in India for providing aircraft components to Airlines (known as 'Regional Pool', in commercial parlance). 14.1 This new business involves building up a regional pool of aircraft components in India and entering into arrangements with various airline companies for provision of access to such components from the pool to the airlines which operate the aircraft for use in scheduled air transport service/air cargo service. The applicant states that the concept of pool access is being internationally followed by airlines as a cost effective means to maintain the aircrafts. The applicant submits that the key objective of this facility is to import serviceable components and make them available to the airlines without loss of time so that the airline can use such components for repair/maintenance of aircraft. The entire purpose of the import, the applicant submits, is geared towards the maintenance of aircraft although the actual installation of the components into the aircraft is undertaken by the airline concerned. The applicant also states that the relevant aircraft manufacturer recommends a li....
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....cific direction of the airline company. (viii) In addition and in exceptional situation, serviceable components from the Regional Pool may also be sold to an airline, based upon a requisition from such airline. In such an event, parts sold from the regional pool would not be replenished. (ix) In consideration of the applicant providing its customer with the right to use the Regional Pool components, the Applicant would charge the customer at a Flat Rate on a continuous basis as per aircraft per flight hour. This flat rate is in the nature of an access fee and will stay unchanged regardless of the number of components the customer may request for from the Regional Pool during the period of the contract. 14.3 In connection with this New Business No. 4, the applicant has framed as many as six questions in para 5 (at page 141 of the Application volume) and two questions in para 6 (at P. 143) which are as follows : 5. In relation to importation of aircraft components by the Applicant for setting up a Regional Pool in India for providing aircraft components to Airlines. (a) Whether importation of the components by the applicant for subsequent provision of the same to the a....
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.... dated March 1, 2002 (as amended)? (b) Whether re-importation of the repaired components by the applicant for subsequent provision of the same to the airline via release to the Regional Pool would be exempt from payment of Additional Customs duty under Entry 54B of Notification Number 6/2006-C.E. dated March 1, 2006 (as amended)?" 15. Re : Question Nos. 5 (a) and (b) The importation of aircraft components/spare parts for storing the same in a 'regional pool' pursuant to the contracts entered into with the airline companies in India which operate scheduled air transport/cargo services are, in our view, exempt from basic and additional Customs duty. Building up 'regional pool' to cater to the immediate requirements of the airlines from time to time with whom the applicant would be entering into contracts is substantially similar to the activity of providing Home-base facility to the airlines. From the facts stated, it is seen that the defective component will be repaired/reconditioned and kept in the regional pool in lieu of the component supplied to the airlines from out of the regional pool. Such replenishment of stocks in the regional pool is an indicator that open market....
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....eign airline to which the party leases out does not run a 'scheduled air transport service' in the sense in which we have interpreted. Further, as pointed out supra while discussing Question Nos. 5 (e) & (f), the parts imported for the purpose of building up a regional pool to cater to the maintenance requirements of the airlines in India cannot be allowed to be diverted for the purpose of selling or leasing out the same to some other airline with whom the applicant has not entered into a regional pool contract. 17.1 Hence the claim of the applicant is negatived. 18. Question Nos. 6 (a) & (b) : Re-import of repaired components for replenishing the regional pool. 18.1 In our view, the exemption should be extended to this category of imports. The reasons which we have given with reference to Question Nos. 5 (a) and (b) will substantially hold good for upholding the applicant's claim for exemption under this head. 19. Summary of conclusions: New Business 1 : Setting up engine MRO Shop for servicing the aircrafts of Indian airlines operating scheduled air transport service/air cargo service. Question 1(a) : Import of consumables such as lubricants, oils, etc. are not ....