TaxTMI 
TaxTMI 
TaxTMI 
2008 (1) TMI 375
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....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 are concerned, the service and overhaul of engine is not in....
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....ii) 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 maintenance necessarily involves engine maintenance. 2.4 The applicant se....
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.... 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 heading 8802 Nil - 102 347. Any Chapter Parts (other than rubber tyres and tubes), of aircraft of heading 8802 3% - ....
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.... 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. Before we undertake this exercise, it would be apposite to briefly advert to the principles governing the construction of an exemption notification in a taxation statute by referring to some decisions of the Supreme Court. 4.1 ....
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.... 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 "wordings in the notification have to be construed keeping in view the object and purpose of the exemption". To the same effect is the observation in Collector of Central Excise v. Parle Exports Ltd.- 1988 (38) E.L.T. 741 at para 13. 4.5 On f....
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.... : "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 cement, coal, lime stone and clay; for steel, iron ore and coking coal, oil or natural gas; for other metals, metal ore and reducing agent; for glass, silica sand and other metal oxides; for ceramics, metal oxides; for semiconductors, silicon plus dopants." 5.2 In Advanc....
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....e 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 coalesce with the requirement that its utilization is in the manufacturing process as distinct from the manufacturing apparatus." (emphasis supplied) 5.6 The Supreme Court held that the Tribunal was right in its conclusion that Sodium Sulphate was used in the manufacture of paper as....
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.... 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 as lubricants, oils and greases cannot be characterized as raw material in one's anxiety to give some meaning to the phrase "raw-material for servicing". It is not easy to visualize what the exempting authority had in mind in using the expression 'raw material for servicing' of aircraft. It may be ....
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....s: 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-heading or tariff item of the First Schedule Description of excisable goods Rate Condition No. (1) (2) (3) (4) (5) 54B Any Chapter Parts of aircraft of heading 8802 Nil 22 6.5 It may be noted that in column No. 3, instead of Tariff Item 8803 (of Chapter 88), a comprehensive expression, "any Chapter" was substituted with ef....
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.... 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 question whether High Pressure Connectors meant for lubricating purposes were classifiable under Tariff Item 52 of the Central Excise Tariff as 'nuts' or under Tariff Item 68 as 'integral part of diesel engine pipes'. It was found that the said goods were not manufactured according to any special specifications as integral parts of machinery, rather some of these nuts ....
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....rt 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 applicant as a part of the repairing job it has undertaken, Condition No. 22 is still satisfied. It is enough if the parts manufactured are 'intended' for servicing, repairing and maintenance of the category of aircraft mentioned in Condition No. 22. The manufactured goods should of course be earmarked for use for the purposes mentioned in clause (i). The fact that the schedule....
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.... 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 intention had been to exempt third party import also, specific mention should have been made in the notification itself such as in the case of Notification 51/96, according to which the goods imported by or for delivery to public funded research institutions or institutions of scientific and industrial research, are exempted from duty. Another example pointed out is Sl. No. 346-B....
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....rted 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 category of importers. 7.3 The above interpretation placed by us while rejecting the Revenue's contention, will be consistent with the object and purpose of the notification which it is not impermissible to take into account [vide Oblum Electrical Industries v. Collector of Customs - 1988 (38) E.L.T. 7] (sic.). The notification seems to be a step in the direction of providing appropriate relief for the imports con....
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....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 definition of 'operator' contained in the preceding Condition No. 101. 'Operator', according to the said definition, means "a person, organization or enterprise engaged in or offering to engage in aircraft operation". Thus, an operator cannot be equated to a third party importer like the applicant, the Departmental Representative contends. We find no substance in this contention. The context in which the definition of 'o....
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.... 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 certain aircraft related materials and consumables. (ii) Dispatch of the aircraft engine by the foreign airline (as per the instructions issued by LHT to such airline) and consequent import of the same into India by the applicant. (iii) Disassembly of the aircraft engine into aircraft engine modules, inspection and identification of defective modules. (iv) Export of the defective aircraft engine modules to LHT outside India. (v) Disa....
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....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 applicant and gets back the engine in working condition from the applicant. The import and export takes place at the behest and on the instructions of LHT. No doubt, the engine repaired by the applicant is an essential component of the aircraft. As held under Business No. 1, the repair of aircraft engine falls within the domain of maintenance of aircraft as there is an integral connection between the two, taking a holistic view. In that sense, the applicant's principa....
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.... 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 enough that the imported parts are earmarked for utilization by whosoever it is in the aircraft operating as s.a.t.s/s.a.c.s. Whether or not the imported part is meant for use or deployment in such aircraft is the only test, according to the applicant's counsel. At best, the applicant's counsel says that there could be an inquiry as to the actual user of parts imported. We are not inclined to accept this contention. We do agree with the learned counsel that the end-use....
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....ations, 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 verbatim the same, excepting that it bifurcates the phrase into two categories -passenger service and cargo service. Rule 134 (1) mandates that : "no person shall operate any scheduled air transport service from, to, in, or across India, except with permission of the Central Government, granted under and in accordance with the subject to the provisions contained in Schedule XI." 9.14 Schedule XI lays down the procedure for grant of permission to operate s.a.t.s. Permission to ope....
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....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 across India will qualify for duty exemption if such aircraft is intended to be removed from India within six months from the date of entry. Apparently, the chartered aircrafts of foreign origin fall within clause (ii) of Condition No. 102. 9.20 There is another relevant reason why restricted interpretation should be preferred. If the exemption is available for the parts imported for the purpose of repair of engines relating to the aircrafts based outside India in some part of the world, it w....
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....sed......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 not think that this decision is of any assistance to the applicant. There are two distinct entries with different wording in Notfn. No. 21/2002. One relates to parts of aircraft and the other speaks of raw materials. One cannot be equated to the other. In the face of distinction maintained between the two expressions, they have to be understood differently. If such different terminology were there, tyres or battery of the car could have been appropriately classified as parts rather than raw material. In TELCO c....
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.... 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 objective of this service offering is to make available the components required by customer airlines in India whenever they need them for replacing the unserviceable components. A summary of the activities under this transaction is set out by the applicant as follows :- (i) The applicant would enter into a contract for provision of 'Home Base services' with the customer airlines in India who operate scheduled air transport /cargo services. (ii) Pursuant to this contract, the applicant would import aircraft components into Ind....
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....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 aircraft. It is needless to emphasise that the timely availability of such spares would ensure that the aircraft need not have to be grounded for long and it is made airworthy within shortest possible time. The ready availability of requisite components for replacement purpose is undoubtedly conducive to efficient airline operations. However, the applicant has not undertaken to service or repair the aircraft or its engine, as in the case of Business No.1. The identification and replacement of unserviceable parts is done by the airline operator ....
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....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 list of spare parts which every airline should keep in stock and the parts kept in the regional pool are based on such list. 14.2 A summary of the activities relating to this business as given by the applicant is as follows : (i) The applicant would enter into a Regional Pooling contract with various airlines. (ii) Pursuant to the above contract, the Applicant would import the pooling components (which could be new or reconditioned) into India for creating the pooling stock. (iii) As soon as the components sought by the customer airline under the....
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....ll 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 airline (Initial Stocking in the Regional Pool) would be exempt from payment of Basic Customs duty under Entry 346D of Notification Number 21/2002-Cus. dated March 1, 2002 (as amended)? (b) Whether importation of the components by the Applicant for subsequent provision of the same to the airline (initial stocking in 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)? (c) Whether importation of the component by the Applicant for subsequent lease to a foreign airline i....
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....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 trading in parts is not intended. 15.1 However, it is not clear from the statement of facts and the questions set out whether the contracts are entered into only with the operators of scheduled air transport/cargo services in India or with the foreign airlines as well. We would like to make it clear that the exemption will not be available if the import is resorted to in pursuance of regional pool arrangement entered into with the foreign airline operators. 15.2 We would also reiterate our observation made in the concluding para related to Questions 4(a) and (b). 16. Question Nos. 5 (e) an....
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....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 exempt under Entry 348 of Notfn. No. 21/2002-Cus. because they are not raw material. Question 1(b) : Nuts, bolts, rivets, screws, washers, couplings etc. used in the process of servicing/repairing an aircraft engine can be treated as parts of aircraft provided they are specially meant for use therein. They are therefore exempt from additional Customs duty payable under S. 3(1) of Customs Tariff Act in view of Entry No. 54-B of Notfn. No. 6/2006-C.E. Such parts are also exempt from basic Customs duty against Entry 346-D of Notfn. No. 21/2002-Cus. (specific question not framed in this regard, however, the contention is....