In a significant relief for aviation companies, including IndiGo, the Supreme Court upheld the Delhi High Court’s decision in striking down the Integrated Goods and Services Tax (IGST) levy on the repair cost of goods re-imported into India after being sent abroad for maintenance. The Court confirms that the amendment made to Notification No. 45/2017 dated July 2021, substituting “duty of customs” with “duty, tax or cess”, could not retrospectively impose IGST on reimported goods.
The case hinges on the interplay between the provisions of the Customs Act and the GST laws, especially in light of the constitutional changes brought about by the 101st Constitutional Amendment Act, and the petitions revolve around the reimportation of goods, specifically aircraft parts and engines, that were sent abroad for repair and maintenance.
Putting an end to this dispute, the Division Bench comprising Justice B V Nagarathna and Justice K V Viswanathan refuses to interfere with the order passed by the High Court whereby it was held that once the provisions of the CGST and IGST indicates that the power to levy tax on the import of services lies under Articles 246A and 269A, the respondents (Customs Department) cannot levy tax under the Customs Tariff Act (CTA) through Section 3(7) as an additional duty. In short, the amendments made by Notification No. 36/2021 and the corresponding clarification issued by the CBIC were rightly held to be deemed to expand the tax net improperly, and were rightly declared as unconstitutional by the High Court, added the Bench.
In this case, the petitioners are engaged in the activity of transportation of passengers and goods by air, and sending subject goods to Maintenance, Repair and Overhaul Service MROs’ providers, located outside India, and the goods so consigned to them post-repair and overhaul are reimported. They argued that the repair transaction should be classified as a supply of service under the CGST and IGST laws, and claimed exemption from additional duty under Section 3(7) of the Customs Tariff Act (CTA), as the export and reimport process would fall under the category of services rather than goods. Opposing the same, respondents argued that Section 3(7) of the CTA is an independent charging provision for customs duty, which is not affected by the introduction of IGST, by relying on the “aspect theory”, thus asserting that both duties can be levied concurrently.
The CESTAT although accepted the petitioners’ position at the beginning, but later on, the amendments made to Notification No. 45/2017 in July 2021, substituting “duty of customs” with “duty, tax or cess”, led to the levying of IGST on reimported goods. When the petitioners challenged the imposition of customs duty and IGST on the reimportation of aircraft engines and parts that were exported for repair outside India, the High Court observed that the amendments introduced by Notification No. 36/2021 were not merely clarificatory but aimed at imposing additional tax obligations, which is impermissible, and ruled that an integrated tax on the import of services can only be imposed under Section 5(1) of the IGST, and a supply of service, once classified, cannot be recharacterized. The High Court, therefore, quashed the Notification and granted consequential reliefs to the petitioner.
Finally, the matter reached the Supreme Court, where the appeal was dismissed, and the order whereby the High Court had quashed the notification’s attempt to levy an additional duty beyond IGST stands upheld.
Appearances:
Petitioner: ASG N Venkataraman, AOR Gurmeet Singh Makker, Senior Advocate Nisha Bagchi, a/w Advocates V C Bharathi, Padmesh Mishra, and Priyanka Terdal, for the Petitioners
Respondents: AOR Charanya Lakshmikumaran, a/w Advocates V Lakshmikumaran, Ayush Agarwal, Neha Choudhary, Umang Motiyani, and Nitum Jain, for the Respondents
