The New Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has clarified that for an importer to avail the benefit of customs duty exemption for an aircraft under Notification No. 21/2002-Cus for providing ‘non-scheduled (passenger) services’, the use of the aircraft must confirm to the definition of an “air transport service” under Rule 3(9) of the Aircraft Rules, 1937, which necessitates that the service is provided for remuneration.
The CESTAT therefore, held that use of the aircraft for private, non-commercial, or non-remunerative purposes constitutes a breach of the post-importation conditions of the exemption notification, thereby rendering the goods liable to confiscation and making the importer liable for the payment of the exempted duty based on the undertaking furnished at the time of import.
However, the Tribunal asserted that the imposition of a penalty for abetment under Section 112(a) of the Customs Act, 1962, requires proof of mens rea or intentional aiding in the act or omission; mere facilitation or being a beneficiary of the use of the goods without knowledge of the violation is insufficient to attract such a penalty.
Since the appellant had violated Condition No. 104 of the Exemption Notification, the CESTAT upheld the confiscation of the helicopter and the demand for duty based on the undertaking. At the same time, the CESTAT held that penalties could not be imposed upon Baijayant Panda and Rajeev Lala under Section 112 of the Customs Act, as the element of abetment with knowledge was not proven.
The Division Bench comprising Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member) observed that while the show cause notice invoked Section 28 of the Customs Act, it also referred to the undertaking given by the appellant, and therefore, the duty could be validly recovered based on the terms of the undertaking itself.
The Bench noted that the Commissioner had committed an error by not accepting the appellant’s explanation that the reference to Serial No. 347A and Condition No. 103 in the undertaking was an inadvertent mistake, as the context of the import clearly pointed towards an intention to avail exemption under Serial No. 347B and Condition No. 104.
The Bench then turned to the core issue of whether the use of the helicopter violated the conditions of the exemption. It interpreted the term ‘air transport service’ as defined in Rule 3(9) of the Aircraft Rules, 1937, to observe that for a service to qualify as an ‘air transport service’, it is essential that it is provided for some form of remuneration.
In the present case, the Bench found from the aircraft’s logbook that approximately 80% of the flight hours were for private use by the appellant’s officials without any remuneration earned. The Bench therefore, emphasised that this non-remunerative use did not qualify as an ‘air transport service’ and therefore constituted a clear violation of the post-import condition stipulated in Condition No. 104 of the Exemption Notification.
Regarding the penalties imposed on the company’s officials, the CESTAT observed that a penalty for abetment under Section 112(a) of the Customs Act requires ‘intentional aiding and therefore active complicity’. Citing precedents, it noted that mere facilitation without knowledge or mens rea is not sufficient to constitute abetment.
Briefly, appellant, Indian Metal and Ferro Alloys Limited, imported a Robinson R-44 Raven II Helicopter to expand its fleet, for which it held a Non-Scheduled Air Transport Services (Passenger) Permit from the DGCA. The appellant claimed customs duty exemption under Notification No. 21 of 2002, as amended by Notification No. 61 of 2017, which provides a NIL rate of duty for aircraft imported for non-scheduled (passenger) or non-scheduled (charter) services, subject to the fulfilment of specified conditions.
The intended exemption was under Serial No. 347B read with Condition No. 104, which required the aircraft to be used for such services and an undertaking to be furnished to pay the duty on demand in case of failure to do so. However, the undertaking inadvertently mentioned Serial No. 347A and Condition No. 103, which relate to aircraft imported for training purposes.
Accordingly, a show cause notice was issued alleging that the helicopter was used for private and non-commercial flights for the company’s officials, in violation of the exemption conditions, and proposed the recovery of duty amounting to Rs. 48.58 Lakh, confiscation of the helicopter, and imposition of penalties on the company, its Vice-Chairman and its Senior Manager. The Commissioner of Customs confirmed the duty demand, ordered the confiscation of the helicopter under Section 111(o) of the Customs Act, 1962, and imposed penalties of Rs. 10 lakhs and Rs. 2 lakhs, respectively.
Appearances:
Advocates Tushar Jarwal, Vikrant Maheshwari and Daliya Singh, for the Appellant/ Taxpayer
Advocates P.R.V. Ramanan, Rakesh Kumar and Girijesh, for the Respondent/ Revenue
