Custom Duty Exemption: Imported Prototypes as Aircraft Parts – CESTAT Ruling

Halbit Avionics Pvt Ltd Vs Commissioner of Customs (CESTAT Bangalore)

The case of Halbit Avionics Pvt Ltd vs Commissioner of Customs, adjudicated by CESTAT Bangalore, delves into the eligibility of aircraft parts for custom duty exemptions under Notification No.12/2012-CE. The appellant, engaged in the import of flight simulators and avionics, imported prototypes for availing exemptions, leading to a dispute over the applicability of the said notification.

The crux of the appeal revolves around whether the imported prototypes qualify as aircraft parts eligible for exemption under the specified notification. The appellant contends that the prototypes, intended for the DARIN III Upgrade Programme for Jaguar Aircraft, are indeed parts meant for servicing, repair, or maintenance. They argue that prototypes undergo ground testing and evaluation before incorporation into aircraft, hence fulfilling the criteria.

However, the Commissioner, in denying the exemption, highlights discrepancies in the nature and usage of the imported prototypes. The first prototype, deemed unfit for aircraft use, is designated for ground testing, while the subsequent units are intended for aircraft upgrade, replacing conventional instruments.

The analysis further dissects legal definitions and precedents to elucidate the scope of terms like “maintenance,” “repair,” and “upgradation” within the purview of the notification. Reference is made to relevant statutes, such as the Aircraft Rules, 1937, to contextualize the meaning of maintenance standards in the aviation domain.

Contrasting arguments from both parties underscore the interpretative challenges in determining the eligibility of imported goods for duty exemptions. The Commissioner’s stance, emphasizing the prototypes’ experimental nature and distinct functionality, clashes with the appellant’s assertion of their integral role in aircraft enhancement.

In its verdict, CESTAT Bangalore partially allows the appeal, affirming duty exemptions for prototypes designated for aircraft upgrade while rejecting the same for prototypes undergoing ground testing.

FULL TEXT OF THE CESTAT BANGALORE ORDER

M/s. Halbit Avionics Private limited are engaged in design, development and import of flight simulators and avionics for M/s. Hindustan Aeronautics Limited (HAL), Bangalore and others. They imported prototypes and availed exemption under Sl. No. 303 of Notification No.12/2012-CE dated 17.03.2012. The said exemption is applicable to Parts of Aircrafts of Chapter Heading 8802 of Central Excise Tariff Act, 1985, if intended for servicing, repair or maintenance of the aircrafts. It is alleged that the appellant had wrongly claimed the benefit of the Notification claiming them as parts that are intended for servicing, repair or maintenance of aircrafts, thus evading duty of Countervailing Duty (CVD), Special Additional Duty (SAD) and Education cess.

2. This appeal is against the impugned order 16/2013 dated 27.08.2013 wherein the Commissioner denied the benefit of the above notification observing that the goods imported were ‘Prototypes’ and not parts of the aircraft intended for servicing, repair or maintenance of aircrafts.

3. The learned Counsel on behalf of the appellant submits that the appellant M/s. Halbit Avionics Pvt. Ltd. are engaged in Design, Development and import of Flight Simulators and Avionics for M/s. HAL, Bangalore and others. During the period from 11.7.2012 to 11.1.2013, they imported 3 Nos. ‘Prototypes’ of EFI (Engine & Flight Instrument) DPU (Display Processing Unit) under 3 Bills of Entry. As per the details submitted by them vide their letter dated 14.11.2012 and 22.11.2012, they have cleared 1^st and 2^nd ‘Prototype’ without paying CVD and Cess by availing exemption under Sl. No. 303 of Not. No. 12/2012-C.E. dated 17.3.2012. The 3^rd ‘Prototype’ was imported on payment of CVD ‘Under Protest’, in view of the ongoing investigation. It is submitted that the Appellants vide their letter dated 7.1.2013 stated that the 2 Prototypes imported by them under the cover of Bills of Entry Nos. 7362578 dated 11.7.2012 & 7875465 dated 6.9.2012, the technical Write-up clearly describes the function of the said equipment. As per this technical write-up, the said equipment is meant for Engine and Flight Instrument System (EFIS) for DARIN III Upgrade Programme for Jaguar Aircraft. The said equipment is meant for replacement of the conventional Electro – Mechanical Instruments / Sensors of DARIN Jaguar Aircraft. It is further claimed that there is no dispute that Jaguar Aircraft belong to the Indian Air Force which is a part of Indian Military Establishment under the Ministry of Defense. The only objection is regarding their declaration as Prototype and the eligibility of the Notification. It is stated that as per Sarkar’s Words & Phrases of Excise & Customs & Service Tax the word `Prototype’ is defined as follows:

– An original model on which something is patterned: Archetype. 2. An individual that exhibits the essential features of a later type. 3. A standard or typical example of a fixed full-scale and usually functional form of a new type or design of a construction (as an airplane) (Web. Coll.)

– First working model device or a program which is then tested and adapted to improve it. (Dictionary of INF. Tech.)

– An original thing or person of which or of whom copies, imitations, improved forms, representations etc., are made. 2. Trial model or a preliminary version of a vehicle, machine, etc., (COD).

– McGRAW-HILL Dictionary of Scientific & Technical Terms – (Fifth Edition) defines Prototype as follows:

– Prototype: Eng. A model suitable for use in complete evaluation of form, design and performance.

3.1 Further the learned counsel defining the word ‘part’ as an integral portion, something essentially belonging to a larger whole, a piece or segment of something which combines with others makes up the whole, claims the imports to be part of the aircraft. Referring to the words `Servicing, Repair or Maintenance’ as given in the Notification, he submits that the word ‘Maintenance’ has been defined in the following decisions as:

• Bajrang Alloys Ltd. v Collector – 1994 (70) ELT 624 (Tri.)
• Modella Steels & Alloys Ltd. v CCE-1999 (107) ELT 614 (Trib)”
• Modella Steels & Alloys Ltd. vs. CCE: 1999 (107) ELT 614 (Tri.)

3.2 While the word ‘repair’ has been defined in Black’s Law Dictionary, 6^th Ed, as “Repair, To mend, remedy, restore, renovate. He relies on the following decisions to emphasise the point that repair means replacement /renewal.

• Sir Shadi Lal & Sons, Shamli vs. CIT, Kanpur – 1988 SCC (Tax) 121: (1988) 169 ITR 510 wherein it is held that: “The idea of ‘repair’ may include replacement or even a But the converse may not be true. All replacements or renewals need not necessarily be ‘repairs’.”
• Lurcott vs. Wakely – [1911] 1 KB 905, 923, CA, per Buckley LJ. Wherein it is held that:

“`Repair’ and `Renewal’ are not words expressive of a clear contrast. Repair always involves renewal; renewal of a part, of a subordinate part…… Repair is restoration by a renewal or replacement of subsidiary parts of a whole’.

Renewal, as distinguished from repair, is re-construction of the entirety, meaning by the entirety not necessarily the whole but substantially the whole subject matter under discussion.”

• CIT vs. Mahalaxmi Textile Mills – 1967 (66) ITR 710 wherein it is held that:

“Repair is restoration by renewal, or parts replacement of subsidiary of a whole.”

• New ShorrockSpg. and Mfg. Co vs. CIT – (1956) 30 ITR 338 wherein it is held that:

“Repair always involves a renewal of a part, and that repair is restoration by renewal or replacement of subsidiary parts of a whole.”

• CIT vs. Sri. Rama Sugar Mills – (1952) 21 ITR 191 wherein it is held that:

“It is a repair if it is only restoration by renewal or replacement of subsidiary parts of a whole. If, on the other hand, it amounts to a reconstruction of the entirety or of substantially the whole, it is not a repair but a reconstruction.”

• Shasun Drugs vs. CC, Madras – 2000 (125) E.L.T. 1009 (Tribunal) wherein it is held that:

“to restore (a composite thing, structure etc.) to good condition by renewal or replacement of decayed or damaged parts or by re-fixing what has given way; to mend “

3.3 In the instant case, the impugned goods have been imported by the Appellants for the purpose of upgrading the Engine and Flight Instrument System (EFIS) for DARIN III Upgrade Programme for Jaguar Aircraft. The said equipment is meant for replacement of the conventional Electro – Mechanical Instruments / Sensors of DARIN Jaguar Aircraft. Their letter dated 7.1.2013 duly supported by a technical write-up dated 2.4.2010 including the diagrams of Engine and Flight Instrument System (EFIS) now brought for the replacement of the existing Electro – Mechanical Instruments / Sensors, for the Jaguar Aircraft which is corroborated in the statement dated 31.12.2012 given by Shri Ravi Kulthemutt, General Manager (Finance, Sourcing) as well as in the statement dated 15.02.2013 given by Shri B.R. Chandran, CEO.

3.4 It is claimed that the first prototype of the Engine and Flight Instrument System (EFIS) that was imported is mounted on a rig for evaluation and testing in ground conditions and the same is tested whether the said prototype is capable of carrying out the desired functions required when it is fitted to the Jaguar aircraft. If it is required to be further improved, modified or developed, the same is done in ground conditions and once the required parameters are achieved, then the Prototype – II & III would be mounted on the Jaguar aircraft, after incorporating the further improvements carried out on prototype – I. Under the circumstances, it cannot be said that the imported Engine and Flight Instrument System (EFIS) are not parts of the Jaguar aircraft and meant for repair and replacement. The first Prototypes evaluated / tested on ground conditions only i.e., in a rig (which is not capable of flight). This is not capable of being used in a flyable units since it does not have permission from Centre for Military Airworthiness & Certification (CEMILAC) to do so. The first prototype essentially being an Engineering unit is not permitted by (CEMILAC) to be used in a flyable Aircraft. However, the second & third are to be used in a flyable units and evaluated and tested in actual flying conditions. The second and third units are permitted by (CEMILAC) to be used in a flyable Aircraft”.

3.5 The Appellants would also like to refer to the decision of the Hon’ble Tribunal in the case of Mak Controls vs. Commissioner: 2001 (138) ELT 1152 (Tri-Chennai), which has been upheld by the Hon’ble Supreme Court – Commissioner v. Mak Controls – 2005 (183) E.L.T. A73 (S.C.) to submit that the items imported by them are parts of the aircraft. It is finally stated that from the definitions of ‘Prototype, Repair, Maintenance and Replacement’ ,the impugned goods are meant for Engine and Flight Instrument System (EFIS) for DARIN III Upgrade Programme for Jaguar Aircraft. The said equipment is meant for replacement of the conventional Electro – Mechanical Instruments / Sensors of DARIN Jaguar Aircraft. The Appellants also submitted Certificates dated 22.11.2012 and 30.5.2013 given by the Ministry of Defence, Research and Development Organization, Regional Centre for Military Airworthiness (Aircraft) to the General Manager, MCSRDC, HAL which has been presented as proof of airworthiness of the prototypes imported by Halbit. The Appellants also submitted a letter dated 30.7.2013 in which they mentioned that two of the prototypes have been actually fitted to the Jaguar Aircraft successfully and are operational.

3.6 Without prejudice to the above, it is submitted that in the instant case, the differential duty of Rs.94,58,846/- and interest of Rs.8,68,722/- (Rs.1,03,27,568/-) has been paid by appellant vide their letter dated 18.2.2013 much before the issue of the show cause notice dated 27.5.2013. In other words, duty was paid in terms of Sec. 11A(1)(b) read with Sec. 11A(2) of the CEA, 1944, and Sec. 28(1)(b) read with Sec. 28A(2) of the C.A. 1962. Section 11A(1)(b) read with Sec. 11A(2) of the CEA, 1944, and Sec. 28(1)(b) read with Sec. 28A(2) of the C.A. 1962 mandates that when duty is paid along with the interest payable thereon, the Central Excise Officer / Customs Officer on receipt of such information shall not serve any notice under clause (a) of that sub-section in respect of the duty so paid or any penalty leviable under the provisions of this Act or the rules made there under. The Appellants submit that the provisions of Sec. 11A(1)(b) and 11A(2) and Sec. 28(1)(b) and 28(2) ibid cannot be ignored and if they are not implemented, if it will make the said provisions otiose. In this connection, the Appellants would like to refer to and rely upon the following decisions:

• CCE, Pune vs. SKF India Ltd. – 2009 (239) ELT 385 (SC).
• Mercantiles Ltd. vs. CCE – 2005 (190) E.L.T. 11 (Bom).
• CCE & S.T., LTU, Bangalore vs. ADECCO Flexione Work Force Solutions Ltd. – 2012 (26) STR 3 (KAR).
• CST, Bangalore vs. Fruition Informatics (P) Ltd. – 2012 (26) S.T.R. 519 (Kar.)

3.7 In the light of the above submissions, the Appellants submit that no penalty is leviable if duty and interest thereon is paid before the issue of the Show Cause Notice in terms of Sec. 11(1)(b) and 11 (2) of the CEA, 1944 and 28(1)(b) and 28(2) of the C.A. 1962.

3.8 It is further submitted that there was no mala fide intention on their part since the impugned goods were brought for the purpose of upgrading the Engine and Flight Instrument System (EFIS) for DARIN III Upgrade Programme for Jaguar Aircraft and is meant for replacement of the conventional Electro – Mechanical Instruments / Sensors of DARIN Jaguar Aircraft and not for any other purpose. In the absence of any mala fide, no penalty is leviable on the notices as has been held by the following decisions:

• UOI vs. Dharmendra Textile Processors – 2008 (231) ELT 3(SC).
• UOI vs. Rajasthan Spinning and Weaving Mills – 2009 (238) ELT 3(SC).

4. The Authorised Representative on behalf of the Revenue reiterates the findings of the Commissioner and submits that the impugned order needs to be upheld and the appeal filed by the appellant to be dismissed.

5. Heard both sides. The only issue to be decided is whether the impugned goods imported by the appellant are eligible for the benefit of exemption in terms of Notification No.12/2002-CE dated 17.3.2012. For the sake of clarity, the relevant Notification is reproduced below:

Notification No. 12 /2012-Central Excise dated 17.3.2012

G.S.R. E).-In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944) and in supersession of (i) notification of the Government of India in the Ministry of Finance ( Department of Revenue), No. 3/2005-Central Excise, dated the 24^th February,2005 , published in the Gazette of India, Extraordinary, Part II, Section 3, Sub section (i), vide number G.S.R 95(E), dated the 24th February,2005,(ii) notification No. 3/2006- Central Excise, dated the 1^st March,2006, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 93 (E), dated the1st March,2006,(iii) notification No. 4/2006-Central Excise, dated the 1^st March,2006 , published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 94 (E) dated the 1st March,2006,(iv) notification No. 5/2006-Central Excise, dated the 1^st March,2006 , published in the Gazette of India, Extraordinary Part II, Section 3, Sub-section (i), vide number G.S.R 95 (E) dated the1st March,2006,(v) notification No. 6/2006-Central Excise, dated the 1^st March, 2006, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 96 (E) dated the1st March,2006, and (vi) notification No. 10/2006-Central Excise, dated the 1^st March,2006, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub section (i), vide number G.S.R 100 (E) dated the 1st March,2006, except as respects things done or omitted to be done before such supersession, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the excisable goods of the description specified in column (3) of the Table below read with relevant List appended hereto and falling within the Chapter, heading or sub-heading or tariff item of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the Excise Tariff Act), as are given in the corresponding entry in column (2) of the said Table, from so much of the duty of excise specified thereon under the First Schedule to the Excise Tariff Act, as is in excess of the amount calculated at the rate specified in the corresponding entry in column (4) of the said Table and subject to the relevant conditions annexed to this notification, if any, specified in the corresponding entry in column (5) of the Table aforesaid:

5.1 The relevant portion of Notification No.12/2012-CE dated 17.3.2012 reads as follows :

Condition 34 reads as follows:

5.2 As seen above, the benefit of the Notification is available only for the parts of the aircraft which are intended for servicing, repair or maintenance of the aircraft. The question to be decided is whether the imported ‘prototype’ form part of the aircraft and whether they are intended for the said purpose mentioned in the Notification. The appellant themselves vide their letter dated 07.01.2013 have stated that the first prototype (engineering unit) imported by them is identical in terms of its functions and applications when compared to the other 2 prototypes imported by them but the only difference between the first unit and the other units is that the first unit is tested on the ground in the designers’ lab to verify that all functionalities, weight and power consumption, as required by the customers are incorporated. Further tests are carried out that the unit satisfies the intended use (upgradation of flight instrumentation system of Jaguar aircraft), when it is actually fitted inside the aircraft. This equipment is also tested on the ground in the designer’s lab to verify the suitability in respect of its mounting points on the aircraft, and its interface with other equipment onboard. Admittedly, the first prototype unit imported by the appellant is only for testing the worthiness of the aircraft for the required upgradation and does not form part of the aircraft.

Therefore, the Commissioner was right in disallowing the benefit of the Notification since admittedly; it does not form part of the aircraft.

5.3 With regard to the other two imports, the technical write-up states that it is meant for upgrading the Engine and Flight Instrument System (EFIS) for DARIN III upgrade programme for Jaguar Aircraft. The set equipment is meant for replacement of the conventional Electro-mechanical instruments/sensors of DARIN Jaguar aircraft. The Commissioner in the impugned order states that the appellant has declared them as ‘prototypes’ while the first one is not fitted to the aircraft and the other 2 are claimed to have been fitted for upgradation of the aircraft. This plea is rejected on the ground that “the notice themselves refer to the goods in all the 3 imports as prototypes. As indicated earlier, prototypes by definition and by general understanding are for testing and evaluation and not for commercial use. After successful testing and evaluation the prototypes may themselves be used as equipment. But by the very reason of being not ready without testing and evaluation, the same are not considered as commercial goods.” There is no doubt that the products are declared as prototypes but the Commissioner cannot ignore the fact that as per the technical write-up, these are used as parts and they are actually meant for replacing the old ones thus upgrading the equipment.

5.4 The technical write-up placed before us by the learned counsel states as follows:

Engine & Flight Instrument System (EFIS) provides the following on a 4″X5″ AMLCD display in the cockpit

a) Engine parameters

b) Fuel parameters

c) Flight parameters

d) Failure/Emergency Warnings

e) Hydraulic Pressure Indication

EFIS system will have integrated Air Data, Attitude and Heading sensors called ADAHRS for flight parameters. Existing sensors of DARIN Jaguar a/c for engine, fuel parameters, emergency warmings information and Hydraulic Pressure will be interfaced with EFIS. In the event of failure of INGPS, EFIS will act as a GET-YOU-HOME system. EFIS will replace the following existing conventional Electro-Mechanical Instruments/Sensors of DARIN Jaguar Alc.

a) Standby Flight Instruments

1. Vertical Speed Indicator

2. Standby Attitude Indicator (Artificial Horizon Indicator)

3. Turn and Slip Indicator

4. Combined Speed Indicator

5. Altimeter

6. Radio Magnetic Indicator (RMI)

b) Engine and Fuel Instruments

1. RPM Indicator (Tachometer Indicator)- 2 nos

2. TGT Indicator (Turbine Exhaust Gas Temperature Indicator)-2 nos

3. Nozzle Position Indicator-2 nos

4. Fuel Flow Moter-1no

5. Fuel Contents Indicator-1 no

c) Gyro Magnetic Compass (GMC)

d) Hydraulic Pressure Indicator

EFIS will have a 4″X5″ colour AMLCD display fitted in the cockpit. it will display Engine, Fuel, Flight parameters. Hydraulic pressure and Failure/Emergency warnings in the form of symbologies and/or alphanumeric readouts to the Pilot. It will have at least four Option Select Switches (OSS) for selection of different display pages, one Potentiometer Knob for setting QNH value, one brightness control rocker switch and one ON/OFF switch. OSS Controls will be provided with Bezel Lighting. It will have Air Data, Attitude and heading sensors. The Air data sensor will be connected to the existing Pilot Static lines on the Aircraft. For engine, fuel and hydraulic parameter inputs, EFIS will be Interfaced with the existing sensors on the Aircraft. EFIS will have two identical and Independent signal processing modules. In case of failure of one signal processing module, other will take over without any degradation in performance. EFIS will provide processed/displayed parameters on MIL 1553 bus. In case of failure of one processor, the processed data from the second processor will be automatically available on 15538 bus. The information of generated displays will be available on Y/C video output. EFIS will display Information related to Flight, Engine, fuel, Hydraulic parameters and Emergency Warnings. Indication for the 28 Emergency Warnings will be displayed on EFIS based on Its occurrence.

5.5 From the above technical write-up and the diagram placed before us at page 140 of the paper-book, it is very clear that the Electro Mechanical Instrument or Sensors form part of the aircraft, this fact is also not disputed by the Commissioner. The General Manager (Finance and Sourcing) has in his statement submitted that the first prototype is used in the ground rig and the second and third are used in the Jaguar Aircraft for testing and evaluating its suitability and effectiveness to ensure that it meets the specifications and requirement. He further submits that the first prototype is evaluated/tested on the ground conditions and is not permitted to be used in aircrafts while the second and third prototypes are airworthiness and certification to be used in flyable aircrafts for evaluation and testing in actual flying conditions. He further states that the second and third prototype are commercially produced parts of aircrafts, therefore, there is no doubt that these 2 imports form part of the aircraft and it is meant for replacement /upgradation of the aircraft.

5.6 Now the question remains, whether these imports which are intended for replacement/upgradation of the aircraft are eligible for the benefit of the Notification which is intended for servicing, maintenance or repair. The learned counsel has placed enormous data on record to show that repair or maintenance includes replacement and upgradation. In the case of Modella Steels & Alloys Ltd. v CCE (supra), the Tribunal observed that:

“We have carefully considered the pleas advanced from the both sides. We are not inclined to agree with the submission of the ld. JDR. Replacement with a grooved roller of a roller which has outlived its utility will be covered within the scope of the expression “maintenance and repair” of the rolling mills. We are, therefore, of the view that the appellant is clearly entitled to the benefit of the Notification 281/86-C.E. His case is further strengthened by the two judgments relied upon by him mentioned (supra). Consequently, we set aside the demand of duty and in the facts and circumstances of the case, the penalty as well. Appeal disposed of in the above manner with consequential relief to the appellant.”

5.7 The Tribunal in the case Shasun Drugs vs. CC, Madras (supra) taking into consideration the meaning of ‘repair’ as provided in the dictionary observed that:

“1. “to restore (a composite thing, structure etc.) to good condition by renewal or replacement of decayed or damaged parts or by refixing what has given way; to mend “

2. ”to renew, renovate (something or part) to restore to a fresh or sound condition by making up in some way for previous loss, wastage, decay or exhaustion”

In the absence of any definition of the word ‘repair’ contained in the said notification, we find substantial force in the argument of Ld. Consultant that we should resort to the dictionary meaning of that word. We have considered the extracts of dictionary meaning noted above and find that the basic concept would be removal of deficiencies or defects. This broad interpretation is necessarily to be afforded to the appellants in view of there being no definition available within the notification itself.”

5.8 Similarly, since the benefit is being extended to the parts of aircrafts owned by Government of India, these terms must be understood in terms of their usage and practice. Therefore, in order to understand its true meaning under the said Notification, reference must be made to the Aircraft Rules, 1937. The term ‘maintenance’ is defined under the Aircraft Rules is as follows:

Short title and extent – (1) These rules may be called the Aircraft Rules, 1937.

(2) They extend to the whole of India and apply also (unless the contrary intention appears) –

to, and to persons on, aircraft registered in India wherever they may be, expect cases falling under sub-rule(4); to, and to persons on, all aircraft for the time being in or over India :

Definitions and Interpretation – In these rules, unless there is anything repugnant in the subject or context –

(33C) “Maintenance” means the performance of tasks on an aircraft, engine, propeller or associated part required to ensure the continuing airworthiness of an aircraft, engine, propeller or associated part including any one or combination of overhaul, inspection, replacement, defect rectification, and the embodiment of a modification or repair;

60. Maintenance standards and certification- (1) In this rule, ‘maintenance’ refers to performance of all work necessary for the purpose of ensuring that the aircraft is airworthy and safe including servicing of the aircraft and all modifications, repairs, replacements, overhauls, processes, treatment, tests, operations and inspection of the aircraft, aircraft components and items of equipment required for that purpose.

In view of the above definition, contention of the Revenue is that these goods are meant for replacement and upgradation, which cannot be considered as an activity of servicing, repairing or maintenance and therefore, the appellant is not eligible for the benefit of the Notification No. 12/2012-Cus., dated 17-3-2012, is devoid of merit.

5.9 The Commissioner in the impugned order has observed as follows:

“21.4 The said certificate captions as the subject as ‘Flight clearance certificate for Engine and Flight Instrumentation System (EFIS) for trials on Jaguar Darin III Air Craft’. Further the certification is issued in respect of software and subject to conditions and limitations as specified therein. As the said certificate is issued for trials only, the goods cannot be treated to have been allowed fitment as part of the aircraft. Thus it appears that the nature of the goods as prototypes continues even after such certification”.

21.5 ……

21.6 The benefit of exemption is available to parts required for ‘repair, service or maintenance’. Undisputedly the goods are imported for replacement of the conventional electro mechanical instrumentation systems. Therefore, the imported goods are for ‘up gradation’ of the aircraft and not for ‘repair, service or maintenance’ of aircrafts. Thus, on this account also the goods are not eligible for the benefit of the said exemption.”

As seen from the above observations of the Commissioner, it is to be noted that on the one hand the Commissioner claims that they are prototypes and do not form part of the Aircraft and on the other hand, he states that there are undisputedly parts of the Aircraft meant for upgradation. The findings are contradictory and therefore, in view of the diagrams and certificates placed on record by the counsel, the claim of the Revenue that the second prototype is not part of the aircraft cannot be sustained. The ‘Flight Clearance Certificate for Engine’ dated 30.05.2013 issued by the Ministry of Defence states that “the EFIS replaces the engine fuel hydraulic pressure standby flight instruments in the jaguar cockpit. These electro mechanical instruments are replaced with LCD display of EFIS. The EFIS system provides engine parameters, fuel parameters, hydraulic parameters and flight parameters.” This establishes the fact that it forms the part of the aircraft.

6. The differential duty along with interest having been already paid prior to the issue of the show-cause notice, in view of the decisions of the Hon’ble High Court of the Karnataka in the case of Fruition Informatics (P) Ltd. and CCE & S.T., LTU, Bangalore vs. ADECCO Flexione Work Force Solutions Ltd. (Supra), we do not find any reason to sustain the penalty imposed on the appellant.

7. In view of the above discussions, the benefit of the Notification is denied to the first prototype cleared vide Bill of Entry No.7362578 dated 11.07.2012 and allow the benefit of the Notification to the other two imports which are meant for upgradation of the aircraft.

8. Appeals are allowed partially.

(Order pronounced in Open Court on 08.04.2024.)