SC Dismisses Retrospective IGST Demand on Aircraft Repairs Abroad

Supreme Court Dismisses Retrospective IGST Demand on Aircraft Repairs Abroad: A Major Win for Airlines

In a significant development for the Indian aviation sector, the Supreme Court of India on Monday, July 14, 2025, dismissed an appeal by the customs department that sought to retrospectively impose Integrated Goods and Services Tax (IGST) on re-imported aircraft and parts sent overseas for repairs. This ruling provides substantial relief to airlines like IndiGo and SpiceJet, shielding them from a tax demand estimated to be around ₹100 crore.

Background of the Dispute

The genesis of this dispute lies in the period following the rollout of GST on July 1, 2017. Prior to GST, airlines paid Basic Customs Duty (BCD) and Countervailing Duty (CVD) only on the cost of repairs, freight, and insurance for aircraft parts or engines sent abroad for maintenance, not on the full value of the parts.

Post-GST,Notification No. 45/2017-Customs (dated June 30, 2017) maintained this exemption structure, requiring payment of “duty of customs” on the cost of repairs, insurance, and freight, but notably omitting any mention of IGST. Airlines, including IndiGo and SpiceJet, interpreted this as an exemption from IGST and accordingly paid only BCD.

However, customs authorities contended that “duty of customs” under the GST regime inherently included IGST and began raising demands for IGST payment on such re-imports starting from August 2017. Airlines subsequently challenged these demands before the Customs, Excise & Service Tax Appellate Tribunal (CESTAT).

In November 2020, CESTAT ruled in favor of the airlines, affirming that IGST was not payable under the 2017 notification as it was not explicitly included. The government then appealed this ruling to the Supreme Court, where the case is still pending.

Following the Supreme Court’s admission of the customs department’s appeal, the government issued Notification No. 36/2021-Customs on July 19, 2021. This new notification amended the earlier one to specifically include IGST and compensation cess, and crucially, it inserted an explanation claiming that this inclusion was always the intended application. Consequently, Customs attempted to levy IGST retrospectively for the period from July 1, 2017, to July 18, 2021, based on this amendment.

Airlines once again challenged this retrospective demand before CESTAT, which, in August 2024, again ruled in their favor, striking down the retrospective tax demand. It was this August 2024 CESTAT ruling that was the subject of the Supreme Court’s recent dismissal.

The Supreme Court’s Decision

A bench comprising Justices B.V. Nagarathna and K.V. Viswanathan refused to admit the customs department’s appeal against the August 5, 2024, CESTAT ruling. The CESTAT had previously rejected the retrospective tax demand, stating it would impose an additional burden on airlines.

During the hearing, Additional Solicitor General (ASG) N. Venkataraman, representing the customs department, argued that nearly ₹100 crore in tax revenue was at stake and urged the court to admit the appeal. The ASG also contended that even if the 2021 clarification was struck down for being retrospective, IGST could still be imposed based on the 2017 notification, arguing that the phrase “duties of customs” in the 2017 notification already encompassed such a tax.

However, the Supreme Court rejected this argument, observing: “You can’t do it by a retrospective amendment… If the 2017 notification did not cover IGST, you cannot use the 2021 notification to impose it retrospectively”. The bench unequivocally stated, “I do not have a problem in dismissing…Civil appeal dismissed”.

Key Takeaways and Thoughts

• No Retrospective Taxation: The Supreme Court’s dismissal strongly reinforces the principle against retrospective taxation, particularly when it seeks to impose new tax liabilities that were not clearly outlined in the original legislation. This is a crucial win for businesses seeking regulatory certainty.
• Clarity in Tax Notifications: This judgment underscores the importance of clear and unambiguous language in tax notifications. The ambiguity surrounding “duties of customs” in the 2017 notification led to this protracted dispute.
• Relief for Airlines: This ruling provides significant financial relief to Indian airlines, allowing them to avoid a substantial tax burden that would have otherwise impacted their operational costs.
• Promoting Aviation Sector: While not directly stated as a reason for the judgment, a consistent and predictable tax regime is vital for the growth of the aviation sector. India, as of July 2024, imposes a uniform IGST rate of 5% on imports of aircraft components, engine parts, and MRO items to promote the sector. The retrospective demand would have countered these efforts.
• Pending Challenges: It’s important to note that a separate case regarding the interpretation of the 2017 notification is still pending before the Supreme Court. Additionally, IndiGo has successfully challenged the constitutionality of the 2021 notification itself before the Delhi High Court, which ruled in favor of the airline on March 4, 2025, declaring a portion of the 2021 notification unconstitutional. This Delhi High Court ruling has not yet been challenged by Customs in the Supreme Court.

This Supreme Court dismissal is a significant legal precedent, offering a sigh of relief to the aviation industry and reaffirming the judiciary’s stance on the impermissibility of retrospective tax demands that lack clear legislative backing. It highlights the need for the government to ensure tax laws and notifications are explicit to prevent future disputes.