No demand in case DGCA found that use of Aircraft was in accordance with permit granted

Bharat Hotels Vs Commissioner of Customs (Preventive) (CESTAT Delhi)

Conclusion: Demand could be made under Undertaking only when Director General of Civil Aviation (DGCA) found that use of aircraft was not in accordance with permit granted. Where DGCA had not initiated any proceedings against assessee and in fact had renewed the permit from time to time, there was no violation of the undertaking and Customs could not demand duty in terms of the undertaking.

Held: Assessee had imported the aircraft claiming customs duty exemption under Notification No. 61 of 2017 dated 03.05.2007 that amended the earlier Exemption Notification No. 21 of 2002 dated 01.03.2002. Prior to importing the aircraft, assessee had obtained the no objection certificate from DGCA on 08.02.2007 to operate the aircraft for non scheduled air transport (charter) services. It need to be noted that assessee had earlier also imported an aircraft after obtaining a permit on 06.02.2004 from the DGCA to operate non scheduled air transport (charter) services. After importing the second aircraft through the Bill of Entry dated 16.05.2007, assessee requested the DGCA for inclusion of the newly imported aircraft in the earlier permit dated 06.02.2004 and on being satisfied that assessee fulfilled the requirements, the DGCA endorsed the newly imported aircraft in the earlier permit. According to the department, assessee had used the aircraft for charter purposes only for fifty hours out of the total 244.9 flown hours and, therefore, assessee had violated Condition No. 104 of the exemption notification. The exemption notification dated 03.05.2007, on which revolved the entire controversy, granted ^„nil‟ rate of duty on import of aircraft for non-scheduled (passenger) services as well as non­scheduled (charter) services subject to Condition No. 104 that was required to be fulfilled by an importer of the aircraft for availing the benefit of the exemption notification. It was held that  the customs authority cannot demand duty in the absence of proceedings initiated by DGCA. In the present case, proceedings have not been initiated by DGCA against the appellant and in fact the permits have been renewed time to time. 27. The impugned order also holds that non-revenue flights undertaken by the aircraft carrying Chairman and other employees are private flights and though such flights may be permissible under the Civil Aviation Law but the same cannot be interpreted to be also permissible under the exemption notification. 28. It needs to be noted that Condition No. 104 of the exemption notification refers to Aircraft Rules 1937 and thus compliance or non­compliance of Condition No. 104 is required to be examined in the light of the clarification provided by DGCA and not in isolation. The approvals given by the DGCA has necessarily to be examined. Thus a demand can be made under the Undertaking only when DGCA finds that the use of the aircraft is not in accordance with the permit granted by the DGCA. In the present case, DGCA has not initiated any proceedings against the appellant and in fact has renewed the permit from time to time. There is, therefore, no violation of the undertaking and, therefore, Customs cannot demand duty in terms of the undertaking.

FULL TEXT OF THE CESTAT DELHI ORDER

Customs Appeal No. 60 of 2010 has been filed by Bharat Hotels Pvt. Ltd.¹ to assail the order dated 20.11.2009 passed by the Commissioner of Customs (Preventive) ² , by which the aircraft imported by the appellant against the Bill of Entry dated 16.05.2007 on the basis of a non-scheduled operator permit (charter) issued by the Directorate General of Civil Aviation³ has been confiscated under section 111(0) of the Customs Act 1962⁴ with an option to redeem the same. The order also seeks to confirm the customs duty in terms of the undertaking given by the appellant at the time of importation and also imposes penalty under section 112 of the Customs Act.

2. Customs Appeal No. 61 of 2010 has been filed by the Jyotsna Suri, Chairman and Managing Director of the appellant to assail the penalty of Rs. 25 lakhs imposed upon her under section 112 of the Customs Act.

3. Customs Appeal No. 62 of 2010 has been filed by the Madhav Sikka, Senior Vice President of the appellant to assail the imposition of penalty of Rs. 5 lakhs imposed upon him under section 112 of the Customs Act.

4. The appellant had imported the aircraft claiming customs duty exemption under Notification No. 61 of 2017 dated 03.05.2007⁵ that amended the earlier Exemption Notification No. 21 of 2002 dated 01.03.2002. Prior to importing the aircraft, the appellant had obtained the no objection certificate from DGCA on 08.02.2007 to operate the aircraft for non scheduled air transport (charter) services. It needs to be noted that the appellant had earlier also imported an aircraft after obtaining a permit on 06.02.2004 from the DGCA to operate non scheduled air transport (charter) services. After importing the second aircraft through the Bill of Entry dated 16.05.2007, the appellant requested the DGCA for inclusion of the newly imported aircraft in the earlier permit dated 06.02.2004 and on being satisfied that the appellant fulfilled the requirements, the DGCA, by a letter dated 04.10.2007, endorsed the newly imported aircraft in the earlier permit.

5. The appellant claims that during the intermittent period from May 2007 to October 2007 it could not use the newly imported aircraft for charter services since the endorsement had not been made by the DGCA in the permit and so the aircraft was used by the Chairperson and Managing Director of the appellant and other employees of the appellant for business purposes only. In other words, the aircraft was used for non revenue flights. The appellant also claims that when the endorsement was made in the permit on 04.10.2007, the newly imported aircraft was used of charter services. Time taken by DGCA for renewal of the permit has also been stated to be a reason for use of this aircraft for non-revenue purposes for the period from 06.02.2008 to 18.06.2008. The appellant has also stated that for subsequent period there has been no utilization of flights for non-revenue purposes by the Chairman/Director/ employees.

6. The appellant had submitted a chart to the Commissioner giving details of the hourly breakup of the time the aircraft was flown and the relevant portion is reproduced below: