By TIOL News Service

MUMBAI, MAY 28, 2015: THE issue is whether the appellant - importer of helicopters, has breached Condition No. 104 contained in Customs Notification No. 21/2002-Cus (as amended by 61/2007-Cus) rendering it liable to payment of duty on the import of the 2 helicopters, for which it had previously claimed exemption from duty in terms of the said Notification.

The condition 104 inserted by notification 61/2007-Cus reads -

(i)   the aircraft are imported by an operator who has been granted approval by the competent authority in the Ministry of Civil Aviation to import aircraft for providing non-scheduled (passenger) services or non-scheduled (charter) services; and

(ii) the importer furnishes an undertaking to the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, at the time of importation that:-

a. the said aircraft shall be used only for providing non-scheduled (passenger) services or non-scheduled        (charter) services, as the case may be; and

b. he shall pay on demand, in the event of his failure to use the imported aircraft for the specified purpose, an amount equal to the duty payable on the said aircraft  but for the exemption under this notification.

Explanation.- for the purposes of this entry,-

(a) ‘operator' means a person, organization, or enterprise engaged in or offering to engage in aircraft operation;

(b) ‘non-scheduled (passenger) services' means air transport services other than Scheduled (passenger) air transport services as defined in rule 3 of the Aircraft Rules 1937.

(c) ‘non-scheduled (charter) services' mean services provided by a ‘non-scheduled (charter) air transport operator', for charter or hire of an aircraft to any person, with published tariff, and who is registered with and approved by Directorate General of Civil Aviation for such purposes, and who conforms to the civil aviation requirement under the provision of rule 133A of the Aircraft Rules 1937:

Provided that such Air charter operator is a dedicated company or partnership firm for the above purposes.

It has been held by the adjudicating authority that the appellant importer is not offering non-scheduled passenger services, as undertaken by it, but rather is offering non-scheduled (Charter) services, and is, therefore, disentitled to the exemption. A demand of Customs duty of Rs.13,95,21,783/- is confirmed with the equal amount of penalty u/s 114A and the helicopters have been held liable for confiscation u/s 111(d) with option to redeem the same on payment of fine of Rs. 9 crores. Penalty of Rs.5 lakhs has been imposed on the Director u/s 112. Revenue is also in appeal praying that penalty ought to have been imposed also on the interest component upon the importer in terms of s. 114A of the Customs Act.

The facts are that the appellant importer has a fleet of helicopters which it allegedly offers for non-scheduled (passenger) services as defined in clause 3 of the Aircraft Rules, 1937. The appellant have entered into contract with several companies for transportation of their personnel, materials, etc. The appellant imported one helicopter in July 2007 and claimed Customs duty exemption in terms of the exemption Notification No. 21/2002 (as amended).

In terms of the notification, the appellant importer submitted an undertaking that the said helicopters will be used only for providing “non-scheduled (passenger) services” and in the event of failure to comply with such undertaking, it will pay on demand the requisite tariff/duty. The importer subsequently also imported a 2 nd helicopter in October, 2007 and after filing a similar undertakingavailed the exemption.

The appellant importer was operating these helicopters along with its other helicopters, under contract of service for providing transport of passengers and materials to certain companies. These contracts were mainly with oil companies for transportation of their person and materials to and from various oil rigs and other locations. One of the contracts with ONGC and another contract was with ‘Gujarat State Petroleum Corporation Ltd.'.

The Revenue viewed that the appellant is offering ‘Charter services' and not ‘Passenger services', as given in the “undertaking”. Pursuant to enquiry, SCNs were issued and decided as mentioned.

The appellant submitted -

+ Non-scheduled passenger services means a transport service other than scheduled passenger air transport services as defined in Rule 3 of the Aircraft Rules, 1937.

+ All such, air transport services which is other than scheduled passenger air transport services, as defined in Rule 3 of the Aircraft Rules, 1937, would amount to being non-scheduled passenger services in terms of Notification No. 21/2002 particularly Condition No. 104 therein.

+ It is further urged that in order for the services or flights being operated by the importer to be in compliance with Condition No. 104, it must possess all the elements contained in rule 3(9) and none of the elements contained in Rule 3(49) of the Aircraft Rules, 1937. The service must be for the transportation of person or things, for remuneration, operating as a single flight or a series of flights and such flights offered by it must be open to public and not to operate on a published timetable with the regular and/or systematic flights which constitute a recognizably systematic series.

+ By no stretch of imagination the services offered by the appellant importer come under the definition of non-scheduled (Charter)services as contained in explanation (c) of the Condition No. 104.In the present case there was no Charter/hire of an Aircraft.

+ The Commissioner has failed to appreciate that in their case there is a clarification dated 8.8.2008 by the DGCA, which categorically confirms and clarifies that the activity being conducted by the appellant assessee were within the scope of their Non-scheduled Operator's Permit (NSOP).

+ Reliance placed by the adjudicating authority on the decision in King Rotors & Air Charter Pvt. Ltd. - 2011-TIOL-1785-CESTAT-MUM is misplaced as the facts therein are quite different.

+ Support is also derived from the apex court decision in Titan Medical Systems (P) Ltd - 2003-TIOL-42-SC-EXIM, wherein it is held that it would be for the licensing authority to take action on any much mis-representation and it was not for the Customs authority to deny the benefit of an exemption notification based on such alleged mis-representation.

+ The Supreme Court decision in Alnoori Tobacco Products - 2004-TIOL-85-SC-CX, is also relied upon to emphasize that disposal of cases by blindly placing reliance on a decision is not proper on the part of the adjudicating authority. Decision in Hansraj Gordhandas vs. H.H. Dave, Assistant Collector of Central Excise and Customs - 2002-TIOL-351-SC-CX-CB is also adverted to.

The Spl. Counsel for the Revenue reiterated the stand taken by the adjudicating authority and emphasises that - The issue therefore is whether an importer who has been permitted to import helicopter for providing non scheduled (passenger) services can use it for providing charter services. The Adjudicating authority has held that they cannot use the helicopter for providing non Scheduled (charter) services whereas the appellant has claimed otherwise. That this issue has been examined by the Hon'ble CESTAT in the matter of KING ROTORS & AIR CHARTER P. LTD. vs. C.C. (ACC & IMPORT), MUMBAI - 2011-TIOL-1785-CESTAT-MUM and Hon'ble Tribunal has held that as per wording used in the notification helicopter imported for providing passenger services cannot be used for providing charter services.

As regards the Revenue appeal, the Spl. Counsel submitted that in view of Circular no. 61/2002-Cus dated 20.09/2002 penalty under Section 114A of the Customs Act, 1962 should be equivalent to duty and interest.

The Bench at the outset observed that - there is no violation by the importer-appellant to the post import condition No. 104 of Notification No. 21/07, as amended. Accordingly, under the undertaking given by the importer, it was required to offer only non-scheduled passenger service. Such service has been defined in Explanation (b) of the said Notification as ‘Air Transport Service other than a Scheduled Air Transport (Passenger) Services' with reference to Rule 3 of the Aircraft Rules, 1937. Hence, the one and only source of definition and strictly interpreting the exemption Notification, reliance has to be placed on the said Rule 3, and no other material. On reading the definition of Air Transport Service under Rule 3(9) with the definition of Scheduled Air Transport Service under Rule 3(49), it is evident that in order to classify as the ‘non-scheduled passenger service', the service must be for transportation of persons or things for remuneration, operating to a single flight or a series of flight which must be opened to the members of the public and must not operate as per the published schedule or time table and/or with regular and systematic flight. On the detailed scrutiny of the clause of the agreement with respective companies, as well as the vouchers or the invoices, etc. raised for the services provided, we find that the appellant importer meets the requirement as per the definition of non-scheduled passenger service. The finding of the Revenue that the service provided was not a passenger service as the appellant did not print passenger ticket nor the flights were opened to public is erroneous. We hold that offering the service to public at large includes entering into agreement for providing regular service to a few members of the public on a regular basis over a period of time. The expression person includes the company under various tax laws. Further, company also forms part of the general public. The members of the public (company included) due to requirement of its business enters into the agreement with the service providers for providing of service over an extended period of time, may be weeks, months or years, it cannot be said that the service was not provided to public. Further, printing of ticket is not an essential element and such a requirement is not there, where the services are provided on the basis of published tariff or agreement wherein the hourly charges and flying charges along with other charges are mentioned for providing service for extended period of time. Accordingly, we hold that the services provided by the importer are in the nature of non-scheduled passenger service. Further relying on the ruling of the Apex Court in the case of Titan Medical (supra), we hold that in view of the clarification dated 8.8.2008, given by the licensing authority DGCA, while interpreting the importers permit, have clarified that the services offered by the appellant under its various contracts is within the scope of NSOP for passenger permit. DGCA being the appropriate licensing authority, is the best judge to decide as to whether the activity of the importer comes within the ambit of the license issued to the appellant by it.

The case law relied upon by the Revenue of King Rotors was distinguished and the Tribunal held that the adjudicating authority had erred in placing reliance on the same.

The appeals by the importer and its Director were allowed and that filed by the Revenue was dismissed.

In passing: Taxing services - see 2015-TIOL-380-CESTAT-MUM.

(See 2015-TIOL-968-CESTAT-MUM)