By TIOL News Service

NEW DELHI, AUG 31, 2017: THE appellant is engaged in air transport business both in domestic and international sector.

The Aviation Turbine Fuel (ATF) is filled by the appellant for domestic flight operation. When the same aircraft is to embark on an international travel, the ATF in the fuel tank is considered as cleared outside India and when the aircraft returns from foreign trip, the ATF left over/available in the aircraft is considered to be an import item subjected to customs duty as per the applicable rates.

The appellants were maintaining accounts of these transactions and at the end of the month, they submitted detailed flight-wise information including customs duty liability, payment of such duty, flight details including quantity of ATF on which duty has been paid.

The dispute in the present case mainly revolves around the valuation of ATF available in the fuel tank of aircraft returning from the foreign trip to continue travel in domestic sector.

The appellants were considering the price at which the international Airlines purchases ATF from Indian Oil Corporation. Such price formed the basis of assessable value with addition of 1.125% as insurance charges and 1% as handling charges.

Revenue entertained a view that for valuation of remnant fuel the appellants are liable to add 20% as notional freight charges in terms of Rule 10(2) of Customs Valuation Rules.

The demand of differential duty was confirmed and penalties were imposed u/s 112 of the Customs Act, 1962.

The appellant is before the CESTAT and argues that the demand is not legally sustainable; that the procedure has been followed for a long time; that no machinery has been laid down by the department and it is only on 03.03.2015 that the Mumbai Commissionerate issued a detailed procedure of filing bill of entry etc.; that no airline carries ATF as additional cargo except that permitted by the safety regulations and to meet the contingencies of diversion or delay in landing; that they are eligible for exemption under notification no.151/94-Cus but the same was denied on the ground that procedural requirement was not followed; that no suppression can be alleged as facts were in the notice of the department and monthly duty payments were intimated to the Customs department.

The AR reiterated the findings of the lower authorities and justified the demand.

After considering the submissions made the CESTAT observed thus -

++ The Original Authority held that the remnant ATF is transported by the aircraft and as such, as the actual freight is not ascertainable, a notional freight in terms of Rule 10(2) is to be added to arrive at the assessable value of ATF.

++ We are not in agreement that there should be a freight element attributable to such fuel in the tank. In other words, the aircraft did not transport the fuel as a cargo or goods for the purpose of freight. Such interpretation will be a result of hyper-technical approach to the facts of the case.

++ Admittedly, the remnant fuel is construed to be an imported item for the purpose of customs duty. In the importation of such remnant fuel, we could not discern any separate freight element, which can be added in the assessable value. The fuel in the tank is part of aircraft in operation. Fuel cost is calculated, and apparently, forms part of commercial consideration while fixing ticket charges for transporting aircraft.

++ No freight element is attributable to fuel in the tank, the usage of which varies on different parameters. In other words, the aircraft did not transport ATF on which a freight element can be attributed. The plain meaning of “Freight? is goods that are transported by ships, planes, trains or lorries/trucks; the system of transporting goods in this way (OXFORD Advanced Learners Dictionary 7th ed.).

++ On this basis it cannot be said that fuel in the tank of aircraft used for propulsion can be considered as cargo/goods with attributable cost of freight. Further, we note that Rule 10(2) was applied by the lower authority on the ground that the freight of ATF is not ascertainable. We note that there is no freight element involved and hence, there is no application for Rule 10 (2).

++ In the present case, there is no freight involved with reference to left over fuel in the tank of an operating aircraft. Hence, there is no question of such freight being “not ascertainable? and hence addition of 20% notional freight. [Wipro Ltd. =  2015-TIOL-79-SC-CUS relied upon]

++ As clarified by the Commissioner, Airport, Mumbai vide his instructions dated 20.10.2006, in the absence of invoice for ATF, the price at which Indian Airlines purchase ATF for international flight can be considered for valuation. In such situation, it will not be tenable to add a further notional freight of 20% to arrive at the assessable value.

The impugned order was set aside and the appeal was allowed.

In passing: Perhaps, the department can explore loss of revenue here too -

Fuel dumping  (or a  fuel jettison ) is a procedure used by  aircraft  in certain emergency situations before a return to the airport shortly after takeoff, or before landing short of its intended destination (emergency landing) to reduce the  aircraft's weight . Incidentally, not all planes are capable of dumping fuel. Boeing's 747 and 777 both have the ability to jettison kerosine, as has the Airbus A380 and an A330. However, regional jets such as a Boeing 737 and Airbus A320 can not. [Source Wikipedia]

(See 2017-TIOL-3169-CESTAT-DEL)