By TIOL News Service

MUMBAI, MAR 07, 2013: THE issue is in respect of an aircraft engine imported by the appellant, M/s. Air India Ltd. in May, 2005 by claiming exemption under Notification No.21/2002-Cus dated 01/03/2002 (serial No. 347). As per the relevant entry, parts of aeroplane, helicopter, etc. could be imported duty-free subject to condition that the parts should be used for manufacture or servicing of aeroplane, helicopter, etc. The explanation to the notification also defined parts to include engines and engine parts.

The aircraft engine imported by the appellant was kept as such in their premises over a period of two years. The officers of the Special Investigation and Intelligence Branch visited the premises and found that the engine has not been used for manufacture or servicing of any aeroplane. The appellant explained that the engine was kept for repairs and subsequent re-export to the supplier.

A demand notice came to be issued for recovery of Customs duty, confiscation and imposition of penalty.

The Commissioner held as under -

+ servicing of aeroplane stipulated in the Notification 21/2002 (serial No.347) cannot include servicing of aircraft engine also. However, the noticee would be eligible for benefit of Notification No.153/1994-Cus which allowed exemption to goods imported for repairs and return subject to following the procedure prescribed therein and subject to certain time-limits but since the appellant did not follow the procedure and time-limit had expired, the appellant was not eligible for the said exemption also.

+ the allegation of mis-declaration against the appellant was not sustainable and the appellant had claimed the exemption under Notification 21/2002-Cus on an erroneous understanding of the scope of this exemption and there was an alternate exemption available; therefore, the extended period of time under Section 28 cannot be invoked to confirm the duty demand.

+ the goods are liable for confiscation under Section 111(o) of the Customs Act, 1962 inasmuch as the appellant has not fulfilled the condition prescribed for availing the exemption under Notification 21/2002-Cus the goods were confiscated with an option to redeem the same on payment of Rs. 5 lakhs under Section 125 of the Customs Act.

+ a penalty of Rs. 1 lakh was imposed on the appellant under Section 112(a).

+ the appellant is liable to pay appropriate duty.

Hence the appellant is before the CESTAT and makes the following submissions-

+ By importing second-hand engine for repairs and returning thereafter, the engine will be ultimately used in an aeroplane and, therefore, they satisfy the condition of servicing of aeroplanes stipulated in the Notification 21/2002-Cus and there is no time-limit prescribed for satisfying this condition.

+ The notification merely stipulates that the parts are required for manufacture or servicing and even now, they are prepared to repair and re-export the goods thereby fulfilling the conditions prescribed.

+ they are not liable to pay any customs duty inasmuch as there is no violation of the conditions prescribed in the Notification for availing the exemption.

+ as the Commissioner has given a clear finding that there was no willful suppression on the part of the appellant to evade any customs duty and, therefore, question of imposing fine and penalty on the appellant does not arise at all and for the same reason confiscation of the goods is also not warranted.

The Revenue representative submitted that in view of the apex court decision in Commissioner of Customs (Import), Mumbai vs. Jagdish Cancer & Research Centre 2002-TIOL-119-SC-CUS, confiscation of the goods can be independently done without attracting the provisions of Section 28(1) of the Customs Act; that the order for payment of duty under Section 125(2) would be an integral part of the proceedings relating to confiscation and consequential orders thereon. Reliance is also placed on the LB decision of Tribunal in Bombay Hospital Trust vs. Commissioner of Customs, 2005-TIOL-996-CESTAT-MUM-LB where it has been held that the department has power to recover escaped duty in terms of Section 12 of the Customs Act, 1962 when a post importation condition is not fulfilled and such demand notice will not be subject to any limitation of time. In fine, he prayed that the order of the Commissioner should be upheld.

The Bench after extracting the relevant entry no. 347 of the notification 21/2002-Cus observed -

“5.2 The exemption is in respect of parts of aeroplanes subject to the condition that such parts are required for manufacture or servicing of aeroplanes. In the present case neither manufacturing of aeroplane is involved nor servicing of any aeroplane. The goods imported are second-hand aeroplane engines which needs repair and thereafter the appellant has to re-export the said goods to the supplier. If that be so, we do not understand how the appellant can claim that they are satisfying these conditions. The condition has to be satisfied in India and not anywhere else because the goods are imported for the purpose of its specified use in India and not abroad. Therefore, by repairing the engine and re-exporting the same the appellant cannot be said to have fulfilled the conditions stipulated in the Notification.

5.3 The hon'ble apex Court in the case of Garden Silk Mills held that the purpose and objective of import is for its consumption within India and the import is complete when the good become part of the goods in India. Servicing of an aeroplane is different from servicing of an aeroplane engine. These are two different and distinct activities. It is a well settled position in law that a Notification has to be interpreted strictly based on the language used. The language used in the Notification is servicing of an aeroplane and unless this condition is satisified the benefit of exemption cannot be availed by the appellant. In the present case, we find that this condition is not satisfied. It is also argued that there is no time-limit stipulated in the Notification for satisfaction of the condition and, therefore, the condition can be satisfied at any point of time. It has been held in a number of judicial pronouncements by the hon'ble apex Court and other Courts that when a time-limit is not specified in law, then the law has to be interpreted in such a way that a reasonable time-limit is read into the law. Under the Customs Act, the normal time-limit prescribed for confirmation of a demand or filing a refund claim is six months or one year. Therefore, the time-limit for fulfilling the conditions in the Notification, which is part of law, in a case where no time-limit is prescribed, should also be considered as one year. Inasmuch as the appellant has failed to fulfill this condition within this period we hold that there is violation of the conditions stipulated in the Notification.

5.4 It is also relevant to observe herein that there is a separate Notification available under Notification 153/94-Cus which provides for import of goods for repairs and re-exports thereafter. Inasmuch as a separate exemption is available, the appellant should have claimed the benefit under that Notification and not under the present Notification which is intended to cater to a different need altogether. Thus, viewed from this angle also, the benefit of exemption would not be available to the assessee.

5.5 The question for decision is whether the duty demand can be confirmed against the appellant, especially in the light of the observation of the Commissioner that there has been no willful mis-declaration or suppression of facts with an intent to evade payment of customs duty on the part of the appellant and, therefore, the extended period of time-limit would not be available. The Commissioner has confiscated the goods under Section 111(o) of the Act with an option to redeem the same on payment of duty. Thus, there appears to be contradiction in the order of the Commissioner. However, if one looks at the provision of Section 125(2), it clearly says that “where any fine in lieu of confiscation is imposed under sub-section (1), the owner of such goods or the person referred to in sub-section (1) shall, in addition, be liable to any duty or charges payable in respect of such goods.” Thus, the demand for duty arises under sub-section (2) of Section 125 and not under Section 28 and there is no time-limit prescribed for demand of duty under this section.

5.6 The hon'ble apex Court in the case of Jagdish Cancer & Research Centre (cited supra) held as follows:

“x x x”

5.7 The ration of the said decision was followed by this Tribunal in the case of Bombay Hospital Trust (cited supra) wherein it was held as follows:

“x x x”

In view of the above, the order of the Commissioner directing payment of duty at the time of redemption cannot be faulted at all and it is in accordance with the provisions of Section 125 of the Customs Act.

5.8 The ld. Commissioner has confiscated the goods for non-fulfillment of the conditions imposed in the Notification under Section 111(o). From the records available it is clear that the appellant has failed to fulfill the conditions stipulated for availing the exemption and, therefore, the order of the Commissioner upholding the confiscation of the goods has to be upheld and the consequential imposition of fine also needs to be upheld.

5.9 The quantum of fine imposed is only Rs. 5 lakhs and considering the value of the goods imported, of Rs.4.19 crores, the fine cannot be said to be excessive at all. As regards the penalty imposed under Section 112(a) of Rs 1 lakh, the penalty is very nominal and liability to penalty is attracted once the goods are held liable to confiscation, whether there is any mens rea on the part of the appellant or not. The hon'ble High Court of Madras in the case of Commissioner of Customs vs. Bansal Industries - 2007-TIOL-1209-CESTAT-MAD held that the element of mens rea is not required for imposition of penalty under Section 112 of the Customs Act. This decision was based on the hon'ble apex Court's decision in the case of Chairman, SEBI vs. Shriram Mutual Fund - 2006-TIOL-72-SC-SEBI .”

Holding that there is no infirmity in the order passed by the Commissioner of Customs (Import), ACC, Mumbai, the same was upheld and the appeal was dismissed as devoid of merits.

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